Pay progression in the public sector

Many employees in the public sector receive salary increases reflecting their experience in the role in addition to a basic pay award. We look at some examples of how pay progression operates for different groups within the sector.

XpertHR records the value of basic pay increases on its pay databank to give a consistent measure across organisations, and our pay settlement findings are based on these figures. For many bargaining groups, however, there will be an additional element to their pay increase over and above any basic, or cost-of-living, award. These increases result from employees advancing up the pay spines or ranges in their organisation's pay structure, and it is this pay growth that is usually referred to as pay progression.

Pay progression depends on factors including:

• the pay structure at each organisation, for example, whether they use spot rates, pay spines or pay ranges; and
• whether progression is based on length of service, position in the structure, performance, or a mixture of these.

Pay progression is designed to reward an employee's acquisition of skills and experience in their role. Performance payments or bonuses, which are usually non-consolidated, are a separate element of reward and are not considered here.

Pay progression systems in the public sector

Pay structures are often divided into a variety of categories describing the number of grades, levels or bands they contain and the width or span of each of these. For example, narrow-graded structures contain a large number of grades, with each grade being fairly narrow, whereas broadbanding involves a smaller number of pay bands, giving more flexibility.

A variety of pay structures are found in the public sector, including those described as pay spines, pay scales and pay bands. In the majority of these, progression is based on set steps or increments, often determined by length of service. This is also the case for some structures described as pay ranges, although in other cases pay ranges do not necessarily include any fixed points between the minimum and maximum salaries, with rate of progression in the range determined by a combination of factors.

The CIPD's 2010 Reward Management survey found that respondents in public sector services are far more likely to use pay spines/increments than organisations in other sectors: 66% of those in public sector services use pay spines compared with 18% of respondents overall. Much less common in public sector services are broadband pay structures (used by 18%), narrow-graded pay structures (14%), individual pay rates/spot salaries (11%) and job family/career grade structures (8%).

The salary levels in the pay structures are also far more likely to be determined by collective bargaining in public sector services organisations (where 39% said this was the most important factor) than across respondents as a whole (11%).

Public sector respondents to the CIPD survey most commonly identified the criteria determining pay progression as individual performance (50%) and length of service (46%). Across all organisations, individual performance was the most popular criterion (cited by 68%), while only 15% cited length of service. Public sector services organisations were much less likely than respondents overall to base progression on market rates (cited by 17% of public sector services respondents compared with 48% overall); organisational performance (8%, against 34% of all respondents); skills (15% compared with 32% overall); or competency (23%, where 38% cited this overall). They also placed much less emphasis on employee potential or retention issues in progression criteria (just 4% cited this, compared with 32% overall) or team performance (4%, against 12% of respondents overall).

The Local Government Workforce Survey 2010, which is based on responses from 207 local authorities in England, found that a time-served incremental pay progression system was used by seven respondents in 10 (71%), and covered more than half (54%) the workforce on average. Exactly one-fifth (20%) of authorities used performance-related pay progression, which covered on average one-eighth (12%) of the workforce.

Spot rates or individual pay rates

In spot rate pay systems, there is a single rate or salary attached to each job. These systems do not allow for pay progression other than any basic increase, instead providing a simple rate of pay for the role.

Examples of spot rates in the public sector include: the lower grades in some civil service pay systems; "excellent teachers", whose salary is set at a spot rate within a fixed range; and judicial salaries including the salary of the Lord Chief Justice.

Incremental pay scales/spines

Incremental pay scales or spines take the form of a series of incremental salary points, with progression up the spine often based on length of service. In some systems, there can be scope for additional increments to be awarded to recognise exceptional performance, or for increments to be withheld for poor performance.

Incremental systems are common in the public sector. In higher education, for example, the "framework agreement" established a 51-point pay spine covering the majority of staff, against which individual institutions could create their own pay and grading structures based on job evaluation. In the NHS Agenda for Change structure, nine pay bands are positioned on a national 54-point pay spine.

