Report of the Inquiry into Charity Senior Executive Pay and guidance for trustees on setting remuneration

Published: April 2014

Back to contents 2 Report of the Inquiry into Charity Senior Executive Pay Contents

3 Scope of the Inquiry 30 guidance on setting pay for senior staff in charities 4 Chair’s introduction 34 endnotes 6 e xecutive summary and recommendations Appendices: 9 Context 37 a. Summa ry of responses by NCVO members to a 10 an overview of the survey on senior evidence executive remuneration 15 what people said 38 b. Acknowledgements about pay 39 C. Glossary 20 Setting pay Key principles for 39 d. Useful publications charities 23 Setting pay the value of working for a charity 27 tR ansparency in reporting remuneration

Back to contents 3 Report of the Inquiry into Charity Senior Executive Pay Scope of the Inquiry

The National Council for Voluntary Organisations (NCVO) set up this Inquiry to: Members of the Inquiry Panel

• explore the arguments about what are • Lord (Charles) Allen of Kensington CBE, • Alan Parker, Chair of Save The Children, and • Ian Theodoreson, Chief Finance Officer of the appropriate levels of pay for charity senior outgoing Chairman of the British Red Cross, Founder and Chairman of Brunswick Group. Church of England, and Chairman of the executives and how these levels should be Chairman of the Olympic Legacy charity ‘Join Charity Finance Group, whose aim is to ‘inspire arrived at • Lord (Andrew) Phillips of Sudbury OBE, In’ and Global Radio Group. (Replaced during Long-time charity campaigner, who has the development of a financially confident, • explore the relationship between salary levels the Inquiry by David Bernstein CBE, incoming founded six charities including the Citizenship dynamic and trustworthy charity sector’. and public trust and confidence in the sector as Chairman of the British Red Cross. Former Foundation and the Solicitors Pro Bono Group • John Wood, Legal Board member of the Charity a whole chair of the Football Association, Wembley (LawWorks) of both of which he is now Commission from 2008 to 2014, and a • produce definitive guidelines for charity Stadium and Manchester City FC.) President. Also founder of charity firm Bates consultant at the law firm Herbert Smith. trustees, informed by a broad debate on the • Sir John Baker CBE, Former Chair of the Senior Wells Braithwaite. Ex- Chancellor of the • Mark Wood, Director of the RAC, Chairman of issues involved, to take into account when Salaries Review Body (SSRB) and subsequent University of Essex. the Trustees at the NSPCC and Chief Executive setting salaries. chair of an Independent Review into • David Sheepshanks CBE, Chair of UK Sport, at JLT Employee Benefits. parliamentary pay, pensions and allowances. The Inquiry’s task was to assist charity trustees and of UK Community Foundations, which • Vicky Wright, Deputy Chair of RNLI and in exercising their responsibility for setting the • Nick Brooks, Partner and Head of not-for-profit links philanthropists and other donors to immediate past President of CIPD (Chartered pay of their senior executives. sector group at accountancy firm Kingston local charities across the UK through a single Institute of Personnel and Development), the When the Inquiry began, it became clear that it Smith. access point. professional body of the HR community. needed to extend its remit to include making • Andrew Dent CVO, Chair of the volunteering • Michael Smyth CBE, chairs three charities • Rosie Chapman, (Secretariat) – An good practice recommendations about the charity Reach. including Community Links, the innovative independent charity advisor. She was formerly process charity trustees should follow in setting • Sacha Deshmukh, Deputy Chair of Citizens east London social enterprise; he was for many Director of Policy and Effectiveness at the pay in today’s context and how they should Advice (England and Wales), CEO of Smart years a partner at Clifford Chance and is a Charity Commission, and is a Fellow of the explain these decisions. Meter Central Delivery Body and Director of member of the Press Complaints Commission Institute of Chartered Secretaries and The Inquiry’s definition of a charity covers all Consumer Futures. and visiting professor at Queen Mary Administrators and current trustee of the University of London. those organisations operating in England and • Bruce Gordon, NCVO Honorary Treasurer and Charity Finance Group. i Wales that meet the legal definition of charity. Chairman of the Honorary Treasurers’ Forum, • Professor Gillian Stamp, Founder of Bioss All of the Inquiry Panel members served in a representing the Treasurers of all the big International, works globally as a sounding voluntary capacity. All except two of the 18 members of the Inquiry charities in the UK. board for chairmen, chief executives, senior civil servants and senior staff of organisations are independent of NCVO and were specifically • Martyn Lewis CBE (Chair), Former BBC and appointed to provide a diverse range of views. both large and small, including social The Charity ITV newscaster, Chair of NCVO, YouthNet, entrepreneurs and voluntary organisations. A The membership includes trustees and Families of the Fallen and the Queen’s Award Commission representatives from a range of large and small Fellow of the Windsor Leadership Trust, she for Voluntary Service, and President of United was an adviser to a recent committee on reform charities, as well as remuneration and HR Response. The Charity Commission has acted as an specialists. of the Civil Service. • Alice Maynard, Chair of Scope and Founding observer to the Inquiry, and given evidence from • J o h n S t e w a r t , Chair of Guide Dogs and Legal & their case work as well as comment based on Director of Future Inclusion, which ensures General, with extensive senior management effective governance practices are embedded in their regulatory experience. The regulator and business experience across a range of FTSE supports the Inquiry’s findings and report. organisations. 100 companies.

Back to contents 4 Report of the Inquiry into Charity Senior Executive Pay Chair’s introduction

Why this inquiry that can run into six or seven figures. saw evidence that this discount already exists for donors for whom pay levels are a major factor in has called for ‘two It is clear that in the hugely diverse voluntary the vast majority of paid charity leaders, giving their giving. sector one size does not fit all. There are many them on average between 25% and 45% less pay Our main recommendations are: clicks to clarity’ than they could command elsewhere. different types of charities contributing to • that, as good practice, all charities that employ on charity senior society in a wide variety of ways. They are faced So we thought it helpful to bring together, in the staff should consider publishing the precise executive pay with different challenges of organisation and body of our report, the statistics that reveal remuneration, job titles and the names of their service delivery, particularly as they grow. And, much about the UK’s charity landscape as it is highest-paid people, and that those charities in the last two decades, many overlaps have now, rather than how it might have been This Inquiry was established in summer 2013 with a gross income of over £500,000 should developed between the public, private and perceived in the past. Some may find a few actually adopt such a policy and has spent the months since going over the voluntary sectors. surprises here, such as the following examples. evidence on executive pay and listening to the • that this should be accompanied by a summary views of hundreds of people with an opinion on • Data suggests that a third of all income for • There are almost 161,000 registered general of the arguments used by the board of trustees how charities should approach setting the pay of general charities now comes from government charities in England and Wales, with an annual to justify the amounts involved and explain their senior staff. contracts for provision of services. income of just over £39 billion – more than the how they reflect the charity’s ethos and values UK defence budget. The Inquiry heard four main viewpoints on high • Some charities argue that they take few or no • that all this information should be brought pay in the charity sector, all of them strongly held donations from the general public, or that their • Almost half this income went to just 533 major together, not only within the (sometimes and vigorously expressed: salary bill is more than covered by profits from charities, each with an annual revenue of over hard-to-access) annual accounts, but also on their trading activities. £10 million. 1. that nobody who works for a charity should the charity’s website no more than two clicks ever be paid • Research and medical charities, especially • Of all registered charities, 91% have no paid away from its home page. those working to find cures for illnesses, have to staff at all; they are run entirely by volunteers. 2. that pay for a small, top tier of managers is I call this ‘two clicks to clarity’. It would give compete on the open market for the best • The remaining 9% provide jobs for around donors speedy access to not only the actual acceptable provided as many other people as scientists. possible are volunteers 800,000 people – a substantial contribution to amounts involved, but also the thinking behind On the other hand, it is a given in the charity the employment figures. them to better inform donors’ giving decisions. 3. that working for a charity is a special vocation sector that any judgement of pay levels should Some will accept the explanations; others will and the highest paid should accept much less • Fewer than 1% of charities employ a member of take into account the values and purpose of each staff earning £60,000 or more. not. The point is that this new transparency puts than they could command in the public and particular charity. Donors expect this, and the power firmly in the hands of the donors. It also private sectors – what is known as the ‘charity Inquiry felt it important to remind trustees that Because of the sheer diversity of size and purpose puts proper pressure on trustees to justify discount’ this should be at the forefront of their minds as of charities, the Inquiry thought it inappropriate publicly how their decisions on high-level pay 4. that charities should be well run on efficient they decide pay levels. to recommend a maximum figure for top level square with their legal obligation to give pay. We felt the issue was best addressed by business lines – and if that means high pay at Making the right choices on the charity pay front constant priority to the best interests of the the top, then so be it – this being the view of moving down the twin tracks of guidance and charity and its beneficiaries. can be difficult for both trustees and donors. transparency – detailed guidance for trustees, major philanthropists, companies and This is not helped by some public perceptions foundations that carry out detailed analysis of who have the clear responsibility for pay policy; that are clearly out of date. For example, when and a much higher level of transparency to easily a charity’s finances (including pay levels) we examined the calls for a ‘charity discount’ we before deciding on very substantial donations and speedily inform those existing and would-be Back to contents 5 Report of the Inquiry into Charity Senior Executive Pay Chair’s introduction

We are delighted that our proposals have the support of the Charity Commission, and that some major charities are already starting to move in this direction. However, above all, we hope this enhanced transparency will have the backing of the millions of donors across the country, who should no longer have to dig around like detectives to unearth the financial facts to inform their choice of charities to support. I am hugely grateful to the many people who helped this Inquiry: • more than 400 people or organisations who took the trouble to put forward a wide range of arguments • the larger charities who put us in touch with some of the people who wrote directly to them to complain about pay levels • the highly articulate, informed and diligent Inquiry panel members, whose breadth of views and lack of restraint in expressing them ensured a vigorous debate, as well as, I believe, sound conclusions • the NCVO support team, who provided invaluable high-quality research and advice • the indefatigable Rosie Chapman who did the ‘heavy lifting’ that shaped this report.

