Key points

• Regional variation in NHS staffing levels can lead to inequalities in people’s ability to access services, care quality and health outcomes. For example, the number of patients per GP varies more than two-fold between local areas, from 2,804 in Hull to 1,318 in Wirral as of June 2021.
• Supplementary payments (or ‘recruitment and retention premia’) have been used by NHS organisations across England over the last few decades and can be designed to attract or keep staff working in certain services, locations or specialties. They present an opportunity to ensure a fairer distribution of staff. We found that 1 in 174 hospital and community staff currently receive specific recruitment and retention premia, accounting for some £28 million annually.
• NHS funding allocations are adjusted to reflect increased reliance on agency staff, higher vacancy and turnover rates and differences in staff productivity in areas with more challenging labour markets. We estimate that this staffing adjustment had the effect of redistributing £1.5bn of trusts’ total operating income in 2016/17, with Sheffield Teaching Hospitals NHS Foundation Trust receiving £37m (3.4%) less and Barts Health NHS Trust receiving £107m (7.8%) more than they would without these adjustments.
• Pay supplements such as ‘London weighting’ can also be considered a form of recruitment and retention premia. Some £986 million was spent on staff who received a ‘high cost area’ supplement such as this in 2021.
• Some staff groups are much more likely to receive recruitment and retention premia, and the average level of those premia also varies considerably across groups. On average, doctors receiving premia get nearly £18,000 in premia payments – that’s 21% of their mean annual earnings. In contrast, clinical support staff receive around £1,900 a year, or 9% of their mean earnings. There is no evidence to suggest that this variation is optimal.
• There is a lack of published evaluations on how cost-effective pay supplements have been for recruiting and retaining NHS staff, and ‘London weighting’ has not been reviewed in nearly two decades. Further work should be done to understand what the appropriate level of compensation would be for living and/or working in or around London, as well as in the other areas of the country that face higher living costs.

We identified some key questions which should inform any further evaluations of pay supplements:

1. Are premia schemes attractive for prospective applicants in the short-term?
2. Do they increase staff retention in a given area in the longer-term?  
3. Do the benefits of these schemes outweigh the costs (including in comparison to non-pay benefits)?
4. What are the unintended consequences of premia on other areas, staff groups and characteristics?

What are recruitment and retention premia?

Recruitment and retention premia are additional pay designed to attract or keep people working in certain services, locations or specialties. They are used across different parts of the public sector in the UK, including local government, education, justice, and the health sector. Despite this prevalence, little is known about the impact of premia schemes on staffing levels.

While NHS workforce gaps can be filled temporarily, this can be a significant financial drain, with some £2.5 billion spent on agency staff in 2019/20 (NHS Workforce Alliance, 2021; NHS England and NHS Improvement, 2021). The exact extra cost of using agency staff is unclear, but others have suggested that it is around 20% more than directly employing staff (NHS England and NHS Improvement, 2018) – equating to around £420m per year. Meanwhile, some general practices regularly pay up to £800 per day for locum GPs.

Recruitment and retention premia present an opportunity to ensure a fairer distribution of staff. This in turn could reduce inequalities and improve patient care. However, there are risks to their use, such as the potential to create unhelpful competition between providers. They could simply shift staffing shortages to other regions – or, if they don’t change behaviours, they may even waste money. Localised premia also risk creating a “cliff-edge”, which can influence employers to either underpay or overpay in neighbouring areas (Department of Health, 2012).

Staff who are not employed on NHS contracts with defined pay structures, such as locum GPs, may receive variable payment rates depending on local market conditions, but in this briefing we focus on pay supplements given to those employed on the Agenda for Change contract, NHS medical contracts or the very senior manager NHS contract. Pay is just one of the mechanisms that can incentivise staff to join or stay in their role. Other, non-financial incentives such as offering flexible working patterns are also important.  

How are recruitment and retention premia used in the NHS, and how much do they cost?

National and local recruitment and retention premia are used across NHS organisations in England (box 1) to help solve issues of the undersupply of staff in specific areas (NHS Pay Review Body, 2020; NHS Employers, 2021).