Incremental pay scales/spines with progression based on length of service may be seen as inflexible, but they can give control over paybill costs and are transparent, so employees have certainty over how long it will take them to progress. A link between pay and length of service is lawful, provided that the service criterion is five years or less. Longer service periods can be justified if this fulfils a business need. Although some element of performance-based progression has been introduced into the pay structure for teachers in England and Wales, and in the NHS Agenda for Change system, the coalition Government has stated its intention to introduce more "freedom and flexibility" into the pay framework for teachers, and envisages NHS employers negotiating changes to the national NHS pay frameworks once the two-year pay freeze for these groups comes to an end.

Alternatives to incremental progression

Pay ranges can be more flexible than incremental scales or spines, so will not necessarily contain steps or fixed points between the minimum and maximum salaries, although the range may include a target rate or zone. For example, at the Ministry of Justice, progression through the pay ranges for the higher paybands is calculated on a performance matrix, which takes both performance and position in the range into account. The Department of Health also has pay ranges, which include a recruitment and development ceiling and an upper rate between the minimum and maximum salaries.

Pay progression and the basic award

The annual basic cost-of-living increase has traditionally been seen as separate from the pay progression element of the pay award across most of the public sector. In recent years the distinction has become blurred, however.

The NHS Pay Review Body has in the past insisted that while the cost of incremental pay increases will influence the affordability of a basic pay award, the two elements should not be confused. But the cost of progression increases in the NHS was brought under the spotlight at the end of 2010 when NHS Employers put forward a proposal to the health unions for a national enabling agreement that would allow local organisations in England to agree to freeze incremental progression for all staff during the two-year pay freeze in return for a guarantee of no compulsory redundancies for as many staff as possible. Although the proposal was rejected by the health unions, it highlighted employers' concerns about controlling paybill costs even when higher-paid staff are expected to have their basic pay frozen for two years.

The Prison Service Pay Review Body has put much more weight on pay progression in making its recommendations on pay awards, and for several years has targeted increases at staff at the top of the pay scales, because they do not have the opportunity to benefit from incremental progression.

The distinction between the basic pay award and progression pay has also become blurred elsewhere: in 2010, the employers' side of the Local Government Services NJC informed the trade unions that they were unable to offer a pay increase for 2010/11, with one of the reasons cited for this decision being that employers would already see a significant increase in their paybill as a result of their contractual obligation to meet the cost of annual increments.

In the civil service there is no separate budget for basic pay increases. And while other groups are expected to continue to receive progression increases during the two-year public sector pay freeze, this will only be the case in the civil service where progression can be shown to be a contractual entitlement. Where progression is not found to be contractual, only those earning a full-time equivalent salary of £21,000 per year or less will receive any form of consolidated pay increase during the two-year duration of the pay freeze, in line with the Government's policy that these lower-paid staff should receive at least £250 in each year. However, many civil servants will be eligible for non-consolidated performance payments during the pay freeze.

Pay in the civil service

The authority to make pay arrangements for staff below the level of the senior civil service was delegated to individual departments and agencies in the 1990s. There are now more than 230 bargaining groups across the civil service, and the pay systems have diverged significantly from the previous central pay arrangements.

Beth Lamont, head of the pay unit at the PCS union, explained to XpertHR: "While some systems have retained the standard incremental increases - with people progressing automatically step by step from the minimum to the maximum, subject to satisfactory performance - we now have a huge variety of progression systems across the civil service. Some departments have introduced complex performance matrices, where the pay award depends on position on the pay scale and performance grade. And it is not just progression arrangements that have diverged - we have seen cases where civil servants in the same grade in different agencies of a single department can have pay differentials of up to 50%."

The Treasury sets overall parameters for pay uplifts in the civil service each year in its pay guidance. But the way in which pay increases are applied in each pay system is different, and the annual remit covers both the progression element of the award and the cost-of-living increase.

