PAC Meeting | July 3, 2014
Central Remedial Clinic; Section 38 Agencies Remuneration
Ms Laverne McGuinness (Chief Operations Officer and Deputy Director General, HSE) called and examined; also Hamilton Goulding, former chairman, Central Remedial Clinic.
Deputy John Deasy
I welcome the deputation. I intend to come at this a little differently because the subject matter has been dealt with comprehensively by members. I will give the deputation my take on what has happened here, why we are in this room and how the position has evolved in recent months. Furthermore, I will ask some questions with regard to public pay policy.
There seems to be almost an attitude or truism that public pay policy is always correct, but it is not always correct. Mistakes can be made when public pay policy is formulated. I will be asking the HSE how it formulated public pay policy in this regard because I believe, as a result of the disorganisation of the HSE and its dereliction of responsibility when it came to the policing of this particular area, that as a consequence of the way public pay policy was formulated and the way the HSE dealt with the section 38 organisations, they were forced into doing it. I am not so sure whether there has been a debate with regard to appropriate levels of pay when it comes to the health sector organisations that receive public moneys.
Ms McGuinness has made clear the genesis of the entire relationship between section 38 organisations and indicated it did not really kick off until 2009 and that the contractual arrangements finished in 2010 or 2011. I believe the HSE knew very well what the levels of pay were for chief executives and senior staff in many of these organisations and did not do anything about it. In many cases the organisations resisted giving that information. They took the view that they were independent and, in some cases, they did not believe that imparting that information to the HSE was reasonable, and they were wrong. However, in many cases, even when financial statements were imparted by those organisations to the HSE, no analysis was ever done by the HSE. We have seen this again and again throughout the entire affair.
One question in particular needs to be asked and this is the element that has never got a scintilla of debate in recent months. Does paying someone very well in organisations that receive public funding eventually lead to savings or lesser amounts of public moneys being expended in the long run?
I believe we have arrived at this point artificially. I am not using the Central Remedial Clinic as the example. The CRC is a charitable organisation. When I asked Mr. Kiely about where his pension was funded from, this entire episode kicked off. However, there is another question at issue. Let us separate the fact that the CRC is a charitable organisation – we must be very careful about that element of it – from how chief executives are funded within the sector. There is another issue at stake to which the HSE must respond but in respect of which it has never responded. It is an issue that has never been debated and I believe it is a realistic issue that needs to be aired.
Everything has changed since the banking crisis. People's perception of those on high salaries has changed. There is almost a perception in this room that anyone who makes over €100,000 a year has questions to answer. They do not. In some cases benefits accrue from those on higher pay in an organisation because of their skill sets, experience or management ability. I am not so sure the Health Service Executive has taken that into account. I think it was railroaded into this public policy because it was embarrassed by the fact that it had not policed this area properly for many years. It should respond to this. I ask Mr. Goulding for his opinion.
Ireland is not the only country having this debate. One only has to search on Google to find that chief executive officers of organisations such as Memorial Sloan Kettering in New York make millions of dollars. Some individuals involved there make complaints because the fund-raising arm is very active and question whether people should be so highly paid, while ordinary individuals fund-raise. These are legitimate questions. I suspect, however, that we have moved in the other direction. It is not the case that public pay policy is always correct and one can make the case sometimes that people deserve to be very well paid if they bring long-term benefits to an organisation. That has been forgotten in this argument.
Laverne McGuinness: The HSE does not set public pay policy and the pay policy for the health service. It is set by the Government and the Departments of Public Expenditure and Reform and Health. The HSE’s role, as the Deputy rightly articulated it, is to implement public pay policy. I tried to explain its genesis. In 2009 we were asked to establish the individual pay rates for those working in the disability sector - the Deputy is correct about this - and to implement them. The Financial Emergency Measures in the Public Interest Act 2013, FEMPI, brought forward another piece. It was revealed at the time that there were people who were employed under contracts with different rates of pay than those sought in order to be aligned with public pay policy. The HSE and the health service are not involved in setting public pay-----
John Deasy: I do not agree with that for one second; I think the HSE is very much involved and always has been. The Minister for Public Expenditure and Reform signs on the dotted line. The HSE is asked for its input and knowledge when a policy is formulated. If Ms McGuinness is telling me the HSE has nothing to do with public pay policy for section 38 organisations and in this area, I do not believe it. Strictly speaking, the HSE can hide behind this.
Laverne McGuinness: I am not hiding behind anything. I am saying that in respect of public pay policy, we receive a copy of what is known as the consolidated pay scale setting out the scales. They do not specify, for example, the CEOs of particular disability organisations. They have particular grades. Our colleagues from the Department of Public Expenditure and Reform will be able to speak about it. We have tried to get an independent assessment of what is the correct rate of pay for individual organisations not specifically referred to on the consolidated pay scales. The indicators usually taken into account are budget, scope, scale, complexity and diversity of services. We have to seek the advice and authorisation of the Department of Health on what we pay. That is the public pay policy we must implement. We are obliged to implement public pay policy.
