Mind the management gap

The tax arrangements of Jimmy Carr and “fat cat” public sector leaders have combined to create an unlikely perfect storm in recent months.

In particular, the recent announcement that thousands of civil servants have supposedly benefitted financially from an off-payroll tax arrangement has revived media scrutiny of interim pay rates and added fuel to vociferous political debates on tax avoidance.

The arrangement allows organisations to pay interim managers indirectly via a personal service company, which avoids adding them to the payroll and leaves the individual responsible for managing their own tax affairs.

There are several thousand interim managers in the NHS, many of whom - especially those in more senior roles - are likely to be excluded from organisations’ payrolls.

Parliament has questioned the rights and wrongs of these payment arrangements and a consultation about the tax affairs of controlling persons operating off-payrolls ran until 16 August this year. This was met by a barrage of frustrated responses from professional bodies and business associations.

However, the debate must not be used to discredit genuinely first rate professional interim managers, who deliver significant change in short time frames and are vital to the success of the NHS.

There are several compelling reasons to spend taxpayers’ money on interim managers. The latest NHS reorganisation has created vast attrition among the organisations being disbanded, especially in senior leadership and enabling functions. These roles are essential during the transition period but must be filled flexibly where long-term employment prospects do not exist.

Adding these staff to payrolls and the pension scheme would increase the considerable existing administrative burden faced by human resources staff at these organisations. It would simply make no sense to hire a permanent chief executive or finance director, only to make them redundant at a later date.

Force for good

The Institute of Interim Management has outlined its concerns to HM Treasury and HM Revenue and Customs, among other organisations, saying: “Interim management is a genuine force for good in the economy that must not be allowed to wither as an unintended consequence of regulation.”

It is a reality that the system is facing unprecedented levels of change, which interims are typically highly adept at handling.

The reforms, added to the quality, improvement, productivity and prevention drive, mean interim experts in workforce transformation who can link human resources management with QIPP, and those with experience of mergers and acquisitions will be in high demand due to the lack of in-house capacity.

Quality assurance expertise will also be in demand in light of the Francis Inquiry report, due in the New Year, and the work undertaken by the National Quality Board. The need for such expertise is evident in the recent HSJ/Capsticks survey, which found nearly half of hospital chief executives thought a Mid Staffordshire-style care scandal would be missed if it occurred today.

With turnover tripling among the NHS managers, nurses and doctors responsible for monitoring hospital care quality, there is clearly a role for qualified interim managers to step in to fill the gap.

In addition, the Nicholson challenge to make £20bn of efficiency savings will require superb financial management skills. NHS finance jobs have tended to operate under a “closed shop” arrangement in the past, resulting in a significant under-representation of individuals from other industry sectors and a subsequent lack of dissemination of alternative best practice.

There should be a greater willingness to embrace expertise from other walks of life and challenge accepted norms.

We are already seeing skills gaps in clinical commissioning groups and commissioning support services, particularly in operational, contracting and performance management capability. This will only increase as the NHS Commissioning Board concludes the gargantuan task of appointing to 3,500 posts in the coming months.

The any qualified provider scheme will require additional people with sound commercial and NHS experience to augment the skills within foundation trusts. Interim managers who have worked in both sectors will be essential to support the opening up of new overseas markets and joint ventures with the private sector.

Even without the reforms and financial challenges, many organisations value the “task and finish” approach that interim managers bring to a project.

To put it bluntly, the interim manager’s career depends on each assignment having an excellent outcome. It is also true that these managers can be objective and speak hard truths - often helping new solutions to emerge - without worrying about their job prospects within an organisation.

In my experience, there are steps organisations can take to help ensure the success of interim appointments. It is essential to thoroughly check references and credentials; a small minority of people I ask about receive abysmal feedback from previous employers yet go on to land new interim roles.

Measure results

Once appointed, professional interim managers thrive when they are held to account against measurable outcomes. But, all too often, monitoring eases off once the interim has supposedly shown themselves to be a “good egg”.

It is important for the individual and the organisation to view their engagement as the provision of a service and not the filling of a job. All too often the NHS uses interim managers in quasi-employment situations in which a culture of dependency can occur.

It is equally important to plan an interim’s exit from the start of an assignment, to allow them to transfer knowledge and learning to permanent staff. Average assignments last between eight and nine months; after a year, it would normally be more appropriate to move someone into a permanent role, unless the scope of the assignment has significantly changed.

Keeping someone on for long periods can lead to them becoming institutionalised, losing their impact and objectivity.

There are inevitable financial considerations, too. Top interim managers are undoubtedly well paid; an HSJ investigation found that at the start of 2012 the NHS was paying 48 off-payroll executive directors rates totalling about £44,000 a day.

The most highly paid interim manager was £2,000-a-day Mark Davies. Mr Davies was employed as interim chief executive of Imperial College Healthcare Trust until he took on the role permanently - and was added to the trust’s payroll - in February.

There was no suggestion any executives named in the article were trying to avoid paying tax.

Highly charged responses to the story (on hsj.co.uk) highlighted the extent to which some readers resent interim managers’ rates.

However, it is worth highlighting that the day rates earned by interim managers and executives do not include holidays and benefits, and so are not like-for-like with employee pay. Interim managers gain a tax advantage of about 10 per cent against employees by virtue of their self-employment, but are often out of work post-assignment, so that moderate benefit is a key part of operating a viable independent career.

HSJ readers also took exception to the chance for interims to use their off-payroll arrangements to reduce their tax bills. The public ire directed at interim civil servants when their arrangements came to light earlier this year was of a similar theme.

However, it is worth noting that several central government departments have historically insisted that non-permanent staff use personal service companies; many of these people have unwittingly found themselves in a grey compliance position regarding taxation.

Ironically, HMRC is now investigating them while they are tasked with delivering changes to deliver the major reforms demanded by ministers.

Lynch mob mentality

In evaluating the contribution of interim managers, a lynch mob mentality helps no one. Recent government intervention in the form of compliance guidelines on acceptable payment methods has created much debate in the industry but is at danger of simply becoming an expensive process of investigation and prosecution.

Before interim managers are mercilessly swept into the “Carr/fat cat/bankers” box of public opprobrium, it should be recognised that many individuals have achieved significant improvements in the NHS and offer value for money.  

One must consider the alternatives of removing interim managers from the NHS: a flexible resource of highly qualified individuals able to be instantly deployed nationwide would need to be established and payrolled (a new several thousand-strong quango would be an interesting development), or the work would have to be outsourced to consultants charging a considerably higher fee than interim managers.

The professional interim management community supporting the NHS through this period of previously unimaginable change should be celebrated, not derided.

Rob McCargow is managing partner of Cadence Partners, rob.mccargow@cadencepartners.