Martyn Lewis CBE Inquiry Chairman

Back to contents 6 Report of the Inquiry into Charity Senior Executive Pay Executive summary and recommendations

This Inquiry was set up following a series of volunteers to those who believe the pay of senior Charities with audited accounts already publish media stories highlighting chief executive pay in staff in charities needs to be consistent with the number of staff whose remuneration is some large charities. The Inquiry Panel was their peers in other sectors in order to attract £60,000 or more, in salary bands of £10,000. The specifically appointed to represent and gather a and retain professional expertise to deliver the Inquiry recommends that these charities go diverse range of views and explore different charity’s aims. While the Inquiry’s findings and further, and develop and publish a remuneration perspectives on levels of senior staff recommendations may not reflect the views of statement explaining their pay strategy and remuneration in charities. everyone who contributed, the full range of stating the individual remuneration of their The charity sector undertakes a huge range of views have been considered. highest-paid staff by position and name. The activities. It includes many different types of Examples of high pay have dominated some of Inquiry believes that giving trustees the tools charity. They range from village halls; the headlines, but the evidence shows that the and confidence to agree and explain the pay of playgroups and hospital radios run largely, and vast majority of charities do not have any paid their senior staff will improve public often exclusively, by volunteers through to staff and, in those that do, the salaries quoted by understanding and confidence in charities. household names such as national medical the media are not typical. The Inquiry’s report and findings are supported research charities, international development The Inquiry recognises the evidence that the by the Charity Commission. charities, museums and art galleries, as well as charity sector pays significantly less than other hospitals, religious organisations and sectors for comparable senior roles. Most independent schools charities. The nature of charities’ remuneration strategies are what they do and the breadth of their operation essentially designed to attract and retain people inevitably determines how they are organised who are already motivated and committed to and the type of staff they employ. charities’ work. However, all charities are governed by the same Certain charities cannot operate effectively legal requirement (explained on page 9): that without employing highly professional and they exist exclusively for public benefit. In all skilled staff. In fact, the nature and complexity of cases, their trustees are ultimately accountable many charities makes this increasingly for decisions about pay. This provides the context necessary. However, the Inquiry also believes for the Inquiry’s findings and has shaped all of its that charities that depart from paying a salary recommendations. that reflects their charitable context should have The Inquiry has tried to balance quite divergent good and sound reasons for doing so. They should views, ranging from those who think that also be able to explain their approach and charities should be entirely led and run by rationale. Back to contents 7 Report of the Inquiry into Charity Senior Executive Pay Executive summary and recommendations

Recommendation one: Principles for setting charity remuneration (Page 21)

The Inquiry recommends that the following 4. In deciding top levels of pay and rewards h. the nature of the wider ‘employment offer’ principles for setting charity remuneration are trustees should consider: they can make to potential employees, where adopted as good practice by all charities that a. the purposes, aims and values of the charity pay is one part of a package that includes employ staff. These principles should be and its beneficiary needs personal development, personal fulfilment interpreted according to their particular and association with the public benefit circumstances. The principles should apply b. how this impacts on overall pay policy for all delivered where a charity’s trustees consider it necessary employees, and for the senior staff in particular, including whether a ‘discount’ i. the charity’s track record in attracting and to hire paid staff to carry out the charity’s work retaining committed and motivated employees and help fulfil its exclusive charitable purposes: compared with pay for similar roles in other sectors is appropriate j. the likely impact on and views of beneficiaries, 1. The overall goal of a charity’s pay policy should c. the types of skills, experiences and donors, funders, volunteers and potential be to offer fair pay to attract and keep volunteers, where appropriate appropriately-qualified staff to lead, manage, competencies that the charity needs from its support and/or deliver the charity’s aims. This senior staff, the specific scope of these roles k. the relationship between the policy and should always be consistent with the charity’s and the link to pay practice for the pay of senior staff and that of aims and recognise that for certain charities, d. the charity’s current business plan and how the charity’s whole workforce. particularly those with a volunteer ethos, it is the implementation of this plan may affect the possible to attract senior executives at a number of senior staff it needs to employ or discount to public sector or private sector recruit and the nature of these roles market rates. e. the charity’s ability to pay – this includes the 2. Trustees are ultimately responsible for setting cost to the charity of raising pay, and whether remuneration levels for the charity’s senior it is sustainable, and how appropriate the level staff. Trustees should clearly identify these of pay, and any pay increase, is in the context of senior staff, who will typically, although not the charity, as measured against the needs of always, be part of the charity’s executive and/ its charitable purposes and beneficiaries or senior management team. f. their assessment of the charity’s performance 3. To set the pay and rewards properly for these and the senior staffs’ performance against staff requires informed judgements as well as expectations, in both the short and long term adherence to the charity’s governance and constitutional arrangements. g. appropriate available information on pay policies and practices in other organisations that can help make the decision on whether a level of pay is fair and reasonable

Back to contents 8 Report of the Inquiry into Charity Senior Executive Pay Executive summary and recommendations

Additionally, if an individual, whatever their Recommendation Recommendation level, earns more than the chief executive this two: A four: Charity should be disclosed. remuneration remuneration Where a charity has a structure that includes policy (Page 22) ratios (Page 26) subsidiary trading companies, these will appear in the charity’s consolidated accounts. The The Inquiry recommends that, as good practice, The Inquiry recommends that charities with an Inquiry considers any staff employed within all charities that employ staff should consider income of above £500,000 consider the use of such a company, or companies, to be within the adopting a remuneration policy and all charities remuneration ratios (the relationship expressed remit of this report’s recommendations if they with independently audited accounts (currently as a multiple between the highest pay to median meet the charity’s definition of their highest- those with a gross income of over £500,000) pay in an organisation is regarded as the most paid staff. should adopt such a policy. reliable measure) as a helpful tool to assist in In all cases, the definition and disclosure should their approach to pay; for example in helping to include the charity’s chief executive, irrespective Recommendation identify the impact of pay decisions on of his or her salary. three: The esteem individuals and the appropriate distribution of The term ’remuneration’ includes the total any increase in payroll spend across the whole financial rewards made, or available, to an and value attached charity each year. employee. (see the definition in the Glossary in to working for a Appendix C). charity (Page 23) Recommendation In addition to the remuneration disclosures that five: Publishing an charities are required to include as a note to their The Inquiry recommends that charities consider annual statement accounts, as good practice the charity’s the esteem and the value – financial or otherwise remuneration statement should be: – derived by employees from working for a (Page 28) • included within its Trustee Annual Report charity and the impact this may have on setting • published in a prominent area of the charity’s levels of remuneration for senior staff and others The Inquiry recommends that, as good practice, website, no more than two clicks away from the throughout the organisation. Where applicable all charities with independently audited homepage and alongside the remuneration, the approach should be made available in a accounts should: roles and names of the highest-paid charity’s remuneration statement. • publish an annual statement explaining their individuals. This is to ensure ease of access. charity’s ethos and policy on remuneration Below the charity audit threshold, other • explain how this impacts on the delivery of charities are encouraged to adopt a similar their charitable purposes approach and, in all cases, to report the salary of • report the actual remuneration, roles and their chief executive. names of individual, highest-paid staff, as

defined by the charity. For some charities, the definition might include the chief executives and any staff in leadership positions who report directly to them. Back to contents 9 Report of the Inquiry into Charity Senior Executive Pay context

The summer of 2013 saw a series of media stories Charities should have a head start here. They The decisions charity trustees take are not highlighting chief executive pay in some have historically succeeded in raising money for T he legal simply business or managerial; they are charities, in turn triggering a strong reaction the causes they work for, and in speaking up for foundations judgements about the best means of achieving from some members of the public, including their beneficiaries, largely because of the of the report the charity’s purposes and beneficiary needs. donors. It is, of course, right and proper for the compelling case they make about their Inevitably, charities’ purposes and how these are media to scrutinise charities, which play an beneficiaries’ needs to potential donors, funders most efficiently delivered, along with their values important part in UK public life. Yet these and opinion formers. The Inquiry argues that Charity law is unique in our legal system. It is and ethos, affect their considerations about pay stories were hardly new. The last 15 years have charities should use these same skills to explain firmly founded on certain values. Central to and the balance between the need for paid seen the spotlight turned on levels of charity pay what they need to run effective organisations those is the requirement of exclusive public employees and reliance on volunteers. ii benefit both as regards the purposes of every at regular intervals, both in the UK and and how that defines their approach to Yet there are some similarities between the iii charity and also the means by which the same elsewhere. Each time, the sector has responded remuneration. private, public and charitable sectors. Charities with a range of guides recommending ways in may be pursued. The Common Law, buttressed The parallels that are often drawn between by statute law, is absolute about that. also increasingly employ professionally qualified which charity trustees should set pay levels for private and charity sector pay determination staff to deliver their services, and they expect iv their chief executives and senior staff. have significant limitations. Setting pay in large All charities accordingly share some common them to share a commitment to the charity’s While the basic principles for setting pay may not public limited companies is the responsibility of characteristics that must be observed by charitable aims and ethos and meet performance have fundamentally changed since these reports remuneration committees of boards who have trustees when they consider pay. They must be targets. They stress the importance of were published, public expectations certainly clear accountability to shareholders for the completely independent in formulating their demonstrating value for money in acquiring and have. Calls for greater transparency and short-and long-term financial performance of policy and decisions, and their decisions must deploying resources. The modern-day demands disclosure have led to requirements for both the business. Recent legislation has given be reached solely on the basis of the best on charities also include expectations of efficient listed companies and public bodies to publish shareholders specific powers to hold a binding interests of the charity and its beneficiaries. and effective delivery of their aims. more information about how they reward their vote on certain aspects of executive Trustees exemplify the voluntary nature of the Within the charitable sector, there is a huge v senior staff. remuneration. In extreme cases board members charity and are thus themselves unpaid, except range of activities undertaken by different types For charities, which are funded wholly or partly can be removed by the shareholders if they are in the rare cases where remuneration is of charity. However, all charities are governed by by public money in the form of donations and tax not satisfied with their performance. authorised. the legal reality: that they exist exclusively for reliefs, the additional pressure to tell the public By contrast, and fundamental to this Inquiry, is This, in brief, is the legal basis upon which this public benefit. This provides the context for the how their money is spent has clear implications the fact that all charities are legally different to report is based. Inquiry’s findings and it has shaped all of its for how they explain their pay decisions to other entities. recommendations. donors, beneficiaries and the public.

