Is ERYC a PLC?

August 09, 2010 1:28 PM

Is a private business mentality taking over at County Hall? Recent reports of increases in senior executive pay at East Riding of Yorkshire Council (ERYC) have predictably elicited a generally critical response from a bewildered and economically beleaguered local populace, whose exposure to the straitened economic climes is on a different plane to that of senior council executives.

The leader of ERYC, Councillor Stephen Parnaby, appeared on the BBC's Look North to explain the increases. Cllr Parnaby referred in particular to ERYC's responsibilities in managing a £700m "turnover", describing this as comparable to FTSE-listed companies. This was a curious comparison to make and can seemingly be interpreted in one of two ways.

First, that £700m is simply a large amount of money and some form of reference point is necessary for the non-council employee to be able to comprehend the magnitude of the amount. However, most such people unfortunately have little understanding of the magnitude of a FTSE company's turnover either.

Second, and more likely, that the intention was suggest EYRC’s administration of its budget is analogous to the operation of a FTSE-listed business. A general perception of private sector FTSE companies in recent times has been one of considerable profits (though not always) coupled with egregious pay awards at executive level, which, except in rare cases, are not subject to external, non-shareholder restraint.  By making such a comparison, perhaps Cllr Parnaby aspired to demonstrate prudence and good value in ERYC's comparatively lower pay awards.

This may never be known as the comparison was not elaborated on, but it is in the glib reference to "turnover" that the comparison must end. The description of ERYC's budget as "turnover" is disingenuous and inappropriate. A FTSE company must generate its entire turnover by making its own product, or devising its own services, and then selling these to a range of discerning customers in a convincing manner. If it does not, then it fails. Completely.  There is no taxpayer goose laying golden eggs on which to fall back.

Of course, ERYC does no such thing and has no ‘proper’ turnover. To supplement central government income, ERYC has broad revenue-raising powers, reinforced by law, to collect a large proportion of its annual budget from the residents in the billing authority area. The residents have no say in this, nor are they customers in any proper sense of the word. Residents are unable to choose for their shared local public services to be provided by anybody else if they do not like the manner or cost of those services provided by ERYC, which cost includes the level of senior executive pay ostensibly required to manage this.

ERYC has over recent years consistently levied one of the higher average council tax rates in the country for a unitary authority. Competently provided first-rate services should follow from this as a given, not be seen as a bonus. Still, that is not to say that, given the choice, residents would not prefer to pay less, either for fewer key services or for other, less well-remunerated persons to organise the process.

The relative risks and consequences of failure for an executive between a FTSE company and ERYC are vastly different.  Shareholders in FTSE companies have the opportunity to vote more regularly on a director's appointment than a resident does in council elections. Besides, many important decisions at ERYC are taken by senior, highly-paid officers not subject at all to county council elections.  In addition, each year FTSE company shareholders are usually invited to vote specifically (but by way of guidance only) on whether to approve the directors' remuneration report. Accordingly, the roles of senior executives within ERYC and relative accountability are nothing like those of senior executives within a FTSE company.

Similarly, the familiar justification also aired in the interview of needing to recruit the "right" people, often from the merry-go-round of executives from other councils, does not bear the same import as in a private company, save perhaps for councils in extremely troubled and failing metropolitan areas. This does not very accurately describe the ERYC area.

For many regular council employees pay has been frozen this year and last year's rise was unspectacular compared with senior pay awards. Yet interestingly certain local service costs continue to increase for ordinary service users (note, not customers) beyond the percentage increase in council tax rates, such as 3 per cent this year on certain leisure facility costs, despite the continued difficult financial climate. The comparison with a FTSE company is inappropriate and confuses nature and purpose, and risk and reward.

By Oliver Johnston


Is a private business mentality taking over at County Hall? Recent reports of increases in senior executive pay at East Riding of Yorkshire Council (ERYC) have predictably elicited a generally critical response from a bewildered and economically beleaguered local populace, whose exposure to the straitened economic climes is on a different plane to that of senior council executives.

The leader of ERYC, Councillor Stephen Parnaby, appeared on the BBC's Look North to explain the increases. Cllr Parnaby referred in particular to ERYC's responsibilities in managing a £700m "turnover", describing this as comparable to FTSE-listed companies. This was a curious comparison to make and can seemingly be interpreted in one of two ways.

First, that £700m is simply a large amount of money and some form of reference point is necessary for the non-council employee to be able to comprehend the magnitude of the amount. However, most such people unfortunately have little understanding of the magnitude of a FTSE company's turnover either.

Second, and more likely, that the intention was suggest EYRC’s administration of its budget is analogous to the operation of a FTSE-listed business. A general perception of private sector FTSE companies in recent times has been one of considerable profits (though not always) coupled with egregious pay awards at executive level, which, except in rare cases, are not subject to external, non-shareholder restraint.  By making such a comparison, perhaps Cllr Parnaby aspired to demonstrate prudence and good value in ERYC's comparatively lower pay awards.

This may never be known as the comparison was not elaborated on, but it is in the glib reference to "turnover" that the comparison must end. The description of ERYC's budget as "turnover" is disingenuous and inappropriate. A FTSE company must generate its entire turnover by making its own product, or devising its own services, and then selling these to a range of discerning customers in a convincing manner. If it does not, then it fails. Completely.  There is no taxpayer goose laying golden eggs on which to fall back.

Of course, ERYC does no such thing and has no ‘proper’ turnover. To supplement central government income, ERYC has broad revenue-raising powers, reinforced by law, to collect a large proportion of its annual budget from the residents in the billing authority area. The residents have no say in this, nor are they customers in any proper sense of the word. Residents are unable to choose for their shared local public services to be provided by anybody else if they do not like the manner or cost of those services provided by ERYC, which cost includes the level of senior executive pay ostensibly required to manage this.

ERYC has over recent years consistently levied one of the higher average council tax rates in the country for a unitary authority. Competently provided first-rate services should follow from this as a given, not be seen as a bonus. Still, that is not to say that, given the choice, residents would not prefer to pay less, either for fewer key services or for other, less well-remunerated persons to organise the process.

The relative risks and consequences of failure for an executive between a FTSE company and ERYC are vastly different.  Shareholders in FTSE companies have the opportunity to vote more regularly on a director's appointment than a resident does in council elections. Besides, many important decisions at ERYC are taken by senior, highly-paid officers not subject at all to county council elections.  In addition, each year FTSE company shareholders are usually invited to vote specifically (but by way of guidance only) on whether to approve the directors' remuneration report. Accordingly, the roles of senior executives within ERYC and relative accountability are nothing like those of senior executives within a FTSE company.

Similarly, the familiar justification also aired in the interview of needing to recruit the "right" people, often from the merry-go-round of executives from other councils, does not bear the same import as in a private company, save perhaps for councils in extremely troubled and failing metropolitan areas. This does not very accurately describe the ERYC area.

For many regular council employees pay has been frozen this year and last year's rise was unspectacular compared with senior pay awards. Yet interestingly certain local service costs continue to increase for ordinary service users (note, not customers) beyond the percentage increase in council tax rates, such as 3 per cent this year on certain leisure facility costs, despite the continued difficult financial climate. The comparison with a FTSE company is inappropriate and confuses nature and purpose, and risk and reward.

By Oliver Johnston


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