1. SW Acute CEOs Meeting Background Presentation

2. King’s Fund: How is the NHS performing? April 2011 TOP WAYS TO MEET PRODUCTIVITY TARGETS Which means...% selected by FDs FRONTLINE EFFICIENCY Length of stay Internal service redesign Review of prescribing 77% WORKFORCE Stop agency dependency Headcount reduction through rationalisation 62% WHOLE SYSTEM EFFICIENCY Community service redesign Service reconfiguration across providers Clinical service improvement 50% CLOSE WARDS OR SERVICES Bed closures Service divestment 46% BACK OFFICE EFFICIENCYSignificant back office reductions23% REDUCE ACTIVITYDemand management19% EXTERNAL CONTRACTSNon-pay procurement savings12%

3. Agenda for Change aspirations (March 2003)  Pay system which leads to more patients being treated, more quickly and higher quality  Assist new ways of working – promoting efficiency and effectiveness, meeting needs of patients  Achieving a quality workforce with the right numbers, right skills and diversity, organised in the right way  Improve recruitment, retention and morale  Improve all aspects of equal opportunities and diversity  Meet equal pay for equal value  Implement new pay system within the management, financial and service constraints 3

4. Example NHS Foundation Trust  Acute district general hospital  Turnover: £150m  Workforce: 2500 staff (£100m salary bill)  Vacancy rate = 5%; turnover = 8% (excluding doctors)  Sickness absence rate = 3%  Temporary staffing spend = £10m  Savings target (cost reduction): £15m 2011-13  Savings profile: workforce £9m (60%); non- pay/infrastructure £6m  Average unit employment costs: £40,000  5% management costs  200 consultants

5. Ready reckoner: impact of 2% pay cut on pay packets

6. Ready reckoner: the actual impact

7. Ready reckoner: jobs and savings Savings requiredJobs equivalent% pay cut equivalent £400,000100.4% £800,000200.8% £1,200,000301.2% £1,600,000401.6% £2,000,000502% £4,000,0001004% £6,000,0001506% £8,000,0002008% £10,000,00025010%

8. Pay compressor options Pay inflation (uplift) Increments Temporary staffing rates Two-tier workforce Annual leave Sickness absence Unsocial hours allowances Flex-release Premium sick pay Recruitment and retention premia (RRP) On-call Supporting PAs Remuneration for extra clinical work

9. Labour cost compressors CompressorUnit priceNotes Cost of living payAlready zero for 2011-12 No opportunity to reduce in 2011-13 IncrementsAverage 2% (£800) per job costs Average masks range per band position Pay levels2% pay cut = £2m See ready reckoner Bonus schemeCEA (local): £120-210k annual cost Based on 200 consultants – range between.2 to.35 awards per consultant at average £3k per award Annual leave£150 per day: one day removed across 2500 staff = £375k plus cover costs Assumes workforce can reduce if entitlement reduced to make savings. Each post which needs cover incurring extra cost, doubles the saving Sickness leave£150 per day Calculated from average temp costs and/or attendance increase allowing for workforce reduction New Knowledge, Skills and Performance Framework £300,000 saving on increments 10% of staff assumed not to be performing RRP£100k annual cost Immediate saving on new posts – protection period will determine rate of saving on existing staff Sickness premium pay£100k annual cost Flex-releaseVoluntary Voluntary release of contracted working time on temporary or permanent basis with/without subsidy

10. Sample contrasting savings programmes (over 2 years) Delivers £9m Pay cut 1% = £2m Conditions reductions = £2m Flex-release = £1m Temp remuneration reduced = £1m Skill mix changes = £1m Selective vacant post reductions = £2m Delivers £9m Redundancy = £2m Jobs freeze (5% vacancy rate) = £5m Outsourcing savings = £1m Skill mix changes = £1m

11. Sample contrasting savings programmes (2011-2013) Assumptions Delivers £9m 2 years pay cut at 1% across workforce 2 day annual leave – 2 days of sickness absence/premium rate unpaid – suspended bonus scheme - no RRP - 50 staff release 50% of contracted hours without subsidy 10% temp pay rate cut 10% shift of responsibilities downwards from bands 7 to 6 to 5 to 4 to 3 equivalent to 50 posts 25 posts removed selected after reasonable changes have been made Delivers £9m 50 staff Jobs freeze (5% vacancy rate) = 125 posts 10% savings from £10m of staffing 10% shift of responsibilities downwards from bands 7 to 6 to 5 to 4 to 3 equivalent to 50 posts

12. Possible handling principles Comprehensive, resourced, undiluted engagement and involvement of staff and their representatives Widest possible, and reasonable, definition of suitable alternative employment Investment in training and professional development Reversal of pay and conditions compression if circumstances allow Introduction of a new Knowledge, Skills and Performance Framework to promote advancement and withhold increments from under-performance Bonus scheme for all staff (% unconsolidated pay rise) when trust delivers financial and service objectives, and generates available surplus