Back to contents 10 Report of the Inquiry into Charity Senior Executive Pay A n overview of the evidence

This section briefly reviews the available 45% when bonuses and longer-term financial income of £61.4 billion.vi OSCR reports that evidence on employment and remuneration in incentives are included. 23,351 charities were registered in 2011 with an vii the voluntary sector. It draws upon charities’ • Conversely, evidence indicates that at lower income of at least £9.4 billion. CCNI own annual reports and accounts, salary surveys levels, pay is more likely to be comparable to estimates between 7,000 and 12,000 charities viii Housing associations and the Office for National Statistics’ Labour roles in other sectors. operate under its jurisdiction. Force Survey. These are summarised below. Combining these registers suggests that there Independent schools • Only a small proportion of the charity sector are almost 200,000 registered charities in the Government bodies employs staff. Using NCVO’s ‘general charities’ Chai r ties in the UK UK, with a total income of at least £70 billion. Subsidiaries definition (which excludes, for example, However, as many of these organisations might independent schools, fee-paying hospitals and not be recognised as charities by the public, a NHS charities Charities in the UK are incredibly diverse. They government agencies with charitable status), it narrower definition is also useful. Independant hospitals range from the largest household-name charities is estimated that only 9% of organisations with annual incomes of over £100 million to the Mutuals employ paid staff. Of these charities, 91% are smallest unregistered community groups, Inactive and duplicate organisations solely reliant on volunteers. Ab su set of covering a wide range of charitable purposes Faith groups • Nevertheless, the charity sector is a major from the relief of poverty to the advancement of registered Trade associations source of employment. It is estimated that animal welfare. They include organisations that charities: ‘general charities’ employ 800,000 staff at a self-define as ‘social enterprises’, those that ‘general charities’ cost of £14.4 billion to the sector. fundraise from the general public and a number • Charities publish data on the number of staff of public bodies that benefit from charitable status. NCVO and the Third Sector Research Centre earning £60,000 or more. Using the ‘general (TSRC) produce estimates of the size, scope and charities’ definition, it is estimated that 7,100 For the public at large, registered charities are income for a subset of registered charities, which staff earned £60,000 or more in 2011; of these, perhaps the most recognisable manifestation of have been termed the ‘general charities’. The 1,100 earned £100,000 or more. It is estimated the voluntary sector. Charitable organisations definition uses public registers as a starting point that in all UK registered charities, 15,000 staff are required to register with the Charity but excludes charities in certain categories: earned £60,000 or more in 2011; of these, 2,700 Commission for England and Wales if their moribund organisations (ones that have not Scottish charities earned £100,000 or more. income is over £5,000 a year; numerous small, submitted returns for three years); government Northern Irish charities • Fewer than 1% of UK charities in 2011 are unregistered charities also exist. By contrast, all bodies with charitable status (such as the Arts estimated to have employed a member of staff charitable organisations based in Scotland and Council or sector skills councils); charitable earning £60,000 or more. Northern Ireland are expected to register with housing associations; independent schools and the Office of the Scottish Charities Regulator hospitals; and primarily religious organisations. • Surveys consistently report that senior pay in (OSCR) and The Charity Commission for The definition also excludes academy schools charities is lower than for comparable roles in Northern Ireland (CCNI), respectively. and most universities, as most of these charities other sectors. Senior salaries in charities are are subject to separate regulatory and reporting estimated to be 25% lower than comparable At December 2013, according to the Charity requirements.ix Finally, it includes charities in roles in the private sectors, widening to about Commission for England and Wales, their register contained 163,709 charities with an Scotland and Northern Ireland. Back to contents 11 Report of the Inquiry into Charity Senior Executive Pay A n overview of the evidence

Although it is not perfect, the ‘general charities’ The general public are important stakeholders: definition is more likely to accord with public NCVO/TSRC estimate that gifts, legacies, P aid staff and volunteers perception of the ‘charity sector’. Because it is a purchases (such as membership fees) and other in the charity sector subset of all registered charities, it removes a fundraised contributions accounted for £17.4 NCVO believes that the Labour Force Survey, a large number of organisations and a significant billion (44% of the total income) in 2011/12. The vast majority of all charities rely entirely large-scale survey of households, provides a proportion of the income reported by charity Much of this is given freely, based on trust. upon the work of volunteers and do not employ more reliable estimate of how many people work regulators. As such, NCVO/TSRC estimate that any staff at all. There are estimated to be 12.6 in the wider ‘voluntary sector’. Using this source, These ‘general charities’ are also substantial million people in England formally volunteering NCVO/TSRC estimate that the voluntary sector there were 161,266 general charities in the UK suppliers of services to the state; in 2011/12, with a total income of £39.2 billion and a current once a month (some of whom volunteer outside of employed 793,000 staff in 2012, equivalent to £13.7 billion of their income was obtained the charitable sector). Evidence suggests that approximately 630,000 FTE staff, and expenditure of £38.0 billion in 2011/12. Almost through this route. Importantly, this income was half of this income accrued to 533 major over 900,000 people volunteer specifically as approximately 2% of the UK workforce. The increasingly in the form of contract payments for charity trustees. Labour Force Survey also shows that 60% of paid charities, each with an annual revenue of more delivering services and it has driven much of the than £10m.x According to their accounts, the 17,000 general employees are employed in health and social care growth in the charity sector over the last two organisations. decades. It has been argued this has also driven charities in the UK that employed staff spent growth in employment and the £14.4 billion on staff costs in 2011/12, employing ‘professionalisation’ of the charitable sector.xi an estimated 532,000 full time equivalent (FTE) staff. Almost all organisations with an income of £1m or more employed paid staff.

Table 1 Table 2 General charities 2011/12: Less than £10k– £100k– £1m– £10m+ Total General charities 2011/12: Less than £10k– £100k– £1m– £10m+ Total by income £10k £100k £1m £10m by income £10k £100k £1m £10m Number of organisations 82,391 52,815 21,257 4,270 533 161,266 Staff: FTE estimate 4,599 13,110 91,579 151,206 271,866 532,360 Proportion of organisations (%) 51.1 32.8 13.2 2.6 0.3 100.0 Staff costs (£m million) 6.4 221.6 2,362.7 4,878.3 6,960.3 14,429.4 Income (£million) 228.5 1,856.1 6,544.2 11,821.5 18,798.8 39,249.1 Organisations with staff 749 2,612 9,733 3,675 459 17,228 Proportion of income (%) 0.6 4.7 16.7 30.1 47.9 100.0 % of organisations with staff 0.9 4.9 45.8 86.1 86.1 10.7

Back to contents 12 Report of the Inquiry into Charity Senior Executive Pay A n overview of the evidence

Remuneration in the charity sector

Evidence from numerous sources indicates that, •Differentials between charity employees’ Table 3 at most levels, employees in the charity sector salaries and their equivalents in comparably Responsibility NMSS VSSS VSSS as a are paid less than their counterparts in the sized private and public sector organisations level % of NMSS public or private sectors. The evidence is not appear to be greatest at the most senior levels. Median (£) Average (£) Median (£) Average (£) Median Average conclusive about the size of any discount, how Recently published research by the management that discount varies (for example, with consultancy, Hay Group, shows that the base Director 110,011 114,663 79,226 80,072 72 69.8 seniority), why any discount operates and the salaries of charity chief executives are up to 25% Senior function 90,000 87,428 61,500 62,340 68.3 71.3 impact of a discount on recruitment, retention less than their private-sector peers in equivalently head and motivation (the so-called ‘warm glow sized organisations.xv This gap widens Function head 69,156 68,540 50,737 51,426 73.4 75 theory’ coined by the economist James considerably to about 45% when bonuses and Department 57,500 55,719 41,299 41,805 71.8 75 xiii Andreoni ). longer-term financial incentives are included. manager It is important to note at this point that the • Conversely, evidence suggests that differentials Professional level 4 40,600 40,940 36,600 37,098 90.1 90.6 comparison of similar roles and salaries in are least likely to exist at lower responsibility Professional level 3 33,200 33,352 31,670 31,956 95.4 95.8 different sectors is not without problems. levels. Professional level 2 27,540 27,491 26,004 26,370 94.4 95.9 Benchmark surveys are, by definition, based on The human resources and benchmarking Professional level 1 20,000 20,575 19,568 19,686 97.8 95.7 self-selecting samples, whilst similar-sized company, XpertHR, produces regular salary organisations may operate very differently. surveys. Table 3 compares its 2013 Voluntary Entry level - trainee 16,814 17,385 15,607 16,099 92.8 92.6 Nevertheless, a number of broad statements can Sector Salary Survey (VSSS) with its National professional be made from a reading of the literature: Management Salary Survey (NMSS) for • Data from the Labour Force Survey suggests organisations turning over £25m or less, to that over the period 1998–2007, wages in the illustrate differentials. Differentials are greater voluntary sector have risen more quickly than if larger companies in the NMSS are included. in the public and private sectors. As a result, The VSSS sample is largely composed of charities differentials have narrowed or, in some areas, with a turnover of £1m or more. no longer exist.xiv