John Deasy: Is there any circumstance in which Ms McGuinness could see somebody being paid over the odds with regard to public pay policy that would have a benefit for an organisation or the health care sector? She should not run around that question. Is there such a circumstance?
Laverne McGuinness: I am not running around it. There are circumstances in which a business case needs to be put forward to set out why a particular individual may need to be paid a certain amount in order to attract somebody to a particular post. In some cases we are having difficulty in recruiting to various posts. That is my opinion; that is not public pay policy. As a public servant, I have to implement public pay policy.
The Deputy is correct in his observations about governance. All of this came to light as a result of Enron, as the Deputy will know from his Google search. It is not unique to the health sector, or other sectors. Pay is being examined because of the austerity facing several organisations and because of the Enron crash. When the crisis happened, the question was asked why the people in question were being paid so much.
John Deasy: There is a danger that we have regressed to a situation where it is only appropriate to pay an individual who is incredibly skilled and suited to an organisation a certain amount and that a pay level above and beyond that figure is not being tolerated. Negative results accrue from this. That is not taken into consideration. Mr. Goulding has made it very clear that there was no contrivance to avoid public pay policy, but some of these organisations - not the Central Remedial Clinic - knew very well what the limits were and felt that in some cases individuals who had that skills set or management ability needed to be paid more. Somebody might make the case that if one paid an individual €1 million, that might make it possible to save €2 million down the road. That element of the debate does not take place.
Laverne McGuinness: This is not particular to the CRC, but as Mr. Goulding said, the contract with the chief executive predated any policy on public pay being implemented across the sector. Now that it is there, however, and we are mandated to implement it across the sector, its application in retrospect is an issue. The Deputy’s observations on whether it is better to pay somebody more to have a better job done and achieve greater savings doe not come into the context of public sector pay.
John Deasy: I think the HSE knew very well for years what people were being paid and there are people in it who would make the same argument as me. It has been railroaded into this because it was not doing its job. There is a danger for the health sector and those organisations, including section 38 organisations, that this is too confined. I believe in the free market, even when it involves individuals, and that paying someone over the odds can benefit an organisation. This is fair game for the Committee of Public Accounts and very one-sided. There needs to be a debate about it.
"Everything has changed since the banking crisis. People's perception of those on high salaries has changed. There is almost a perception in this room that anyone who makes over €100,000 a year has questions to answer. They do not."
Mr. Peter Brazel: As Ms McGuinness said, pay policy and pay rates are set by the Departments of Health and Public Expenditure and Reform. In response to the Deputy’s comment on whether we get pay policy right all the time, the majority of those in the public service take issue with current pay policy, but it is the policy. There are two elements.
John Deasy: I am interested in pay policy.
Peter Brazel: There are two elements, one of which is the financial emergency measures. That is the law and applies to public servants' remuneration and public service bodies and must be applied equally to everyone working in each public service organisation.
In regard to looking at particular cases or particular areas where there might be a skills shortage or whatever, there is provision, as my colleague said, for a business case to be made. That is not to say such a case will be accepted or that there are not extraordinary pressures on the pay bill which would make it very difficult to deal with, but those cases can be made and are, on occasion, sanctioned appropriately. There is the process of make a business case and then submission to the Department of Health and ultimately the Department of Public Expenditure and Reform.
John Deasy: It seems to me there is an element of fiscal political correctness creeping into the debate around these issues. It is important to bear in mind that we arrived here artificially. In other countries, they look at the issue pragmatically. It happens all the time that consideration is given to the fact that where a large salary is given, the individual in receipt of it should have the ability to save money for an organisation in the long run. What has happened here to a certain extent is that we have arrived at this situation because the HSE was forced into it and because this committee did its job. The sector was not being policed properly by the HSE. There is a danger now, however, that organisations in the health sector generally may lose out because good people with the right skills will not be interested in taking up positions at the level of pay that is presented to them. I hear it again and again at this committee, not just in regard to the health sector but also, for instance, in the case of NAMA, that organisations are finding they cannot hire or retain staff. There is a politically correct attitude out there that nobody should be paid over a certain amount and if a person is earning €100,000, he or she might be a bad person or have questions to answer. It is a narrow view. I understand exceptions can be made within public policy, but I do not see that happening.
Peter Brazel: It really is a policy question the Deputy is touching upon.
John Deasy: I acknowledged that at the outset.
Peter Brazel: The only response I would make, and I am speaking from memory, is that there was one reference in the internal audit report that precipitated this process to the effect that the current pay regime did not reflect the complexity of the individual organisations. That is far as I can go.
John Deasy: This entire thing is slightly disingenuous. Mr. Goulding has explained that Mr. Kiely's pay was set at a particular level and he did not receive any increases. It was a case of the benchmarking system that was in place at a time when people had different perceptions when it came to pay and salaries. I am not using CRC as the example for the policy argument; charities are different and there is a sensitivity there that needs to be accepted and appreciated, with people fund-raising and so on. However, there is a larger issue that is essentially to do with political correctness. It is a valid concern. Perhaps Mr. Goulding will comment on that?
