On 13 December 2021 Dominic Hook, Unite’s National Officer, wrote to Nikhil Rathi setting out Unite’s response to the FCA’s proposals.
This is your chance to see what Unite members want FCA leaders to know.
Dear Mr Rathi
Introduction
This consultation response is from the FCA branch of Unite the Union. We are an independent trade union.
To summarise: Unite want an effective regulator, but pay cuts are not the answer, and staff want to work constructively with Exco to improve the proposals.
General comments
Unite strongly support the FCA undergoing Transformation so that we can deliver effective regulation. We are very much committed to our work here, and we would like to have a close, collaborative relationship with management under a union recognition agreement (as is the case at the Bank of England and other regulators). Unfortunately, we are disappointed by the proposals presented to us. We are concerned that the emphasis on cutting pay misses the mark and will lead to a less effective regulator which is destined to fail in achieving its statutory objectives. We recommend that Exco takes a pause for reflection and collaborates with us to improve the proposals.
There is a real opportunity here to transform the FCA’s working arrangements for the better. Modern management theory emphasises replacing hierarchies with networks; and promoting multi- disciplinary working and light-touch management in order to foster creativity, collaboration and personal empowerment. Transformation at the FCA offers a golden opportunity for Exco to show leadership on these matters: after all, one of our values is “Connect and deliver”. That would be a Transformation that we could get behind.
The proposals have certain positive aspects. We welcome the fact that c. 800 low-paid colleagues will get a long overdue raise. The 5% base salary increase will also be welcome for those who receive it (although it comes against the background of 4.2% inflation). These are absolutely steps in the right direction. Yet there remain serious long-term problems with pay and career progression at the FCA, and overall the proposals will not resolve these problems but rather make them worse. We want to work with management to make real progress on this score.
Unite would like to offer detailed counter-proposals, but unfortunately we are hampered by the failure of HR to disclose important information: for example, in relation to equality impacts, benchmarking, the operation of performance-related pay, and the principles for future pay reviews. The process should be paused to allow this and other relevant information to be provided. We recognise that a considerable quantity of documents have been published and a series of meetings have been held for employees, but quantity in this regard is less important than quality. We also recognise that further information and proposals have been released over the past couple of weeks, but these have lacked clarity and have raised more issues than they have resolved.
The proposals do not contain any KPIs which would allow us to measure whether they have achieved their objectives. We ask Exco to clarify what their success measures are, and to commit to constructive dialogue if they are not met.
The process – What if we just said wait?
We have a number of concerns with the process followed in this consultation. These do not sit well with the FCA “Act with integrity” value.
- The consultation is running for 3 months – effectively for Q4, which tends to be the busiest time of the year. It ends just before Christmas. From a psychological point of view, it is difficult to explain why 20 December was chosen as the end date.
- As noted above, HR has not disclosed important information. As regulators, we know well the problems resulting from asymmetries of information.
- We do not yet know the results of the Senior Associate mapping exercise, which for many of us forms a central part of this project.
- Further changes to our pensions are going to be proposed in a future consultation. The indications are that these will be adverse in nature.
The last-mentioned point is of particular importance. Without knowing what the forthcoming pension proposals will be, we cannot assess the impact of the current proposals in anything other than the short term. Any gains for individual colleagues may be offset by later cuts to pension rights.
In any external consultation, the FCA would be required to provide fully sufficient information and to demonstrate that the outcome was not predetermined. We expect no less of this internal consultation. We would also note that this exercise falls short of the standards that we require from regulated firms. Part of being a credible regulator is setting an example to the market. “Why should we do X when you didn’t?” would be an easy question for firms to ask.
Some of the changes proposed are contractual in nature, and Exco has not stated how it would proceed in the event that employees do not agree to the changes. We note, however, that Nikhil Rathi has said that he will not use the option of dismiss-and-rehire (a practice which has been described by the Prime Minister, Boris Johnson, as “completely unacceptable”).
The considerations set out above favour a pause for reflection and the disclosure of further information in dialogue with Unite and our members. Yet the FCA is giving the impression that the proposals are already a done deal: for example, by advertising new roles as if they had been implemented. This is entirely the wrong approach. We understand that the haste in this process was originally driven by an internal deadline of the start of the next financial year; but we gather that
there is little likelihood of this deadline now being met. There is no external or legal timetable which requires any of the proposed changes to be made by a particular date. So what if we just said wait?
Reasons
If an employer proposes major changes to pay and conditions, its legal duty of trust and confidence means that the reasons behind the changes should be fully and frankly explained. We would question whether Exco has been wholly candid about the reasons behind the current proposals.