While there is no comprehensive figure for the costs of such premia, it is clear that some represent a significant expense, although levels vary considerably across mechanisms. The largest form of premia by far are high cost area supplements, which are in place to reflect the higher cost of living in London and its surrounding areas – costing £986 million.¹ Recruitment and retention premia across hospital and community health staff costs considerably less, at around £28 million² per year, with these premia and supplements comprising 2.3% of all trusts’ expenditure on salaries and wages. Although there is a lack of comparable data in primary care, premia given to GP trainees cost up to an estimated £37 million a year.³

However, recruitment and retention premia expenditure is low compared to the amount of funding allocated to reflect different local labour markets. Funding received by NHS trusts and commissioners is adjusted to reflect local, unavoidable costs of providing services (known as the market forces factor), with around two-thirds (63%) of this adjustment attributable to staff costs. The stated purpose is to account for variations in employment costs, including indirect costs such as higher turnover and vacancy rates (NHS England and NHS Improvement, 2021b).

For non-medical staff, the adjustment is based on the pattern of wages within geographies (Travel to Work Areas) as defined by the Office for National Statistics, which is intended to reflect local market conditions. For medical staff, the adjustment accounts for the additional cost of London weighting only, implying that there are no further unavoidable costs from staff turnover and vacancies. The range of effects of this adjustment on income is equivalent to a £37m (3.4%) decrease for Sheffield Teaching Hospitals NHS Foundation Trust and a £107m (7.8%) increase for Barts Health NHS Trust.

Barts Health NHS Trust also experience the largest increase in relative terms, while Torbay and South Devon NHS Foundation Trust have the most significant decreasing effect compared to total operating revenue, receiving 6.9% (£27m) less than would be the case without the adjustment.

A similar resource allocation adjustment – the Carr-Hill formula – exists under the main general practice contract (General Medical Services). This also accounts for geographical variation of staff costs.

Who makes decisions on when premia should be used in the NHS?

Those in charge of making decision on premia use in the NHS varies for the different contracts that staff are employed under. The NHS pay review bodies analyse evidence and provide pay recommendations to the government, which can include recommendations on pay supplements relating to the contracts that cover all directly employed staff (Figure 1). However, the NHS pay review bodies do not make recommendations on pay supplements unless specifically invited to do so by the government. Depending on whether recommendations are accepted by the government, these are then fed into the contractual terms and conditions. In addition to these national arrangements, individual NHS employers have the employment freedom to use local premia.

Decisions can also be made outside of the annual pay review process. For example, the Agenda for Change contract (used by most NHS employing organisations) was developed by employers, membership organisations and government through nationally or locally agreed changes to employment contracts.

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Figure 1: Overview of responsibilities for recruitment and retention premia

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The Pay Review Bodies present recommendations to the English and Welsh parliaments and the Northern Irish assembly. Government can apply national premia at any point, which can be made outside of the annual pay review body process. Although NHS employing organisations have the employment freedom to use local pay flexibilities, trade unions and NHS employing organisations can seek a mandate from government to change existing premia terms and conditions, which they often do through negotiating contracts at a national level.

Although the design of national and local premia has largely remained the same for all staff since their introduction, the proportion of staff receiving such payments has fallen. This decline is largely attributable to the withdrawal of all national schemes for Agenda for Change staff in 2011 and their conversion, where deemed appropriate, to local pay supplements (NHS Pay Review Body, 2020). Moving to a local premia model was supported by NHS bodies, who argued that employers should use such payments in response to local market pressures (Department of Health, 2012; Brown and others, 2017). While most decisions to use premia are made locally, there are still nationally led schemes in place, such as the Targeted Enhanced Recruitment Scheme for GP trainees (see Appendix 1).

How do recruitment and retention premia vary between staff groups?

As at June 2021, 0.6% of all NHS hospital and community staff received national or local recruitment and retention premia, whereas 1 in 5 (20%) staff received high cost area supplements. However, the proportion of those currently receiving recruitment and retention premia varies by staff group. For example, infrastructure staff are three times as likely to receive national or local premia (excluding London weighting) than clinical support staff (1.0% compared to 0.3%).

The amount afforded to staff also differs, both in absolute terms and relative to annual earnings. While doctors earn the most out of all staff groups in absolute terms (with mean earnings of £83,266 per year), the mean premia as a proportion of their mean earnings afforded to this group is also the highest (21% of mean earnings, equivalent to £17,870) (Figure 2).