Back to contents 13 Report of the Inquiry into Charity Senior Executive Pay An overview of the evidence

Other industry surveys present similar statistics. For example, Croner has provided Remuneration of staff earning information showing changes in salary at least £60,000/year differentials over time between Croner’s own charity survey and the private sector (see Charities re quired to produce audited accounts It is important to note that these estimates are Table 4). must also report the number of staff paid for all registered charities in the UK not just the £60,000 or more a year, in bands of £10,000.xvi general charities subset: that is, they include Table 4 NCVO/TSRC have used a representative sample employees working in statutory bodies with Responsibility level 1990 1995 2000 2005 2009 of audited accounts to estimate total numbers of charitable status, private schools and hospitals staff in each band. Using this source, NCVO/ and a number of other bodies. CEO NA NA NA NA -21.4 TSRC estimate that 15,000 employees in all Other directors -20.9 -11.7 -12.6 -18.8 -17.5 registered charities in the UK were paid at least Head of function -15.9 -18.2 -20.1 -15.7 -15.6 £60,000 in 2011. Senior manager -13.1 -13.4 -16.8 -13.4 -13.9 Middle manager -14.1 -7.6 -13 -10.7 -9.6 Table 5 Junior manager 0.7 -1.8 -5.2 -3.9 -4.6 Registered charities: number of staff by salary bands Trainee manager/supervisor 0.21 5.9 3.3 2.7 1 Charity by income £60k–£100k £100k–£250k £250k+ Total* £500k–£1m 335 16 0 352 £1m–£5m 2,119 176 1 2,296 £5m–£10m 1,670 283 1 1,954 £10m–£100m 5,399 946 14 6,359 £100m+ 2,744 1,199 38 3,981 Total 12,266 2,621 55 14,942

*These are estimates extrapolated from a sample: the Inquiry suggests rounding totals up/down to the nearest 100.

Back to contents 14 Report of the Inquiry into Charity Senior Executive Pay An overview of the evidence

Using NCVO’s narrower general charities subset To summarise the analysis of employees by Types of charities (Table 6), it is estimated that 7,100 employees salary band in England and Wales: that are most and earned £60,000 or more in 2011. In fact, a • 1.2% of staff employed by general charities were majority of those earning £60,000 or more were paid £60,000 or more in 2011; 0.2% of the least likely to pay employed in ‘non-general charities’. workforce were paid £100,000 or more. higher salaries Table 6 •Assumin g the Labour Force Survey-based estimates of workforce (793,000) are accurate, The NCVO/TSRC analysis shows that of all General charities: number of staff by salary bands and assuming the public are interested in all registered charities those most likely to pay staff Charity by income £60k–£100k £100k–£250k £250k+ Total* registered charities, then those earning £60,000 or more are: £500k–£1m 252 7 0 259 £60,000+ in 2011 were equivalent to 1.9% of the • educational charities, principally independent workforce. This compares with 4.5% in the schools: the latter constitute 9% of registered £1m–£5m 1,228 93 1 1,322 public sector and over 6% in the private charities with a turnover above £500,000, but xvii £5m–£10m 774 129 1 904 sector. account for 27% of those that have at least one £10m–£100m 1,936 329 3 2,268 • More than two-thirds of staff earning employee paid over £60,000; £60,000+ in 2011 were employed by registered 1,874 492 26 2,392 • business and professional associations; £100m+ charities with an annual income of over £10m. Total 6,064 1,050 31 7,145 • nursing homes and residential health-care • Table 7 shows the number of charities paying providers; and *These are estimates extrapolated from a sample: the Inquiry suggests rounding totals up/down to the nearest 100 salaries of £60,000 or more to one or more of • medical research and general research their employees. Less than 1% of UK registered charities. charities employ a member of staff earning Table 7 £60,000 or more; the same is true for the Religious charities are least likely to pay staff Number of organisations £60k– £100k– £150k– £250k+ Total general charities subset. £60,000 or more. £100k £150k £250k (estimate) Registered charities 2,693 820 212 24 2,745 General charities 1,319 320 82 9 1,329

Back to contents 15 Report of the Inquiry into Charity Senior Executive Pay What people said about pay

Since August 2013, NCVO and the Inquiry have received a total of 423 comments on senior The views of donors and the public executive pay, comprising: The public contribute a significant proportion of With that caveat, the Inquiry canvassed a wide • 54 letters and emails from members of the the charity sector’s overall income, whether range of views on the pay of senior staff in public, submitted via the Inquiry’s dedicated through individual donations, covenants, charities through articles in The Independent email address legacies or membership subscriptions. They are a and The Daily Telegraph.xxii The Inquiry • 104 comments from charities responding to an significant stakeholder.xviii Unlike company received 54 submissions via this route. email NCVO sent to its members in August shareholders, charity donors do not expect a Many of the NCVO members who responded to 2013 xix financial ‘return’ on donations. Instead, their the Inquiry (see box below and Appendix A) said • 227 replies from charities to a survey the expectations tend to centre on how effectively that they regularly donate to charity. The Inquiry circulated to NCVO members in charities use their donations. They also evidence from all of these donors reflected four November 2013 increasingly pay attention to how charities distinct views. measure and describe their impact (their social • 38 comments on two blogs about chief return). executive salaries posted by NCVO’s director of public policy. The debate about the pay of senior staff in charities has periodically re-surfaced over the The Inquiry also spoke to a number of years. Recent research found that the top organisations and individuals who have an concern of people polled about charities was that interest in the remuneration of senior staff of they spent too much on executive salaries, with charities (see Appendix B). 42 % of respondents citing this concern.xx This section summarises all of these views. However, the Inquiry is not aware of any evidence of the debate influencing the long-term behaviour of the majority of donors or levels of public trust in charity.xxi

Back to contents 16 Report of the Inquiry into Charity Senior Executive Pay What people said about pay

More generally, funders said that they valued The four views about charity charities’ increasing use of professional staff to pay and charity employment help drive improvements in efficiency and effectiveness. 1. Volunteers only 3. Applying the charity context 4. Recognising the role of There should be different principles. Large The first view expressed was that everybody to charity pay professional staff in achieving charities are managing large amounts of money, working for a charity should be a volunteer. The third view, accepting the need for charities charitable outcomes sometimes more than £300 million a year. It is The statement below encapsulates the view of to employ staff, was that there is an inherent The fourth view, more likely to be heard from essential to have very experienced and skilled this group. value or reward in working for a charity. This major philanthropists, trusts and large managers and senior executives. The difference between these charities and charities with no or In simple terms – no pay at all, only should form part of the overall reward equation. companies donating to charities, was that The charity context should be reflected in lower charities will always be financially scrutinised few paid staff is huge. allowances. Talking to an unpaid helper in my Charity trustee, donor and employee local charity shop I was amazed to discover that or ‘discounted’ salaries compared with similar before receiving direct donations and this senior charity workers were being paid. I naively roles in other sectors. There was a clear includes analysis of the charity’s pay levels and thought, for example, that when a senior expectation that senior staff should act out of structure and the performance achieved. An executive retired [from business] their altruism and be motivated by the charity’s example is: contribution to charity would be through purpose in tandem with a modest financial Some [grant-making trusts] increasingly similar unpaid work through their favourite package. This view was particularly prevalent scrutinise executive pay over £60,000 and can charity. for charities involved in reducing poverty. withhold funding if they are dissatisfied and Email from a donor to the Inquiry Examples of this view are: consider pay levels excessive. We need to be able Charity executives should be inspired by the to convince them that pay is fair to executives 2. Volunteer-centric values of the charity and should not expect pay and to donors. commensurate with a commercial or private Charity trustee The second view expressed was that charities sector role. should only pay a few core staff, with as many The nature of some charities’ funding and Donor and member of a charity finances is changing, requiring more complex volunteers as possible running the charity and remuneration committee delivering the service. A typical example of this skill sets. For example, lenders and institutional view is: I feel that for large charities, fees in the funders of charities said they require assurance £100,000/£125,000 range are tolerable, but not that a charity has senior staff with appropriate ‘The voluntary principle should pervade all where a previously retired person is involved as skills to help ensure a return on their aspects of a charity’s activities, and there should he/she will have already provided for their investment. This increases when the charity is be more reliance on and use of volunteers.’ View retirement. using new or innovative forms of investment. expressed to the Inquiry Donor This is often a key part of such funders’ due- CEO salaries should be capped. The public do diligence considerations. For some charities, it not donate to pay for excessive salaries and was seen as a significant factor in determining anything over £50,000 would be seen as such. salary levels, particularly where ‘poor’ pay was Donor perceived by their funders as being directly related to senior staff exercising ‘poor’ judgement.