The consultation document states: “The proposals are not primarily driven by saving money”. This implies that they are partly driven by saving money. Mixed messages have been sent out on this point. Our concern is that the proposed pay cuts are a false economy which will damage our effectiveness in the future. The FCA is a non-profit organisation with control of its own fee income, and there are questions about whether accountability for financial overspends has rested with the correct people. In any event, we ask for clarification on how much money will be saved by the proposals and what the savings will be used for. We regard this as a basic and reasonable request.
It is also said that the FCA needs to make reforms in response to the LCF and Connaught reports. This is certainly a legitimate point, although if there is one thing that is guaranteed to create another LCF or Connaught, it is driving out experienced and committed employees and making it harder to recruit new talent. We would also ask what weight has been given to the exceptional performance of colleagues during the Covid crisis, which of course arose after the LCF and Connaught affairs.
Unite would also respectfully question how far the criticisms in the reports applied to rank-and-file employees as opposed to senior management, and who is facing accountability for them. For example, Dame Elizabeth Gloster highlighted that problems with decision-making were caused by too many seniors with overlapping responsibilities. Is the real problem here that the FCA is top- heavy? It employs c. 120 people as HoDs and above, which is out of line with other public sector bodies, and c. 40 of them earn significantly more than the Prime Minister. From publicly available figures, the pay (before pension) of these c. 120 people is c. £20m. It has not escaped notice that this is roughly the same as the FCA’s total spend on bonuses. Pay cuts for rank-and-file employees are not easy to accept in this context.
Benchmarking
The benchmarking exercise which has been undertaken in relation to the pay proposals has provoked widespread concern. Unite would wish to enter into dialogue on this, but HR have declined to release any substantial information. There are also concerns about whether the benchmarking data will be out of date when the proposals are implemented, as pay is currently rising across the market.
It would be helpful if Exco could explain how it went about identifying and managing conflicts of interest in relation to engaging Willis Towers Watson to carry out the benchmarking work, as the FCA is an existing client of WTW. (There is no suggestion that anyone has acted unethically.)
In the absence of detailed information on benchmarking, the union can make some general observations. If benchmarking is confined to certain categories of pay, it can give misleading results. For example, we note that most other regulators appear to offer defined benefit pensions with much larger employer contributions than the FCA’s defined contribution scheme. Senior executive
remuneration at the FCA also compares very favourably with that at other regulators. There are inevitable concerns that a double standard in relation to benchmarking is being applied to seniors and to other employees. High pay for seniors would be easier to accept if there was less overall inequality at the FCA. Top pay at the FCA is 7.5x median pay, compared to (e.g.) 5.7x at Ofcom and 3.8x at the CMA, to take a couple of the higher figures. Exco have rightly noted that people do not work at the FCA to get rich, but because they are committed to the job. That principle should apply to us all.
Bonuses
There is deep and widespread opposition to the proposed abolition of bonuses. Bonuses are paid to a very large majority of employees, and this has been the case for many years. Against a background of stagnating pay, they have been used as a tool to allow the FCA to improve basic pay without committing to permanent pay rises (or increasing pension contributions). They are widely treated in practice as a part of basic pay. Employees have stated bonus income on their mortgage applications on this basis. The “automatic” nature of bonuses at the FCA corresponds with widespread practice in the private sector, so the criticisms that they are detached from individual performance and create a confidence risk are not on point.
Unite would also note that the “automatic” nature of bonuses formed part of the case made to employees who transferred from the OFT as to why they should accept changes to their employment terms. This raises troubling questions as to whether the FCA has maintained its legal duty of trust and confidence with former OFT employees on this point.
We ask for further constructive dialogue on the future of the bonus. If the bonus is to go, it should be “bought out” at a realistic level by means of an increase in basic pay, in the same way that the managers’ allowance is being bought out. We recognise that pay will be improved in some respects (e.g. by the 5% salary increase), but the current proposals are simply not adequate to compensate for the full magnitude of what is justifiably seen as a unilateral pay cut – and the effects of that pay cut will be felt on morale, recruitment and our regulatory effectiveness.
We do not accept that the bonus is truly discretionary as a matter of law. If it is discretionary, the legal position is that the FCA’s discretion is not unfettered. In particular, the way in which the FCA exercises any discretion in this area is subject to its duty of trust and confidence; and the unilateral imposition of an effective pay cut is difficult to reconcile with this duty. We reserve our position as to potential legal action on this matter, should it prove impossible to resolve it through dialogue.
Pay bands
If the abolition of bonuses is a pay cut, the reduction in pay bands feels like a pay cut.