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Figure 2: Percentage of staff groups receiving premia and it's proportion of their pay

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Percentage of pay is mean annual pay per person. The data cover the year to June 2021 and covers those working in hospital and community services only. This chart excludes high cost area supplements.

NHS Digital

In addition, consultant doctors and dentists and academic GPs are eligible to receive performance-related bonuses known as national Clinical Impact Awards (CIAs). Although not strictly considered a form of premia, one of the aims of this mechanism is to retain staff (Department of Health & Social Care, 2022), though there is little evidence that these awards have improved retention. Both national and local schemes (known as Local Clinical Excellence Awards) exist, with up to 600 national awards offered to eligible consultants, ranging from £20,000 to £40,000 a year. The value of local awards varies depending on when they were granted, but there is an expectation that employers will spend a minimum amount on these awards. This is a significant amount of money being offered to consultants – with CIAs and LCEAs costing £500m in 2011/12 (National Audit Office, 2013), yet no other such scheme exists for other NHS staff.

Premia payments should be set at a level that is sufficient to attract and retain staff, and that does not place unnecessary cost on the public purse. We would expect decisions to be made based on factors including staff shortages, retention issues and the cost of living. That said, there are other reasons why premia levels might vary, including differing attitudes towards pay incentives between staff groups. International evidence has shown that income was an influencing factor among doctors that signed up to receive premia in order to fill less popular specialty places (Vaughan, 2019). In contrast – although not directly comparable to the evidence cited on doctors – research into pay incentives for nursing shows that there was no evidence that the use of pay supplements would help solve recruitment and retention problems, nor has pay been a key motivator for nurses, although this may be changing (Brown and others, 2017; The Open University, 2019).

Differences in the terms and conditions set out in different staff employment contracts also affect how premia are applied between staff groups. Although high cost area supplements (also known as London weighting) in the English NHS were initially paid equally across staff groups, at £877 per year in 1986 (£2,324 in 2021/22 prices) (Hansard, 1986), the rationale behind its use and amount allocated is now different.

There are limits on premia set and defined by different pay review bodies (Table 1). All staff on an Agenda for Change contract are subject to a London weighting uplift – for example, a band 9 director of estates and facilities in an inner London trust is given an uplift of £7,097 per year. The NHS Pay Review Body states that this is due to the higher cost of living (NHS Pay Review Body, 2020). But the review body for doctors’ and dentists’ pay believed that London weighting should be in place only as a response to labour market shortages (Review Body on Doctors’ and Dentists’ Remuneration, 2007).

The Review Body on Senior Salaries went further and concluded that geographical pay differences were not appropriate for very senior managers in the NHS because recruitment and retention premia of up to 10% of basic pay can be applied to these posts. However, average earnings for these staff working in London was below the national average across all regions (Review Body on Senior Salaries, 2012; Review Body on Senior Salaries, 2021).
 

Some variation is to be expected, with previous research (albeit needing revisiting and updating) supporting the provision of area cost adjustments to help with nursing recruitment, but not for doctors (Health Economics Research Unit, 2009).

Given the differences between funding decisions and contractual conditions regarding premia for different staff groups, further work must be done to understand whether these differences are optimal, considering the labour market challenges for each staff group. This must be coupled with the consideration of the cost of living, particularly noting the large differences in absolute basic pay, as well as premia, between staff groups. Given that research has found that public sector employers are only up to 40% as responsive to area differences in costs compared to the private sector (Bell and others, 2007), and higher costs of living lead to increased leaver rates in acute trusts (Propper and others, 2021), there should be further research into whether pay supplements sufficiently compensate the various staff groups for these higher living costs.

How do supplementary payments vary between and within geographies?

Regional variation in staffing levels can give rise to inequalities in patients accessing care, the quality of that care, and health outcomes. These regional differences are starkly observable – for example, the number of patients per GP, even after accounting for need, varies more than two-fold between local areas, from 2,804 in Hull to 1,318 in Wirral as of June 2021 (Rolewicz, 2021). Given the well-established variation in NHS staff shortages between regions (NHS Digital, 2021), the use of premia to attract staff to different areas is also expected to vary. As previously mentioned, decisions to use premia are usually made locally in response to a specific labour shortage in that area. However, nationally funded schemes can also be used to target certain areas (such as the Targeted Enhanced Recruitment Scheme for GPs). There are also some premia that apply across the whole country, such as the New to Partnership Scheme for GPs (see Appendix 1).