Back to contents 17 Report of the Inquiry into Charity Senior Executive Pay What people said about pay

responding to the Inquiry thought, erroneously, commentator said, ‘Trust hangs precariously in The views of that charities do not report anything about the the balance waiting for a big scandal to break, or former donors salaries that they pay their senior staff. more prosaically for the public to realise that Information is in the public domain but clearly charity workers are not volunteers but paid The Inquiry spoke to a number of people who had many people have either not sought this professionals.’ xxvii stopped donating to specific charities because information or been unable to find it in annual they felt the chief executive’s pay was too high. reports or online or simply assumed no such information exists. Discoverability is clearly a Beneficiaries’ Some of these donors also highlighted a key issue. perception of dissonance between charities’ expectations fundraising messages about their users’ needs Research also suggests that the public’s and how much they paid their senior staff. understanding of the term ‘charity’ is far Beneficiaries – the users of a charity’s services narrower than the legal definition.xxiv While the – are often the silent voice in the debate about ‘It is simply avarice. There has to be a brake on legal definition includes many institutions such charities’ highest-paid staff. the increasing pay gap between highest and as schools, the arts and medical research lowest salaries. I don’t accept the complexity Beneficiaries are entitled to the best service that the institutions – all of which require specialist staff argument, and disagree that you have to pay charity can provide. The notion of relying on ‘charity’ – the public perception remains that charities more to get the best. There must be plenty of has been replaced by expectations of a professionally are largely run on a voluntary basis and do not well-qualified people who would work for far less. delivered service. Like other ‘consumers’, require full-time professional and technical staff Why not reduce the amount on offer the next beneficiaries now assume that they will receive a to manage and deliver their aims. time top jobs become vacant?’ Former donor to a ‘good’ service, whoever provides it.xxviii large charity The public also tend to view the charity sector as homogenous, which in turn influences The Inquiry has not found any evidence to show perceptions. Contemplating the private sector, that beneficiaries have a particular view on pay. Comparing the nobody would, for example, compare the pay of a Instead, the quality of service appears to be the views of donors local shop owner to the chief executive of Tesco, crucial factor when beneficiaries decide whether and the public with nor an accountant handling a business with a or not their needs have been met. turnover of £100,000 to a finance director Volunteers play a vital role in the majority of charities and information responsible for international income and will continue to do; it is a role that beneficiaries value. Yet from other sources expenditure of over £100 million. some charities cannot deliver their responsibilities Despite the partial knowledge of the sector as a without paid staff, for example, because of regulatory or A 2012 survey asked people what factors they whole, public levels of trust and confidence in clinical expectations or to guarantee services that need to xxix considered important in deciding to support a charities remain high. The most recent survey be delivered consistently to professional standards. measuring the public’s trust and confidence in charity. Respondents suggested a variety of Service commissioners’ requirements reinforce charities showed the public giving charities an information, but an overwhelming 76% said those of beneficiaries. For example, as the average score of 6.4 out of a maximum of 10 , with details of the salaries of a charity’s senior staff government outsources more services to the xxiii over a third giving a score of between 8 and 10.xxv were important to their making a decision. charity sector, such as academy schools and social, Those who gave low trust and confidence scores The Inquiry has found plenty of evidence that employability and medical care services, it does so also expressed concern that charities ‘spend too the public’s perception of charities does not with the expectation that these services will be much of their funds on salaries/administration’ always match the reality. Some of the people delivered professionally. and that they ‘waste money’.xxvi As one Back to contents 18 Report of the Inquiry into Charity Senior Executive Pay What people said about pay

independent and private sector.xxxi The charity’s for development and innovation in what is now a NCVO [should] state a strong position based on Charities’ views biggest concern was how it would be able to very fast-moving world. While we must, of specified normative values, then test the validity attract and retain somebody of the existing chief course, dispense our funds – including salaries of that position honestly, thoroughly and openly, A summary of these responses is included in executive’s calibre. The charity had a – with our charitable intent absolutely to the based on the context of those values. Appendix A. Whilst the responses showed a wide remuneration committee and outside fore, our organisations must attract leaders of David Hoghton-Carter commenting on range of views, a particularly strong theme was professionals who advised it on executive pay. the highest possible calibre in what is a Karl Wilding’s blog, ‘Executive pay: what’s recognition that charities needed to be more Charles Wake, Chair of St Andrew’s competitive employment market. the magic formula?’xxxiv transparent about their salaries. Healthcare, talking at the Public In the end, our charitable objects and Another theme was the expectation that Administration Select Committee on 10 performance depends on us employing the best xxxii charities should be fair in the way they treat staff December 2014 possible people – and my experience from over at all levels, including in their remuneration A hospice in Cornwall delivers end-of-life care. 30 years’ working alongside charities is that the policies. Some charity employees, responding to Two of its senior staff are medical clinicians payback in our capability outweighs our salary the survey in a personal capacity, also said they whose pay is linked to NHS pay scales. Both are expenditure many-fold. saw their work as a vocation, accepting that their paid significantly more than the charity’s chief Chair, RSPB earning potential would never match that in executive. other sectors at similar levels. Smaller charities asked the Inquiry to be Some charities told the Inquiry that the proportionate in its recommendations and to be Others said that people should be properly commissioners of their services had neutral mindful of the need to avoid burdening small rewarded for the work they do. views on pay, although in some cases clinical or charities with additional requirements. xxxiii Charities are businesses...we just have commissioners’ requirements might affect A number of respondents, largely working for different outcomes, different bottom lines. Why remuneration levels of some senior staff. The smaller charities, argued that the issue of high shouldn’t we reward people for doing good?’ Inquiry was also told that charities’ pay – pay only applied to a relatively small number of Lord Victor Adebowale, Chief Executive, especially at lower levels – was sometimes charities, largely located in London and the Turning Pointxxx influenced by competitive tendering for public south east. A small number of these respondents service contracts. The Inquiry also heard from charities that said also felt very strongly that the pay of senior staff they had to pay at a certain level to retain the Martyn Lewis CBE, the Chair of the Inquiry, also was too high in larger charities and that this was professional staff they needed and that their invited the trustee chairs of large charities to out of step with charity values. finance model was competitively tendered. give their views. A representative response from ...It’s crucially important to see charity sector the chair of one of these charities was as follows: The recent Public Administration Select workers paid appropriately. But we need to Committee session on charity chief executive Our large charities are exceedingly complex acknowledge...that our sector is categorically pay heard evidence from Charles Wake, the organisations in which leading staff have different to the profit-led sector, and that Chair of St Andrew’s Healthcare, which is the far-reaching and multi-functional roles in which different standards should apply; standards UK’s largest charity providing specialist mental there are major requirements not only for which have our ethics at their core. Many of us healthcare services. Mr Wake explained that his charitable operations, strategy and delivery – but hold to the (inherently reasonable and charity was a trading charity [ie it did not rely on also for the safety of a great many people and justifiable) belief that means significant pay donations or grants], which was managed in a property; for financial management involving moderation at senior levels, junior pay that business-like manner and did not fundraise. He the highest standards of excellence and probity; provides a decent standard of living, and a focus also explained that St Andrew’s chief executive for effective management across a large staff and on maintaining the strength of front-line would earn much more as a consultant in the volunteer base with wide-ranging expertise; and services.

Back to contents 19 Report of the Inquiry into Charity Senior Executive Pay W hat people said about pay

Others said that ‘high’ pay was an irrelevant or secondary issue; what was more important to Conui cl s ons them was seeking sufficient funds to deliver their charity’s aims and to secure its future. Having looked at all of the evidence the Inquiry has concluded that: The Inquiry heard from some charities that believed salaries at the top of charities were • the nature of charity and charity values are a accelerating away from the bottom; a pattern fundamental part of the decisions regarding they saw in other sectors. They felt this trend was pay for all employees, particularly senior staff worse where charity remuneration committees • there are many drivers affecting senior staff focused only on senior executive salaries. Others pay and attitudes towards this; there is no one told the Inquiry they were as concerned about size or model that is appropriate to all the gap between the top and bottom salaries in a charity, as they were about chief executives’ pay. • m ost of the public, and some donors, have a The Inquiry also heard that ratios varied partial understanding of charity senior pay dramatically within the charitable sector, levels, the role played by senior charity particularly where care workers and others on employees and the process for determining minimum wage terms were employed. However, their pay several people also warned of the dangers and • whilst some donors have some strongly held perverse incentives attached to setting fixed views, many appear, by their continued ratios between the highest and lowest-paid donations, to recognise the value provided by employees in a charity. employing paid professional staff; charities The Inquiry believes that low pay is an issue that have not helped themselves in the way that they is worth investigating, although it is outside the have communicated their remuneration scope of this Inquiry. decisions. That is why the Inquiry calls for more transparent reporting and explanation of senior staff pay, alongside better communication of individual salaries and remuneration policies. These conclusions form the basis for our recommendations and key principles for charities to consider in deciding the remuneration of their senior staff.

