UK: Charity Executive Salaries: Giving It Away?

Last Updated: 29 August 2013
Article by Tim Hayes

Charity bosses are the latest group of workers to have the salary spotlight trained upon them. A number of newspapers have picked up on a report undertaken by the Telegraph relating to salaries received by chief executives at a number of well-known charity organisations. The article focused on comments by William Shawcross, Chair of the Charity Commission, suggesting that there is a danger the third sector will be brought into disrepute by what might be perceived as a City-style approach to remuneration.

This is the latest instalment in a very public debate on pay. The recent banking crisis has triggered a widespread and genuine bout of soul-searching by the public and the media with regard to salaries. How much should one be paid? Should salaries be commensurate with results or pegged to some other measure, such as corporate performance or average salaries? Essentially, are people really worth the sometimes gargantuan salaries which they receive?

It is unsurprising that there is simmering discontent about salaries in the financial services sector, given that many do not understand the often complex instruments traded by those who earn the most. It is also true that there is often an immense disparity between top and bottom earners in banks. The answer to such public discontent given by banks and politicians has been, and remains, that talent costs money and failing to lure able and inspirational professionals with favourable terms of employment would cause irreparable damage to balance sheets and the interests of shareholders. It is an uncomfortable argument to put forward, but it is one which appears to have been grudgingly accepted, at least in political circles.

So, why should the 'banking' argument not also hold for salaries paid to top charity executives? The charity sector is, of course, more emotive and is ostensibly driven by altruism rather than financial reward. One of the main goals, if not the only one, is to accumulate as much as possible in the way of funds to then distribute in as efficient and fair a way as possible. In general, charity staff are or should be driven by considerations which are separate from financial reward. Without doubt a few eyebrows may have been raised among the public on learning that those who direct the organisations to which they donate receive seemingly generous salaries sometimes in excess of Ł100,000. Such funds could, theoretically at least, be earmarked for distribution in accordance with a charity's underlying aims, but are being paid into the pockets of those tasked with looking after its financial health.

However, whilst it is true that workers in this sector are generally motivated by an identification with the aims of the charity for which they work, it is undoubtedly still difficult for charities to attract top professionals. Although it is of course desirable that charities should be able to harness such expertise at the lowest possible cost, the reality is that they operate within a market economy in which they must compete for talent with the entire range of corporate and commercial organisations, many of which are capable of offering extremely tempting remuneration packages.

Charity trustees are appointed to protect the interests of the charity and administer the funds at their disposal in such a way as to ensure the long-term financial health of the organisation. To do so, they need to put in place a management structure capable of safeguarding those long-term interests, comprising experienced professionals who understand the sector-specific demands of fundraising and have the requisite leadership skills. Seen against that backdrop, paying higher salaries, albeit within reasonable limits, is a simple reality for charities wishing to attract and retain chief executives capable of bringing real benefit.

It is also worth considering the sheer amount of donations some of the leading charities process on a yearly basis, running into tens and even hundreds of millions of pounds, amounts which far outstrip many corporations who often pay their top management far in excess of their charity counterparts. Within such a context, it is debatable whether six-figure annual salaries really are so disproportionate.

Provided that salaries are in keeping with the work performed by each executive and are commensurate with the value they bring to their charity, there is every reason why they can be justified. Every case will be different and, arguably, the sector does need to keep a sense of perspective to ensure that remuneration is indeed proportionate. However, a modestly high salary, proportionate to the size and importance of each charity, is one way of rewarding those at the top for the vital work they perform.

If, as a result of media and public pressure, charities were inclined to renegotiate reductions in chief executive pay, they would have to do so firmly within the legal framework applicable to employment contracts. Trustees should proceed with great care, and always on the basis of legal advice, in order to avoid contract disputes and potential claims for constructive dismissal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Tim Hayes
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