Although the current evidence is limited, just over a decade ago the proportion of staff receiving premia (excluding high cost area supplements) was particularly high in the South East (18.7% of all staff) and South Central England (15.7%), although this was mainly because a high proportion of nurses and maintenance staff were receiving premia. This was likely to be due to providing pay protection to some staff, which aimed to lessen the impact of changes to salaries after the introduction of new employment contracts (Department of Health, 2012). While not strictly focussed on premia, more recent research has found that the use of allowances and premiums – again, excluding London weighting – for nursing posts varies between regions, with those in London receiving the highest proportion (34%) (Propper and others, 2021).

There may also be differences in the use of national and local premia within regions, owing to, among other things, differences in attitudes of trust leaders towards paying for them. While all trusts are given the same flexibilities to use local payments, some may feel unable to justify their use, especially in the context of general funding pressures in trusts (Gainsbury, 2021). Different providers within regions will also face their own, unique recruitment and retention issues due to differences in size and type of trust, which will influence decisions on whether to use premia .

Geographical differences in supplementary pay also have a bearing on the distribution of high cost area supplements. Since the whole purpose of this type of payment is to provide compensation for those living in high cost areas, it is expected that this supplement would vary by location (see Appendix 3 for a detailed breakdown). However, geographical uplifts for the majority of hospital and community staff have not been reviewed in nearly two decades (NHS Pay Review Body, 2020). The cost of living has changed substantially during this time, and given that the rationale for this payment is based on high living costs, we would expect the payment to consider areas outside of London and its outskirts (ONS, 2021).

There are, of course, many factors affecting cost of living and the financial incentives and disincentives of working in an area. However, as an indication of how cost of living may vary, Figure 3 illustrates the differences in the geographical uplifts for a new nurse compared to the average monthly rent cost for a one-bedroom property. Such comparisons should be treated with caution given, among other things, the different accommodation options actually available.

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Figure 3: Example of differences in average monthly rent cost as a proportion of monthly net pay for a new nurse, by area

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Average monthly rent costs are for one-bedroom properties and only include private tenancies. Areas have been selected for indicative purposes only. Monthly net pay has been calculated for the 2021/22 tax year and assumes no student loan repayment plan. Pension contribution rates are in line with the tiers set out by the NHS Business Services Authority (9.3% for salaries between £26,824 and £47,845, and 7.1% for salaries between £15,432 and £26,823). Annual basic salary for Agenda for Change is for a Band 5 including high cost area supplement if applicable.

NHS Employers (2021); ONS (2021).

Uplifts to salaries in inner and outer London, as well as the fringe areas, do not appear to offset the cost of living relative to areas without a high area cost supplement, such as Sheffield. Some staff in London, such as nurses, have a higher share of their earnings accounted for by allowances and premia, which provides some amount of additional compensation for the cost of living (Propper and others, 2021). However, the offer to those looking to join the NHS in London at lower-paid bands may still not be an attractive one. On top of this, recent graduates are more likely to have a student loan repayment plan (Bolton, 2021), which would further reduce their take-home pay once in employment. An additional problem is that other areas of the country with relatively high average rent prices (such as Brighton) are not eligible to receive additional payments based on the cost of living. Interestingly, the broadening of high cost area supplements to other regions was considered under a previous government, though with little supporting evidence and without any intention to increase funding – implying that money would be taken from those receiving the supplement in London and distributed more widely (Lazou, 2012).

Further work should be done to understand what the appropriate level of compensation would be for living and/or working in or around London, as well as in other areas that face higher living costs. However, the importance of local labour markets should not be underestimated, as different regions may respond differently to changes in pay (Crawford and others, 2015). Nonetheless, any increases or broadening of eligibility for high cost area supplements would need to be backed by funding from HM Treasury.

How effective are pay supplements at recruiting and retaining NHS staff?

While there have been numerous schemes in the NHS that have made use of premia over the last few decades, little is known about the impact and cost-effectiveness of these initiatives. These policies vary in complexity, scope and nature, as shown in Figure 4 below.

This lack of evaluation is true across the public sector; if anything, the scarce existing research casts more doubt over whether such pay supplements are effective (Brown and others, 2017). This is often demonstrated in the literature (albeit in North American settings) when looking at teacher bonus retention schemes, where studies have shown that salary supplements are often insufficient to incentivise teachers for other factors such as working in an area of high deprivation (Clotfelter and others, 2008).

