Government should use its outsourcing spending to influence outsourcing service providers and encourage them to reduce the payouts given to senior executives, according to a think tank report.
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IT outsourcing service providers, including Atos and Capita, receive large chunks of the government’s £80bn total spend on outsourced services, including IT.
In its report, The Customer is Always Right. How to reduce executive rewards with procurement contracts, the High Pay Centre think tank said top executives of service providers are pain salaries that private sector pays despite relying on the public sector.
“The top executives of firms such as Atos, G4S, Serco and Capita receive multi-million pound pay packages common to the private sector. Yet these firms depend on public money for a huge proportion of their revenue,” said the report.
“Because major outsourcing companies rely on public funding and have a remit to deliver vital public services, it is inappropriate for their executives to be lavished with the kind of payouts common to other large private corporations.”
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It recommends that, as a major customer, government could use its influence to encourage suppliers to have “economically and social responsible pay practices”.
Citing European Union (EU) rules on government contracting being designed to ensure the optimum benefit to wider society from contract awards, the report said procurement contract conditions could include more details about executive pay and even pay caps.
“As these conditions represent a form of consumer activism rather than government regulation, they have an additional advantage of creating downward pressure on pay in a way that could appeal to voters of different political persuasions,” said the report.
Outsourcers subject to public scrutiny
A recent Public Accounts Committee (PAC) report said government was failing to manage private companies that provide outsourced services, and these contractors need to be more ethical when dealing with government.
Suppliers to the public sector could soon fall within the remit of the Freedom of Information Act, with suppliers' executive pay attracting scrutiny from taxpayers. Speaking in March 2014, Liberal Democrat Simon Hughes said the change would be written into the contracts of companies after the publication of a new code of practice, which should be in place by the end of 2014.
"We intend to publish a revised code of practice to make sure that those private companies that carry out public functions have freedom of information requirements in their contracts, and go further than that, and we hope that will be in place by the end of this year," said Hughes.