The first problem is that the bands are too narrow. We note that buying out the managers’ allowance will immediately raise some managers to or beyond the upper limit of their band.
The second problem is that we are living in an age of rising inflation. It appears that the pay bands will be reviewed annually, but Exco has not disclosed the principles that will guide these reviews (save for a promise of a rather modest 2%+ increase in April 2023). On past experience, we must assume that increases will not keep pace with the cost of living. We are told that people at the top of the bands will be eligible only for a 1% annual supplement. This has the effect of imposing an “up or
out” policy. If you reach the top of your band, you will receive yearly real-terms pay cuts unless you are promoted or leave the FCA. If this “up or out” policy is deliberate in nature, it should be acknowledged openly and the reasons for it explained. In particular, Exco should explain how the “up” aspect will operate when Senior Manager and Technical Specialist roles are being cut.
Finally, colleagues have taken note that the floors of the HoDs’ and Directors’ pay bands are being increased. We trust that no comment on this is necessary.
National offices
We wish to enter into constructive dialogue on the plans to open new offices. These plans have many positive aspects, but there is concern that there may be a long-term strategy to move employees outside London. As a matter of urgency, we seek clarification from Exco that this will not lead to compulsory relocations or redundancies for London colleagues.
As to the proposal for lower salary scales outside London, this is an entirely new idea which sits uneasily with the Government’s agenda of “levelling up”. As we have noted, regulators lead by example: what message does this send to our industry and to the public whom we serve? The proposal has an obvious immediate impact on Edinburgh colleagues. Edinburgh is not a cheap place to live, and people who work there are already disadvantaged by the fact that Quayside House lacks the facilities available at 12 Endeavour Square. Many Edinburgh colleagues are already at or near the proposed new maximum levels for their grades. The effects of the change will only be exacerbated in cases where teams are split between Edinburgh and London (and other offices which are opened): in such cases, the pay differences will be manifestly unfair and divisive.
Performance related pay
The proposals rely on PRP to mitigate the impact of the pay cuts. Everyone agrees that high performance should be rewarded. But PRP in the outdated form which is proposed will entrench patronage rather than merit and will upset the delicate balance between competitiveness and collaboration.
We do not know how large the “pot” for PRP will be, but we can safely say that it will not be an adequate replacement for the loss of bonuses. It is not even clear that the pot will be big enough to give significant rewards to all colleagues who meet the PRP criteria. More broadly, we cannot support a system in which PRP will be awarded unilaterally by managers and HoDs. This is an outdated model of rewarding performance which sits badly with the forward-looking theme of Transformation. PRP assessments will inevitably be opaque, with a large element of subjectivity and inconsistency. Appraisal feedback will be distorted by the fact that everyone will feed back on each other with an eye to PRP. There are also concerns that a grading curve will be imposed. This will give further scope for patronage and subjectivity, and will result in people who are performing being graded as not performing. We are willing to work with Exco to develop more modern proposals in this area in which the emphasis is on equity and regulatory effectiveness rather than cutting costs.
Health insurance
We appreciate that it may be difficult to secure insurance in the market without excesses, so there may be scope for compromise here. That said, the proposed figures of £100 and £200 seem rather crude, and the “per person” policy means that the new costs will fall harder on people with families
to support. In addition, disabled employees are more likely to need forms of private healthcare which the NHS is unable to provide.
Managers’ allowance
The allowance is to be bought out at 86% of its value. This will leave managers worse off: more so if they are younger.
The allowance is not currently pensionable, but the “buy out” pay increase will be. Pension is deferred pay. It can only be spent from age 55 (usually much later), and future income is less valuable than present income. Many employees may currently use the allowance to pay off mortgages or loans.
The total of base salary, allowance (0 after the change) and pension contributions plus add-on to reflect the deferral of some pay should remain the same. As the FCA pension scheme has differing contribution rates depending on age, the percentage of the managers’ allowance that ensures that the figures break even will be different for each age band.
We would also note that incorporating the allowance into basic pay risks disadvantaging colleagues who go on maternity leave, as the allowance is currently paid throughout the leave period whereas basic pay is not.
Mapping of Senior Associates
The exercise of mapping Senior Associates to Senior Associate and Lead Associate roles is seriously lacking in transparency. It is effectively a promotion round, but it has none of the procedural protections which would go with a normal promotion round. The criteria for mapping have not been disclosed, and the mapping would seem to rely in part on the views of individual HoDs. This is likely to lead to inconsistencies across the organisation, and we cannot exclude the possibility of unconscious bias. There is anecdotal evidence that decisions in this regard are being made with inappropriate haste. There are also concerns that Senior Associates may be reluctant to engage frankly with this consultation for fear that they will not be mapped to Lead Associate.