Back to contents 20 Report of the Inquiry into Charity Senior Executive Pay Setting pay: key principles for charities

Charities’ characteristics and values influencing pay decisions

The legal characteristics common to all that are competitive with other sectors if the services, to increase their fundraising capacity charities, described on page 30, influence their charity is to be able to achieve its charitable where applicable, and to substantially improve pay decisions. However, the way charities deliver purposes professionally and effectively. This the reach and achievement of their work. These their purposes for the public benefit varies applies particularly, but not exclusively, to the charities say that a mix of paid employee significantly. The majority of individual charities growing number of charities delivering services resource and volunteer engagement has led to involve volunteers in raising funds and paid for through local authority or government improvement in benefit felt by donors (as they delivering their purposes. However, as described funds, some of which win contracts against see more benefit delivered), volunteers (whose in the evidence section of the report, charities as competition from commercial providers or as efforts are better focused) and beneficiaries a whole increasingly earn much of their income partners with, or sub-contractors for, them. (who receive improved outcomes). through payments for delivering services. These charities are particularly prevalent in the No one model is right or wrong; the best model Each charity’s pattern of funding and activities social care, health, employability, housing and will depend upon the circumstances of each is fundamental to its approach in deciding its pay education sectors. Charities involved in these charity. policy and practice. Thus each charity trustee areas say that they need to attract people with body needs to develop and implement a pay the right skills and experience to administer policy that supports the success of its charity, these contracts and the standards of delivery and policies will vary from one charity to expected within them. They also say that they another. need to pay competitive rates in order to do so. Some charity trustees believe that the voluntary Some trustee boards adopt a hybrid model. They principle is the bedrock of their charity and that seek to combine charitable principles, paying any staff goes against this principle. They volunteering and philanthropy with a use volunteers because they feel that this professional and business-like approach approach is the most effective and appropriate supported by a paid workforce to deliver way of delivering their charitable purposes. increased public benefit. In many cases a core of employed staff has allowed such charities to Trustees of other charities believe that the expand. This is because the staff have enabled nature and breadth of their operations means it the charities to be more efficient in delivering is necessary to pay some or all of their staff rates Back to contents 21 Report of the Inquiry into Charity Senior Executive Pay Sett ing pay: key principles for charities

Keyi pr nciples Re commendation one: Principles for setting charity remunerat ion Charities told the Inquiry they would like to see it deliver common remuneration principles that should apply to all registered charities. The The Inquiry recommends that the following 4. In deciding top levels of pay and rewards g. appropriate available information on pay following recommendations are good practice principles for setting charity remuneration are trustees should consider: policies and practices in other organisations guidance for setting remuneration, particularly adopted as good practice by all charities that a. the purposes, aims and values of the charity that can help make the decision on whether in relation to the pay of senior staff. They aim to employ staff. These principles should be and its beneficiary needs a level of pay is fair and reasonable interpreted according to their particular reflect the sector’s diversity and recognise that b. how this impacts on overall pay policy for h. the nature of the wider ‘employment offer’ the way that principles and good practices are circumstances. The principles should apply they can make to potential employees, where a charity’s trustees consider it necessary all employees, and for the senior staff in applied will vary between charities. particular, including whether a ‘discount’ where pay is one part of a package that to hire paid staff to carry out the charity’s work includes personal development, personal and help fulfil its exclusive charitable purposes: compared with pay for similar roles in other sectors is appropriate fulfilment, and association with the public 1. The overall goal of a charity’s pay policy benefit delivered c. the types of skills, experiences and should be to offer fair pay to attract and keep i. the charity’s track record in attracting and appropriately-qualified staff to lead, manage, competencies that the charity needs from its senior staff, the specific scope of these retaining committed and motivated support and/or deliver the charity’s aims. This employees should be always consistent with the charity’s roles in the charity and the link to pay aims and recognise that for certain charities, d. the charity’s current business plan and how j. the likely impact on and views of particularly those with a volunteer ethos, it is the implementation of this plan may affect beneficiaries, donors, funders, volunteers possible to attract senior executives at a the number of senior staff the charity needs and potential volunteers, where appropriate discount to public sector or private sector to employ or recruit and the nature of these k. the relationship between the policy and market rates. roles practice for the pay of senior staff and that 2. Trustees are responsible for setting e. the charity’s ability to pay. This includes the of the charity’s whole workforce. appropriate performance goals and cost to the charity of raising pay, and remuneration levels for the charity’s most whether it is sustainable, and how senior staff. Trustees should clearly identified appropriate the level of pay, and any pay these senior staff, who will typically, although increase, is in the context of the charity, as not always, be part of the charity’s executive measured against the needs of its charitable and/or senior management team. purposes and beneficiaries 3. To set the pay and rewards properly for these f. their assessment of the charity’s staff requires informed judgements as well as performance and the senior staffs’ adherence to the charity’s governance and performance against expectations, both constitutional arrangements. short-and-long term

Back to contents 22 Report of the Inquiry into Charity Senior Executive Pay Sett ing pay: key principles for charities

Es s tabli hing a remuneration policy

The charity’s purposes, ethos and achievements, Re commendation as well as its income and activities, will inform its Two: overall remuneration policy and how it is A remuneration implemented. policy For smaller or less complex charities, the remuneration policy may be relatively straightforward: stating the process it follows The Inquiry recommends that, as good when setting remuneration, including the role of practice, all charities that employ staff should trustees, and taking into account the charity’s consider adopting a remuneration policy, and income and aims. It may refer, for example, to all charities with independently audited whether the charity uses an external benchmark accounts (currently those charities with a gross when setting pay, such as the minimum wage, the income of over £500,000) should adopt such a ‘Living Wage’ or local authority pay scales. policy. Guidance on setting pay for senior staff in charities can be found on page 30.

Back to contents 23 Report of the Inquiry into Charity Senior Executive Pay Setting pay: the value of working for a charity

The charity sector is diverse and the Inquiry Salary limits does not think it benefits donors and The charity context and perceived beneficiaries to set artificial limits on the rewards inherent in working for a The Inquiry believes it is neither possible nor structure and levels of remuneration within charity desirable to recommend a general salary ‘cap’ or charities; this must continue to be left to trustee benchmark for the highest-paid charity staff. boards. It is also ultimately the responsibility of The evidence discussed earlier in the report This is because there are simply too many donors to satisfy themselves on questions of pay. indicates that charity staff, particularly senior different types and sizes of charities to take into They cannot ‘outsource’ their decision to the Recommendation staff working in charities with a volunteering account their labour market needs and the Charity Commission, NCVO or another charity. three: and/or campaigning mission, are paid resources required for delivering their different But this means that charities must make a real The value attached significantly less than their skills and experience missions. A cap could create perverse practical effort to enable donors to understand their pay would command in the private or public sectors. outcomes, such as apportioning a bigger element policies and levels of pay. to working for of remuneration into ‘non-salary’ benefits, or a charity In particular, trustees of those charities that are create obstacles to recruiting the appropriate funded primarily by donations and philanthropy leaders and managers for charities in complex The Inquiry recommends that charities can generally attract and retain key talent for areas such as health, international development consider the esteem and the value – financial or their charity at lower rates than those paid for and education. otherwise – derived by employees from working comparably qualified and experienced people in It is the role of trustees to set the pay of senior for a charity and the impact this may have on the private sector. The difference, or ‘discount’, staff and to agree the charity’s overall setting levels of remuneration for senior staff generally reflects the ‘charity context’ or remuneration policy. and others throughout the organisation. Where perceived rewards inherent in working for a applicable, the approach should be made charity for which an executive has high levels of available in a remuneration statement. commitment and passion. The Inquiry thinks that this view is consistent with the charity context, and an attribute that can enhance the already high levels of public trust and confidence in the sector.

Back to contents 24 Report of the Inquiry into Charity Senior Executive Pay Setting pay: the value of working for a charity