Shortening pay ranges

Civil service departments are required to conduct an equal pay review of reward policies and practices every three years, and have been advised to review their pay systems each year. Part of this review should be to ensure that pay range lengths do not give rise to any indirect age or sex discrimination - the length should be "proportional to time taken to reach full competence". The 2010/11 Treasury guidance issued by the previous Labour Government stated: "When equality-proofing reward policies, departments should be wary of arguments that five years must be the appropriate length for any pay range." However, Lamont says that this is the maximum that the PCS would want: "We feel that people should be paid the rate for the job when they are fully proficient in that role. The more complex the role the longer the pay scale would be, but for junior roles it should not take five years to be fully proficient. In some departments the two most junior grades are a spot rate."

Some departments have reduced the length of their pay scales by removing the bottom step as people move off it. This is the case at the Highways Agency, for example. However, this produces anomalies, because people with several years' experience find that they are still on the bottom of the scale, so new starters join on the same rate. The Highways Agency addressed this issue by awarding an additional step on a one-off basis to those staff most affected during the current pay award.

Another difficulty with civil service pay progression is lack of reward for the many who have already reached the top of their pay scale. Lamont notes: "As a result of several years of pay restraint by the previous Government, and a focus on improving the pay for those at the minimum of the scales, in some cases the maxima have not been increased for years even before the current pay freeze." This can affect a significant proportion of staff - for example, around one-third of staff at the Department for Work and Pensions are on the maximum. Progression increases that take the salary above the maximum are usually paid as a non-consolidated sum, although this can be pensionable.

Determining progression

Although many departments take into account an element of performance in awarding incremental progression increases, in reality the majority of employees not at the scale maximum would receive an annual progression increase as this is normally only withheld if employees are involved in disciplinary procedures.

In other departments, the rate of progression can depend on a combination of performance and position in the pay range, and some departments have introduced "target rates" within pay ranges. At the Ministry of Justice, which is currently in the final stage of a long-term pay award, the four higher pay bands are divided into three zones:

• the development zone, between the minimum and the target minimum;
• the target zone, between the target minimum and target maximum; and
• the upper zone, between the target maximum and the pay range maximum.

Progression depends on both the zone and on which of three performance ratings the employee has achieved. The fastest rate of progression is in the development zone and the slowest in the upper zone, and outstanding performers progress more quickly than effective performers.

Lamont says: "We see target rates as an erosion of the concept of the range maximum being the rate for the job, as in many departments the majority of staff find it difficult to get past this point."

Progression and the public-sector pay freeze

The Government's two-year public sector pay freeze for those earning more than £21,000 per year has exposed the problems of having such diverse pay systems. Although most civil servants will start their pay freeze in 2011/12, the June 2010 emergency Budget announced that those who had not already agreed a deal for 2010/11 would start their pay freeze a year earlier.

Government guidance issued following the announcement stated that, during the pay freeze, only progression that is a contractual entitlement could be paid; for other groups the freeze is applied to progression as well as basic pay, so employees in these groups will take two years longer than they expected to reach the top of their pay scale. Lamont says: "The civil service is different to the rest of the public sector, because large parts of the civil service - including the largest department, the Department for Work and Pensions (DWP) - don't have contractual progression, so the pay freeze is a double whammy for them."

Although the pay guidance issued in February does not refer to this policy, the requirement to honour contractual progression still stands. The guidance also repeats the instruction issued in previous years that organisations should not enter legally binding contractual agreements that commit them to automatic costs in the future - in other words, no new contractual progression arrangements can be introduced.

The pay freeze has thrown up an interesting issue for DWP staff on the maximum where this is at or below the £21,000 per year threshold, as the Government announced that employees earning at or below this level would receive an increase of at least £250 in each year of the pay freeze. Because the DWP has not paid progression, it has met the Government's commitment by paying flat-rate increases to these employees, and has set these at a higher level than the stipulated £250 minimum. The DWP has also increased the level of affected band minima and maxima as part of the award, whereas in some other departments the salary level of the individuals has increased but the pay ranges have remained unchanged.