It would be useful to know the extent to which financial incentives help solve NHS staff shortages in areas that historically struggle to recruit. This is particularly important given the ‘levelling up’ agenda, through which there is a likely expectation for the NHS to eliminate the unwarranted variation in staffing levels between areas (Hutchings, 2021). In evaluating the impact of a scheme, there are a number of different interim outcomes that we discuss below.

Firstly, we need to know whether premia schemes attract enough people. In some cases, we do know that – at the very least – people took up places which had premia attached. For example, Health Education England’s report encouraging fill rates for TERS (Health Education England, 2020). However, it is not always clear the extent to which funding changed behaviours, for instance, how many medical trainees would take up training posts in the absence of TERS. In Scotland, the influence of TERS was not as strong as other motivators, such as the location of family or a partner and pre-existing geographical preferences. This suggests that pay packages may not be a sufficient offer on their own (Lee and Cunningham, 2019). Indeed, London has the highest vacancy rates in NHS acute, community and mental health settings, despite offering supplementary payments (NHS Digital, 2021).

Secondly, it is important to understand whether premia help with staff retention in the long term. Over the last 20 years, several premia schemes have focussed on growing the GP workforce (Department of Health, 2002; 2005), with a particular focus on improving GP supply in more deprived areas. Research suggests that these policies may have had an impact in increasing GP numbers in the most deprived areas and reducing inequity of supply relative to need – although this is only indicative rather than definitively measuring the success of the schemes (Fisher and others, 2022). In some cases it is still too early to tell; for example, TERS and the New to Partnership payment are relatively new programmes.

Thirdly, there should be comprehensive understanding of the effects of using local payments on neighbouring areas and other staff groups. For instance, one (albeit old) study highlighted that the use of sign-on bonuses was associated with nurses feeling that financial incentives were unfairly distributed, and increased the likelihood of losing experienced staff (Mantler and others, 2006). It is particularly important for neighbouring trusts to regularly review their use of premia to lower the risk of inadvertent competition in a given area, prevent wage spiralling, and strike the right balance between pay and non-pay benefits. There is also a risk that focussing on the needs of one specific group of staff may unintentionally have a knock-on effect for other staff groups, whose membership organisations could make the case for their staff to also receive premia.

On top of this, there are historic differences in the characteristics of staff who do and do not receive premia. One example is the previous uptake of consultants receiving national Clinical Impact Awards, where black and minority ethnic were underrepresented in the pool of those applying to receive an award, as well as having lower success rates than their white counterparts (Advisory Committee on Clinical Excellence Awards, 2021). That said, there has been a consultation on broadening access to CIAs among the consultant workforce, including encouraging more applications from female staff, people of colour, and those working part-time (NHS Employers, 2022; Department of Health & Social Care, 2022). The process of offering other forms of premia to staff should also consider how fairly they are distributed with respect to the demographics of staff.

Are recruitment and retention premia worth it?

The limited evidence available presents arguments for and against the use of premia. Fundamentally, there needs to be some clarity from policymakers on the purpose and eligibility of such payments, including the high cost area supplement.

The situation is complex: there are multiple employment contracts for different NHS staff, which all have differing approaches to premia. On top of this, variation in attitudes to premia exist between trusts, which can create unhelpful competition between them. While one trust may advertise pay supplements to fill a post, another may offer existing staff promotions to higher bands. As NHS trusts increasingly have responsibility for some premia schemes, this is likely to create more ambiguity and inconsistency in the application and impact of premia, which will need careful monitoring and evaluation going forward.

As a starting point, for each scheme it would be helpful to know:

• whether they are attractive for prospective applicants
• whether they increase staff retention in a given area
• if the benefits of these schemes outweigh the cost
• what, if any, are the unintended consequences of premia on other areas, staff groups and characteristics.

Independent evaluations should be commissioned to understand their effectiveness. There also may be value in the government identifying and sharing best practice of the use of premia across different sectors, as well as drawing on examples from other UK nations.

There must also be further research to understand the motivations behind staff taking up these payments. It is also important to recognise non-financial incentives that are valued by NHS staff that could be used instead of, or in addition to, premia. This better understanding should help design the future mechanisms for recruitment and retention that the NHS so clearly needs.