Other charities told the Inquiry that it was not CaCassee sstudy:tudy: Case study: CaCassee sstudy:tudy: always appropriate, or possible, to pay senior MMédédeecicinnss SSananss Mary’s Meals OOxfaxfamm staff in charities less than equivalent roles in FrFrononttiiEèrreess// other sectors. The Inquiry does not think that it DDoocctotorrss wwiithothoutut Mary’s Mary’s Meals Meals is a ischarity a charity registered registered in Scotland, in ‘...we ...we have have never never had had any any difficulty difficulty in inattracting a is helpful or desirable to provide an aspirational Borders UK whichScotland, provides which meals provides for schoolchildren meals for in poor attractingsufficient apool sufficient of well-qualified pool of well-qualified candidates who figure for charities considering whether to apply Borders UK communities.schoolchildren At in a poor Public communities. Administration At a SelectPublic candidatesare prepared who to arework prepared for less than to work in other for less a ‘charity discount’ as part of their remuneration CommitteeAdministration session Select into Committee charity chief session executive into thansectors, in other and who sectors, are prepare and who to are ‘give prepare back’ to policy. This will depend entirely on the charity’s The The charity, charity, registered registered with with the Charitythe Charity paycharity Magnus chief MacFarlane-Barrow, executive pay Magnus the MacFarlane- chief ‘givesociety. back’ Regrettably to society. we Regrettably have found we it have necessary found a values, its beneficiary needs, the environment in Commission,Commission, provides provides international international emergency emergency executiveBarrow, the of chiefMary’s executive Meals, explained of Mary’s hisMeals, charity itfew necessary times to a pay few more times for to senior pay more executives for senior than which it works and the individuals it employs and medicalmedical aid. aid. In In 2011/12 2011/12 its its income income and and decidedexplained to hisintroduce charity a decided pay cap tobecause introduce it would a pay executiveswe would otherwise than we would have chosen,otherwise because have of their roles and responsibilities. expenditureexpenditure was was £23.9million £23.9million and and £25.3 £25.3 million million becap hard because to justify it would a ‘genuine be hard partnership’ to justify a ‘genuine with chosen,salary increases because of elsewhere salary increases in the charity elsewhere sector. respectively.respectively. It It employed employed 135 135 FTE FTE staff; staff; one one peoplepartnership’ living withand working people living in impoverished and working in inThere the charity are real sector. dangers in setting benchmarking employee’s remuneration was more than conditions. He believed this stance also helped employee’s remuneration was more than impoverished conditions. He believed this Theretargets are to realpay abovedangers the in median setting pay. benchmarking This can £60,000.£60,000. The The charity charity operates operates a a pay pay policy policy theirstance fundraising also helped efforts. their fundraising On average efforts. Mary’s lead to rapid salary escalation...if more than a whereby the highest employee never earns more Meals paid staff £32,000, with the highest salary targets to pay above the median pay. This can whereby the highest employee never earns more On average Mary’s Meals paid staff £32,000, leadquarter to rapid of employers salary escalation...if target to pay more around than the a thanthan three three times times the the lowest-paid lowest-paid employee. employee. beingwith the £45,380. highest Mr salary MacFarlane-Barrow being £45,380. Mr did not 75th percentile of the market. Charities should get paid the highest amount. quarter of employers target to pay around the Extract Extract from fromthe notes the tonotes Médecins to Médecins Sans Sans MacFarlane-Barrow did not get paid the 75thbe especially percentile wary of the of adoptingmarket. Charities a target to should pay FrontièresFrontières’ annual annual accounts accounts for the for year the yearending Inhighest terms amount. of whether a similar pay cap would work beabove especially median, wary when of employmentadopting a target research to pay 31ending December 31 December 2012 2012 inIn other terms charities, of whether he a argued similar that pay each cap would charity abovesuggests median, that once when pay employment is “good enough”, research other carrieswork in out other a different charities, mission, he argued which that requires each suggestsfactors can that motivate once pay more is “good successfully.’ enough”, other peoplecharity with carries different out a different skills and mission, would involve which a factorsChair of can Oxfam motivate in a letter more to successfully. the Inquiry different pay policy. requires people with different skills and would Chair of Oxfam in a letter to the Inquiry Magnusinvolve a MacFarlane-Barrow, different pay policy. chief executive of Mary’s Magnus Meals MacFarlane-Barrow, talking at the Public chief Administrationexecutive of Mary’s Select Meals Committee talking on at10 the DecemberPublic Administration 2014 Select Committee on 10 December 2014xxxv

Back to contents 25 Report of the Inquiry into Charity Senior Executive Pay Sett ing pay: the value of working for a charity

The Inquiry also heard from some charities that said that if individuals were offered salaries with T he use of T he relationship too big a ‘charity discount’, too many suitable bonus payments between the pay and qualified people could be deterred from of senior staff applying for roles. For example, the Inquiry was Bonuses are included within the definition of and the charity’s told of two areas where a ‘charity discount’ remuneration (see Glossary). In practice there would be likely to seriously restrict the appear to be very few charities that pay bonuses other workforce availability of appropriately qualified candidates to their senior staff. The Inquiry believes that it for key professional roles: should not normally be necessary to incentivise A charity’s remuneration policy needs to have a • Specific, high-level skill areas in support senior staff in a charity through an explicit clear rationale across its entire workforce. The functions with overall skilled labour shortages; incentive bonus payment. The charity sector’s relationship between different levels and these included finance and technology and, remuneration strategy is essentially to attract structure of pay within the organisation needs within the charity sector itself, fundraising. and retain people who are already motivated, to be monitored and understood. therefore incentive payments should be rare. If a Whatever the intangible benefits of working for a • Charities that are generally financed through charity does wish to pay a bonus to its senior staff competitively contracted service provision, charity, all staff should be paid at or above the then trustees should be clear, explain their minimum wage (having regard to their age).xxxvii and/or paid fees, where there is also direct reasoning and regularly review their approach. competition for scarce talent with the private Pay levels of more junior staff, for example, mean or public sectors, for example in health care and that paying a ‘reduced’ salary, because of the education. ‘value’ of working for a charity, is unlikely to be applicable. This may also apply to chief executive roles in particular types of charity. We do not believe there can be a charity discount in the education sector. Market forces prevail. In fundraising charities, much will depend on size and scope. Top 15 charity The Inquiry concludes that much of the evidence shows the charity sector pays less than other sectors for comparable senior roles and that salary numbers in charities are not extreme. It also believes that charities that pay the same levels as other sectors should have good and clear reasons for doing so and be able to explain their approach and rationale.

Back to contents 26 Report of the Inquiry into Charity Senior Executive Pay Setting pay: the value of working for a charity

The use of remuneration ratios

Ratios, or the multiple between the highest to excluding the highest paid employee. The Recommendation lowest salary or highest to median salary, are calculation is based on annualised, FTE four: sometimes used to help understand and explain remuneration. The rationale given for adopting how the pay of senior staff relates to the pay of this multiple is that median earnings are more Charity the wider workforce in an organisation. This is representative of the pay of the whole of an remuneration also known as ‘pay dispersion’. organisation’s employees and will not be ratios Ratios are not always helpful. There is not a pay significantly affected by large or small salaries ratio that is right for all charities or indeed that may skew an average (mean), and a multiple based upon median earnings is less sensitive to The Inquiry recommends that charities with an within particular sub-sectors, as charities changes in the bottom of the workforce income of above £500,000 consider the use of operate in very different ways. Neither does the structure, and therefore less susceptible to remuneration ratios (the multiple between the Inquiry recommend a ‘cap’ or limit on the gap manipulation.xxxix highest pay to median pay in an organisation is between the highest- and lowest-paid members regarded as the most reliable measure) as a of staff, as this would be too mechanistic and Trustees should use their judgement in setting helpful tool to assist in their approach to pay; would create perverse outcomes. For example, appropriate levels of pay across the whole for example in helping to identify the impact of organisations might outsource their lowest-paid organisation. However, considering the use of pay decisions on individuals and the staff. The Inquiry heard of one instance where a ratios, including whether to publish them, can appropriate distribution of any increase in charity had a salary ratio of 1:12, with a cleaner act as a beneficial prompt to trustee boards or payroll spend across the whole charity each being the lowest-paid member of staff. If the remuneration committees. Looking at ratios can year. Where charities choose to use such ratios, charity outsourced its cleaners its ratio would be help trustees to review the impact of pay they should also use them to help explain, reduced to 1:8. decisions on individuals and consider the within their remuneration statement, their Another example is a charity that is growing, appropriate distribution of any increase in approach to pay. which means it may not have a stable pay payroll spend across the whole charity each year. structure from year to year. If, say, a charity Ratios can also help to identify and track the doubles in size between one year and the next, it impact that differential pay policies and pay may mean higher pay for its chief executive and outcomes have on employees, their internal senior staff and the employment of more staff at relationships and their lives. junior levels. A ratio that ‘increases’ may therefore simply be a sign of organisational success. In other sectors the ratio of highest to median earnings of an organisation’s workforce has been adopted as a suitable benchmark for organisations to use.xxxviii The median remuneration of an organisation is defined as the total remuneration of those staff lying in the middle of the linear distribution of the total staff,

Back to contents 27 Report of the Inquiry into Charity Senior Executive Pay Tra ansp rency in reporting remuneration

People already have high levels of trust in Other sectors have brought in increased As a result, the SORP Committee is proposing charities.xl Charities excel at telling compelling, transparency requirements as part of their that: interesting and informative stories about their accountability to shareholders or to citizens •th e Financial Reporting Council agrees xliii beneficiaries, which inspire the public to donate more broadly. changes to the Charities SORP, which will and organisations to fund them. Charities are The Inquiry believes more is required of require larger charities to disclose their experts in the art of clarity and persuasion, and charities and that charities’ unique role and remuneration policy in their trustee annual people and organisations respond generously, relationship with their donors, beneficiaries and reportxlv inherently trusting in their work. the public means that they should achieve the • the banding disclosure is retained and Given donors’ legitimate concerns about where very highest standards of transparency and extended to become a requirement for all their money is going and wider concerns about accountability. charities who prepare accounts (ie not just pay policies and costs, charities should not shy larger charities). away from more open communication of senior staff pay levels and pay polices. The Inquiry Reporting It has not supported the identification of the role found very few examples of this open changes ahead and pay of the charity’s highest-paid employee. communication in charities’ annual reports or At the time of writing the Financial Reporting on their websites. The SORP Committee recently consulted on Council’s response to the new SORP proposals is Most large charities must follow the Accounting changes to the reporting framework for awaited. and Reporting by Charities: Statement of charities, including those on reporting The SORP Committee’s proposals are helpful, Recommended Practice 2005 (Charities SORP) remuneration. Specifically, the consultation particularly in the current climate. Yet the framework when preparing their accounts.xli included a proposed change to the Charities Inquiry believes that charities should achieve Currently charities with, essentially, an income SORP to require charities to publish their senior the very highest standards of transparency and of more than £500,000 have to show in their executives’ aggregate remuneration as a note to accountability. Rather than publishing the annual accounts the number of staff whose their annual accounts. The proposal also reflects minimum required, charities should embrace remuneration is £60,000 or more, in salary the Financial Reporting Council’s new accountability and transparency in reporting bands of £10,000, or explain why they do not and requirement, under the new Financial Reporting their remuneration policies and practices. The risk a qualified audit statement. xlii Standard, requiring all entities using this information they produce on remuneration standard (ie not just charities) to disclose this should be clearly accessible to the public. information in the notes to their accounts.xliv