Where progression increases have been found to be contractual, for example in the Department for Transport and the Home Office, these have been paid to staff regardless of their salary. However, even here the situation is not straightforward, as the Home Office has paid only the consolidated element of progression up to the target rate, and does not consider the non-consolidated element that would normally be paid above this rate to be contractual - a point that is being challenged by the trade unions.

In 2011, other large departments such as HM Revenue and Customs, the Ministry of Justice and the Ministry of Defence, will start their two-year pay freeze, a process that may throw up further anomalies in terms of progression.

Simplifying civil service pay

The coalition Government made the question of civil service pay structures a priority for a new Efficiency and Reform Group (ERG) (on the Cabinet Office website), saying that it would "conduct an immediate review to create a more simplified approach to civil service pay structures and terms and conditions". The unions believe that the period of the two-year pay freeze should be used to look at this issue. Lamont says: "PCS was pleased to see this in the ERG priorities, although we are coming at it from a different perspective. While there are risks involved in going down this route, we believe there would be many benefits to having a simplified pay and progression system. It would also facilitate movement of staff between departments - something that will be particularly important in redeploying staff who would otherwise be made redundant. This will be a hugely complex process and we would like to use this time to discuss in detail how we can implement a better system once the pay freeze has ended."

PCS would like to see the number of bargaining units reduced to at least departmental level, which Lamont says would be a more simple and efficient system. "Ideally, we would like a single national pay spine used by all departments with progression taking five years or less, one or two years for lower grades, with progression kept separate from the cost-of-living award."

Pay for schoolteachers in England and Wales

The pay structure for schoolteachers in maintained schools in England and Wales is made up of a series of incremental pay spines, pay scales and pay ranges that cover grades from unqualified teachers to the leadership group of headteachers and deputy and assistant headteachers. There are four regional pay bands, with band D, the lowest, covering England and Wales excluding London and the fringe; band C covering the fringe; band B covering outer London; and band A inner London.

The details of the operation of the structure are set out in the School Teachers' Pay and Conditions Document, which is updated in September each year once the Secretary of State for Education has consulted on the recommendations made by the School Teachers' Pay Review Body. The review body can be asked to make recommendations on changes to the pay structure as well as on cost-of-living increases that are applied across the structure, normally each year (schoolteachers are subject to the Government's two-year public sector pay freeze effective from 1 September 2011, with the exception of those earning a full-time-equivalent salary of £21,000 per year or less).

Progression for classroom teachers

Qualified classroom teachers usually start at the minimum of the six-point main pay scale and progress by one point on 1 September each year, subject to their performance being satisfactory. Additional discretionary points can be awarded in some circumstances - for example, to recognise relevant non-teaching experience or excellent performance in the previous year. These points, once allocated, become a permanent entitlement.

Once they reach the top point on the main scale, teachers can apply to be assessed against "threshold standards", and if they meet these standards they move to the three-point upper pay scale. David Powell, principal officer, pay and education funding at the NUT, says: "In our experience, a worrying proportion of eligible teachers do not apply to cross the threshold. Anecdotal evidence suggests that schools may not be encouraging teachers to take this step - and some may be discouraging them."

Figures from the Department for Education's annual survey show that, as of March 2009, 9.8% of full-time teachers (excluding the leadership group) were at the top of the main pay scale. Once on the upper pay scale, progression is based on performance management reviews, and normally teachers can only progress by one point every two years. According to Department for Education figures, 23.4% of full-time teachers are on the top point of the upper scale.

Classroom teachers who take on additional leadership and management responsibilities can be awarded "teaching and learning responsibility" payments (TLR). The local authority or school's governing body has discretion to determine the value of TLR, which can be either a first TLR (which in 2010/11 must be worth between £7,323 and £12,393 per year) or a second TLR (between £2,535 and £6,197 per year). These awards can be made while the teacher remains in the same post or while they cover a post on a temporary basis. The awards are usually increased each year in line with the main pay award recommended by the review body. Powell expresses concern that often these payments do not reflect the actual responsibilities taken on, and in some cases teachers are asked to take on responsibility without any additional payments because of funding difficulties in schools.

