Negotiating Senior Severance Packages - New Guidance Published
Over the past few years there has been significant public and press interest in the remuneration packages of Vice-Chancellors and other senior staff and in particular the pay gap between the highest and lowest paid employees in HE institutions.
This interest is even more acute when there is a senior departure from an institution in circumstances where any severance package may be seen as rewarding underperformance or failure.
In June 2017 HEFCE published new guidance on severance pay and the remuneration of senior staff, replacing the previous guidance.
When Does the Guidance Apply?
The guidance applies to the setting of the remuneration of and determining severance payments made to Vice-Chancellors and other staff earning over £100,000 a year.
Guiding Principles
When determining pay and severance payments the HEI should bear in mind that public funds should be used for proper purposes and when using those funds it should seek to achieve value for money. Many HEIs are also charities, so can only use charitable funds and assets to further the charitable purpose of the HEI.
Negotiations should take place with both sides acting in accordance with the Nolan Principles of selflessness, integrity, objectivity, accountability, openness, honesty and leadership.
HEIs should also take into account the outcome of the Government's consultation on reforming exit payments in the public sector, published in February 2016. This says that severance payments should be proportionate and offer value for money and proposes the introduction of a cap of £95,000 on public sector exit payments, which would not apply to HEIs.
Who Should Determine the Severance Package?
The HEI's remuneration committee should recommend a severance package to the governing body after taking legal advice. Both sides should have appropriate legal advice during severance negotiations.
How Should the Severance Package Be Determined?
Severance packages should be based on contractual entitlements plus any statutory entitlements that may be applicable.
The starting point will therefore be the individual's notice entitlement but in appropriate circumstances a statutory redundancy payment, compensation for unfair dismissal and compensation for discrimination or whistleblowing may justify a higher payment. The fact that HEIs have lengthy dismissal and appeal processes could also affect the level of payment that may be reasonable in all the circumstances.
However, where there is an issue of poor performance any severance payment should be proportionate and any perception that underperformance is being rewarded should be avoided.
Confidentiality Clauses
In private sector it is common for both parties to a settlement agreement to be bound by a confidentiality clause, so that the severance package and the circumstances leading up to the termination cannot be disclosed to third parties.
Whilst an HEI may well want to ensure that the individual is bound by confidentiality, the guidance says that confidentiality needs to be balanced against the requirements for accountability and openness, so confidentiality clauses binding HEIs should be the exception rather than the norm and if they are incorporated need to be carefully drafted to ensure that the severance package is open to adequate public scrutiny.
Best Practice
Dealing with senior terminations is always a thorny issue, requiring careful consideration of if and when a severance proposal should be put forward. This updated HEFCE guidance provides a useful framework in which to conduct severance negotiations but it is always advisable to seek legal advice at an early stage on the approach to be taken to such negotiations and the terms of any severance package.