We note that there is an appeal process, but we have not yet been given any details about it.
The proposals in relation to the Lead Associate grade have led to concerns that the Technical Specialist grade is going to be phased out – despite previous claims that MARS would lead to an increase in TS vacancies. We ask for clarification on this point. The demise of the TS grade would raise questions as to what career path an Associate can expect if their skills lie in the area of technical expertise rather than management.
Graduates
We are concerned that a Graduate scheme which was once highly valued and renowned has collapsed in terms of morale, reward and incentive, penalising those who join or remain on it.
Though contractually defined as Associates, current and new Graduates will not be uplifted to the new (lower) Associate pay grades. Despite being tasked with the same work and performance
expectations as Associates, they stand to be paid significantly less (c. 20%). This leaves Graduates feeling devalued and unsure as to why this is justified and where they stand relative to their colleagues. This is both problematic in principle and fundamentally undermines the Graduate scheme by incentivising Graduates to leave it for a permanent Associate role as soon as possible.
Graduates were told in January 2021, without consultation, that opportunities for external secondments would be immediately ended. These were a highly-publicised part of the programme, and the change has devalued the Graduate scheme. Many Graduates in the 2021 intake had the opportunity of secondments advertised to them and feel misled by management. Many Graduates also felt that seniors announced the changes in a patronising way and talked down to people who questioned the decision.
Graduates and Apprentices were not mentioned in the Transformation consultation document, leaving them uncertain as to how they would be impacted. They were only provided with details when they raised the issue directly. This gives the impression that they had been forgotten about, despite the important role they play and the large impact of the proposals. Two cohorts of Graduates and Apprentices have started their roles during lockdowns with limited ability to interact with their new teams and colleagues. The poor communications and failure to acknowledge the impact of the proposals on them has heightened existing feelings of isolation, frustration and collapsing morale from a low starting point.
Diversity and inclusion
One of the FCA values is “Work inclusively”, and D&I is agreed by all to be an important objective of the FCA. Yet HR have expressly declined to release the full Equality Impact Assessment on the proposals as part of the consultation information. We cannot explain this. We would expect such an important document to be published early and as a matter of course.
The problems with the proposals in relation to D&I include the following specific points:
- The loss of bonuses impacts disproportionately on lower-paid colleagues, who are in turn more likely to come from disadvantaged groups. In addition, narrowing the pay bands inevitably hits older colleagues harder. Instances of indirect discrimination are unlawful unless they can be shown to be a proportionate means of achieving a legitimate aim. The FCA has yet to show this.
- PRP will rely on the subjective judgement of managers, which is problematic from a D&I perspective. The FCA acknowledges that BAME employees are already unfairly over- represented in lower performance grades, and PRP will increase the existing pay gap. Moreover, if a grading curve is imposed, past experience would suggest that it will be met in part by awarding lower grades to people on maternity and other leave.
- The mapping of Senior Associates evidently has a subjective element. In particular, we are not confident that people with caring responsibilities and people on maternity and other leave will be equitably treated.
- There is evidence that colleagues on maternity and other leave have not been kept fully informed of developments in the consultation.
Conclusion
Unite want the FCA to be a high-performing regulator in the future, but this is not the way to achieve that. Our effectiveness is hugely dependent on our ability to recruit and retain talent, and the current proposals are already having a negative effect in this regard, even before they have been implemented. We are experiencing a high level of attrition, and it is proving unusually difficult to recruit replacement candidates. Money is being spent on filling the gap using contractors, arguably without appropriate accountability and transparency. It would be a mistake to think that these problems will go away when the dust settles on this project. It can take years to build up an organisation’s reputation as a good employer; but that reputation can quickly be lost for good.
None of us want to see that happen. The union want to help both the FCA and our members by resolving the issues through constructive, collaborative dialogue with Exco. We want to see fair compromises which serve the interests of employees, firms and consumers. We would prefer to negotiate in the context of a union recognition agreement covering whole of the FCA’s workforce, but in any event we will be representing our members in this matter.
Unite workplace representatives’ care deeply about our work and clearly want to avoid industrial action. However, if we are unable to make progress negotiating with Exco, we may have no alternative but to start taking the necessary steps. These may include balloting for industrial action. We hope, that as a responsible employer, the FCA takes the importance of our work as seriously as we do.
Sent on behalf of Unite members at the FCA.
Yours sincerely
Dominic Hook National officer