"This entire thing is slightly disingenuous."
Mr. Hamilton Goulding (whose mother, Lady Valerie Goulding, founded the CRC): It is an interesting angle from which to come at the issue. I set in train the course of events that ended in the departure of Mr. Kiely, of whom I had a sort of split view. From one perspective I admired him greatly because of his capability. I am sure he saved the clinic an awful lot of money, undoubtedly many times more than what he was paid. He had extraordinary anticipation and initiative. On many occasions when an issue was brought to the board, by the time someone had asked him a question about it he could say he had already fixed it last week. On the one hand, his performance was extraordinarily good. I had a different view, however, in regard to his salary. In my view, people's salaries should be paid, first of all, on the basis of their performance - that is obvious - and, second and to some extent, the ability of their employer to pay. In this case, the overriding factor was the sector we were in, namely, the charitable sector. As the Deputy said, popular opinion, with some good reason, does not like and will not tolerate the payment of very high salaries in that sector.
The successes of the clinic have been acknowledged by everybody here. Those types of successes do not come without sound management from the top, good guidelines and good executive control. The CRC managed its budgets perfectly for many years. In fact, it hardly ever ran an annual deficit of more than a minute amount and never, as many other organisations did, ran cumulative deficits. The cost of the senior management group we are talking about was €1.82 million in 2004 but had reduced to €914,000 in 2012. In other words, the cost of senior management at the clinic halved in that period. By that time, moreover, the CEO had taken on the duties and responsibilities of two, possibly three, other people. He was, in effect, doing three and maybe even four jobs.
The international standing of the clinic was widely recognised as delivering a service that was as good as any, not just in Ireland or the UK but throughout Europe and beyond. The clinic did not achieve what it did by not going beyond the Irish Sea. We attended conferences elsewhere and hosted them here in Ireland. The last one we organised was attended by people from 30 different countries, including Australia, India and South America. In the course of those conferences attendees saw that the treatments, techniques and equipment being used in the CRC for the benefit of Irish people with disabilities were as good as anywhere in the world. In 2012, the CRC undertook a customer satisfaction survey, the results of which were phenomenally good. There were criticisms, of course, as there always will be, but many of the categories scored in the 90s for positive feedback.
I am making all these points in order to highlight that much of the excellence of the clinic, as with any organisation, comes from the top and is a consequence of the way in which it is managed. If we had been engaged in an industrial production type of activity where we were in business for profit, it might not have been unreasonable to suggest that Mr. Kiely should get a pay rise. The reason I personally thought his salary was completely inappropriate was that we are a charity organisation, not because we are publicly funded.
John Deasy: I agree with that.
Hamilton Goulding: In fact, much of the clinic's funding comes from voluntary sources. It is a hard one to judge. A good person can perform to such a level that he or she will completely recoup the costs he or she is incurring.
John Deasy: I agree with that based on the disparity within the charitable sector; one has to separate that out. However, as far as the other issue is concerned – and this is addressed to all the delegates – by limiting pay, notwithstanding the business case exceptions, the question must be asked as to whether we are damaging or weakening the sector by kowtowing to political considerations. The HSE needs to take that on board. Within the sector and within the HSE itself, there are individuals who hold the view that this policy does not make sense for some individuals and organisations.
Laverne McGuinness: There is a sizing exercise under way in regard to the sector, particularly in respect of disability. My colleague, Mr. Healy, might comment on that.
Mr. Pat Healy (national director of social care, HSE): One of the issues that emerged in the course of our analysis of all of this is that perhaps the greatest challenge for the disability sector in particular and social care generally is the issue of the comparative pay of senior management in the organisations. One can have an organisation the size of the CRC, which is a €15 million or €16 million organisation, where the CEO is being paid substantially more than others who might be running a €100 million plus organisation of much greater complexity. Part of the challenge for us is to devise what we have termed a sizing model, that is, a basis upon which a reasonable and appropriate scale is set for different sizes of organisations. One looks at the disability sector and compares it with, say, hospital groups, where the new CEOs might be running €700 million organisations.
John Deasy: If Mr. Healy finds one organisation where that is the case, I could find another where it is not.
Pat Healy: There is a sense in the sector that there must be a fair and reasonable public pay position on this and we have spoken to those in the sector on this matter. Many of these voluntary organisations are large and have charitable status, which adds another dimension. This is not only a matter of salaries, it is a question of what is required in terms of governance, quality, service, expectations and management of services. Very capable people are required to run these organisations and it is necessary to set an appropriate scale across social care and the hospital system.
John Deasy: People within organisations may have a different view on this. This is what happened in some cases where the HSE was not taken seriously on public pay issues. It was felt that an organisation should hire a particular person at a certain level so that it could benefit. In many cases this was done out of a sense of care for the organisation in question. There were good reasons for this and cases can be made in such circumstances. We all accept this, including Mr. Brazel and Ms McGuinness. Cases can be made but this fact is not being entertained in this political environment and this is a mistake in some cases.