Teachers in special schools or in certain work with children with special educational needs (SEN) are paid an SEN allowance.

There are different career routes open to teachers who do not wish to take on leadership responsibility. They can apply to be assessed against the standards for:

• "excellent teachers", who are the most experienced classroom teachers with coaching and mentoring responsibilities within their school (teachers must have been at the top of the upper pay scale for at least two years); or
• "advanced skills teachers" (AST), who share their expertise with other schools (this grade is open to all qualified teachers).

Successful applicants to excellent teacher status are paid a spot rate within a set salary range. The salary can be reassessed (and increased or decreased) if the nature of the role changes. AST are paid on a five-point pay range within the advanced skills pay spine. AST can move up their pay range by up to two points each year based on their performance against agreed criteria.

Powell says: "The excellent teacher scheme has failed to attract support, with only a handful of such posts being created." The NUT questions the need for these schemes, believing that a new professional national pay structure that focuses on the expertise of teachers would be preferable. Powell explains: "The whole issue of the pay structure needs to be looked at to remove the uncertainty and administrative problems caused by performance-related pay. We want to see teachers offered progression at all stages of their career rather than hitting the ceiling at the top of the upper pay scale".

Headteachers, deputy headteachers and assistant headteachers are all positioned in pay ranges on the leadership pay spine, with the position on the spine determined for each school and role. Headteachers have a seven-point pay range, and deputy and assistant headteachers have a five-point range. Movement up the pay range for the leadership group depends on sustained high quality of performance against set objectives, and cannot be by more than two points per year.

The pay framework for teachers therefore allows for pay progression up the pay scales as teachers gain skills and experience and take on additional responsibility. Powell believes that automatic progression on the main pay scale is appropriate, but notes that at the threshold and on the upper pay scale inappropriate obstacles are put in the way of teachers. Because decisions on performance are subjective, the union believes that they are not always consistent or fair, and are often made on the basis of affordability for the school rather than on an educational basis.

Changes to pay progression for teachers

The coalition Government has announced its intention to review the national pay framework, stating: "We want to see schools making more use of existing pay flexibilities. We also wish to extend these flexibilities, so that schools can attract good graduates into the profession and reward high performance. So early in 2011 we will ask the School Teachers' Review Body to make recommendations on introducing greater freedoms and flexibilities that will make the pay and conditions framework less rigid. We will consult on their recommendations, so that new and more flexible pay arrangements can be introduced at the end of the current pay freeze."

Powell notes that there is already a high degree of flexibility in the system, and that it is this flexibility and the discretion in pay decisions that are leading to the perceived problems. He says: "We have found that discretion has made the system less transparent and has made recruitment and retention more difficult, and has been used to keep pay down unjustifiably. The Government wants to look at breaking up the entire pay structure for teachers. The NUT believes that a national pay framework is the only way to provide any consistency, transparency and fairness in the system."

The NUT believes that an alternative pay structure is needed - one that will address the issue of teachers' pay falling behind that of other graduate professions and provide a framework for ongoing progression. Powell says: "Any new system should enable serving and potential teachers to map out a career path, which is hard in the current system when there is so much discretion on pay."

Higher education framework agreement

The framework agreement for the modernisation of pay structures, reached in 2004, established a 51-point national pay spine covering most academic and support staff, on which the pay and grading structures adopted at each higher education institution are based. The agreement sets out the principles that institutions should follow when determining and implementing a pay structure. These include developing arrangements for pay progression within grades, and provide that staff should expect to progress on an annual basis (other than in cases where there are performance problems) up to the "contribution threshold" or "progression bar" within their grade, reflecting their growing skills and experience. Beyond this threshold, progression by award of "contribution points" is discretionary. In addition, accelerated incremental progression can be used to reflect greater-than-expected skill and experience.

It also set out the model pay structure illustrated, which has 10 grades positioned on the spine and a corresponding career pathway for academic staff mirroring the five highest grades (grades six to 10). The structure also indicates a progression threshold for each grade, with the points above this threshold overlapping points in the next highest grade.

The New Joint Negotiating Committee for Higher Education Staff (JNCHES) Pay Framework and Data Research Working Group carried out research in 2010 - including a survey of 116 institutions and six case studies - on how the framework agreement has been applied at higher education institutions, with the report on the findings published in March 2011.

The research found that the majority of survey respondents used all 51 points on the national pay spine; where points were not used, these were usually the lowest or the highest spine points. A significant minority of institutions had extended the pay spine for their highest grade. The pay spine as at 1 August 2009 extends from £13,150 at point 1 to £55,535 at point 51. The UCEA has advised employers that they should consider implementing the final pay offer of an increase of 0.4% on all spine points, backdated to the 1 August 2010 review date, although this offer has not been accepted by all the unions. This would increase the points of the spine to £13,203 at point 1 and £55,758 at point 51.

Two-thirds of institutions have either nine or 10 grades in their structure, although the lowest number reported was six, and a handful had more than 12. Each grade most commonly has five incremental points, although four or six points are also common. The vast majority of grades do not include a progression bar: the proportion of grades with such a bar is up to 20% for grades 1 to 9, and only 4% for grade 10. This means that the majority of staff can progress to their grade maximum by annual increments rather than via the discretionary, contribution-based progression beyond a threshold suggested in the agreement.

Contribution points are used by two-thirds of respondents. Lower grades tend to have fewer contribution points: for the lowest grade, grade 1, there is usually only one contribution point, where there are most commonly two in grades 2 to 5 and three for higher grades. The majority of institutions that have adopted contribution-based progression are using it to reward staff at any point in the relevant grade, with around one-third restricting contribution pay to those already at the top of the grade. The most common factor in assessing contribution is performance against targets, or demonstrating specific competences. Other institutions base contribution pay on performance rated as exceptional or outstanding.

Those groups of staff most commonly not covered by grading structures under the framework agreement are senior academic staff, other senior staff and clinical academics (the latter group has separate national arrangements linked to the NHS). Some institutions have developed a local grading structure to cover at least some of the senior staff not covered by the framework agreement; for others, senior pay is determined by a remuneration committee.

Pay progression under Agenda for Change in the NHS

Staff on Agenda for Change contracts are placed in one of nine pay bands on the 54-point national pay spine, with roles assigned to bands on the basis of job evaluation. Each band is made up of a series of pay points to allow for pay progression in the post, and there is an overlap of two to four points between adjacent bands. Staff move from point to point on an annual basis on the anniversary of their appointment, providing their performance is satisfactory, until they reach the top of their pay band. Salary scales are normally reviewed in April each year, following recommendations made by the NHS Pay Review Body (although these staff will be covered by the two-year pay freeze from April 2011, so its recommendations will cover only those staff earning £21,000 per year or less).

When Agenda for Change was introduced in 2004, it was envisaged that career and pay progression would be underpinned by the NHS Knowledge and Skills Framework (KSF). The KSF outline for each post was intended to be used as part of an annual performance development plan, and to determine whether or not staff met the criteria for progression at each of two "gateway points" for each pay band. The "foundation gateway" was set 12 months after appointment into a pay band and the "second gateway" usually before the final point in the band. However, the uptake of the KSF has been slower than anticipated, and the NHS Pay Review Body has repeatedly expressed its disappointment at the low level of appraisals being carried out, describing KSF as "key to the success of Agenda for Change".

The Department of Health and NHS Employers commissioned an independent review of the KSF structure, which has led to the introduction in England of an improved, simplified KSF in November 2010.

As is the case with schoolteachers, the future of the national Agenda for Change framework is unclear. The Government has announced as part of its reform of the NHS that it is committed to allowing employers to "decide locally ... whether to use national terms or conditions or to create local systems". While it said it would not abandon the national pay frameworks, it "will discuss with the staff side and employers in the sector the appropriate approach to the national pay frameworks when the two-year pay freeze has ended".