Back to contents 28 Report of the Inquiry into Charity Senior Executive Pay Tra ansp rency in reporting remuneration

Charities should also use their annual Re commendation five: remuneration statements to explain clearly the Publishing an annual statement challenges they face in delivering some services and why they need specialist people to enable The Inquiry recommends that, as good practice, The term ‘remuneration’ includes the total them to do so, and some already do. every charity with independently audited financial rewards made, or available, to an A charity’s annual accounts will include the accounts (currently those charities with a gross employee. (see the definition in the Glossary in audited remuneration figures. So, for example, if income of over £500,000) should: Appendix C). someone starts a job halfway through the year, • publish an annual statement explaining their In addition to the remuneration disclosures that only their half-year salary will be recorded. The charity’s ethos and policy on remuneration charities are required to include as a note to charity’s website entry could however include the current figures on an annualised basis. • explain how this impacts on the delivery of their accounts, as good practice the charity’s their charitable purposes remuneration statement should be: It is up to each charity to decide how many people • included within its Trustee Annual Report to include within their definition of their •  report the actual remuneration, roles and charity’s highest-paid staff. The Financial names of individual highest-paid staff, as • published in a prominent area of the charity’s Reporting Council’s definition of key defined by the charity. website no more than two clicks away from the management personnel, as adapted for charities, For some charities the definition might include homepage and alongside the remuneration, provides a helpful starting point for charities: the chief executives and any staff in leadership roles and names of the highest-paid individuals. This is to ensure ease of access. ‘Those persons to which the trustees delegate positions who report directly to them (apart day-to-day authority and responsibility for from PAs and other support staff). Additionally, Below this charity audit threshold other managing, planning and directing the activities if an individual, whatever their level, earns more charities are encouraged to adopt a similar of the charity; and often described as the senior than the chief executive this should be approach and, in all cases, to report the salary management team.’ disclosed. of their chief executive. Where a charity has a structure that includes subsidiary trading companies, these will appear in the charity’s consolidated accounts. Any staff employed within such companies who also fit within the criteria for key management personnel, or the charity’s highest-paid individual, should also be included in the charity’s report and statement of its senior staff remuneration. In all cases, the definition and disclosure should include the charity’s chief executive, irrespective of his or her salary.

Back to contents 29 Report of the Inquiry into Charity Senior Executive Pay Transparency in reporting remuneration

Case study: Example of a current remuneration statement on a charity’s website

How we decide how much to The main responsibilities of the Committee In determining CFG’s remuneration policy the pay our staff are to: remuneration committee takes into account all CFG (Charity Finance Group) is committed to • review the CFG salary banding against an factors which are deemed necessary. The ensuring that we pay our staff fairly and in a way agreed independent market benchmarking tool objective of the policy is to ensure that the Chief which ensures we attract and retain the right (currently CCH Charity Salary survey) and Executive and staff team are provided with skills to have the greatest impact in delivering make such amendments as are appropriate to appropriate incentives to encourage enhanced our charitable objectives. ensure that CFG salaries remain competitive performance and are, in a fair and responsible manner, rewarded for their individual In accordance with the SORP CFG discloses: • determine the remuneration package of the contributions to the success of the Charity. The • all payments to trustees (no trustees receive Chief Executive appropriateness and relevance of the ‘pay’) • approve the annual percentage increase in the remuneration policy is reviewed annually payroll for all staff (which can be zero) taking including reference to comparisons with other • the number of staff in receipt of more that charities ensuring CFG remains sensitive to the £60,000 and above (in bands of £10,000) into account RPI as at 31 December for the previous year broader issues e.g. pay and employment • pensions and other benefits. conditions elsewhere. • approve any consolidated pay awards and staff CFG has a remuneration committee, which salary increases outside of the annual review We aim to recruit, subject to experience, at the meets annually, is comprised of the CFG Chair, process as recommended from time to time by lower-medium point within a band, providing Vice-Chair, Treasurer and one other (who shall the Chief Executive scope to be rewarded for excellence. We do not be appointed by the Chair), which sets the pay for employ interns without pay and we aim to pay all staff. The CEO is in attendance for the • approve any non-consolidated pay awards the living wage for all our staff. We support the meeting (leaving for the discussion regarding the (bonus) as recommended by the Chief Charityworks programme and host two CEO’s remuneration) and no members of the Executive Charityworks graduates within our staff team. executive are members of the committee. • determine pension arrangements Delivery of CFG’s charitable vision and purpose • ensure that contractual terms on termination is primarily dependent on our staff which is the are fair to the individual and the charity, that largest single element of charitable expenditure. poor performance is not rewarded and a duty to In 2012-13 CFG awarded staff a 1.5% cost of mitigate loss is recognised. living uplift in salary. One member of staff earns more than £60,000 per annum (being remunerated between £80,000 and £90,000). Our Annual Reports can be found here: www.cfg.org.uk/about-us/annual-reports.aspx Extract from Charity Finance Group’s websitexlvi

Back to contents 30 Guidance on Setting Pay for Senior Staff in Charities Guidance on setting pay for senior staff in charities

The trustees of all charities that employ staff However, the way charities deliver their 2.  Trustees are ultimately responsible for setting e. the charity’s ability to pay – this includes the should satisfy themselves that the charity purposes for the public benefit varies remuneration levels for the charity’s senior staff. cost to the charity of raising pay, and whether it complies with all relevant employment law, the significantly. A charity’s individual Trustees should clearly identify these senior is sustainable, and how appropriate the level of pay of the individuals is affordable given the level characteristics are fundamental to the way they staff, who will typically, although not always, be pay, and any pay increase, is in the context of of income and the approach to deciding levels of approach pay policy and pay practice. Each part of the charity’s executive and/or senior the charity, as measured against the needs of pay is aligned with the charity’s purposes, aims charity trustee body needs to develop and management team. its charitable purposes and beneficiaries and the needs of its beneficiaries. implement a pay policy that supports the success 3. Informed judgements, as well as adherence to f. their assessment of the charity’s performance of their charity. Policies will therefore vary from the charity’s governance and constitutional and the senior staff’s performance against Charities’ one charity to another. arrangements, should be used to set the pay and expectations, in both short and long term characteristics rewards properly for these staff. g. appropriate available information on pay Keyi pr nciples 4. In deciding top levels of pay and rewards trustees policies and practices in other organisations and values should consider: that can inform the decision on whether a level influencing pay The Inquiry recommends that all charities that a. t he purposes, aims and values of the charity of pay is fair and reasonable decisions employ staff adopt the following principles as good and it’s beneficiary needs h. the nature of the wider ‘employment offer’ practice for setting charity remuneration. b. h ow this impacts on overall pay policy for all they can make to potential employees, where Charities should interpret them according to their Charities have a number of common employees, and for the senior staff in pay is one part of a package that includes own circumstances and apply them when trustees characteristics that influence pay decisions. particular, including whether a ‘discount’ personal development, personal fulfilment consider it necessary to hire paid staff to carry out compared with pay for similar roles in other and association with the public benefit • Charities can undertake a range of activities the charity’s work and fulfil its exclusive charitable sectors is appropriate delivered and services but they must all, by law, exist to purposes. advance their exclusively charitable objects for c. t he types of skills, experiences and i. t he charity’s track record in attracting and 1. T he overall goal of a charity’s pay policy should be the public benefit. competencies that the charity needs from its retaining committed and motivated employees to offer fair pay to attract and keep appropriately senior staff, the specific scope of these roles j. t he likely impact on, and views of, beneficiaries, • Charities do not make profits; any surplus qualified staff to lead, manage, support and/or and the link to pay donors, funders, volunteers and potential funds a charity holds are dedicated to its deliver the charity’s aims. This should be always volunteers, where appropriate charitable work. consistent with the charity’s aims and recognise d. t he charity’s current business plan and how • Charities must be independent, and the that for certain charities, particularly those with the implementation of this plan may affect the k. the relationship between the policy and trustees must make decisions (including pay a volunteer ethos, it is possible to attract senior number of senior staff the charity needs to practice for the pay of senior staff and that of decisions) solely in the best interests of the executives at a discount to public sector or employ or recruit and the nature of these roles the charity’s whole workforce. charity. private sector market rates.

Back to contents 31 Guidance on Setting Pay for Senior Staff in Charities Guidance on setting pay for senior staff in charities

The role of whether the charity sets pay levels using an charities with a settled cohort of skilled senior When making changes to individual senior staff trustees and external benchmark such as the minimum wage, staff already in place. salaries, trustees need to be clear on why any the Living Wage or local authority pay scales. While trustees may decide to make exceptions to increase is awarded, and take account of the remuneration As good practice, charities with an income of the charity’s pay policy for exceptional effects of the pay policy at levels below senior committees more than £500,000, and with independently individuals, they should be careful that this does management, when making their decisions. audited accounts, should adopt a formal not become an unnecessary general practice to In smaller charities, the task of researching and remuneration policy. attract and retain senior staff. Information on agreeing recommended remuneration levels pay available from may fall to the board at large. Scope of senior Assessing other sources Larger charities may find using the board staff roles performance process unwieldy and decide it is more effective When charities seek external sources of to set up a specific remuneration committee to and person against short- information to help decide their own senior staff oversee the policy and process. This decision will specifications and long-term pay, they should bear in mind the nature of the depend on the size of the charity and its type of expectations charity, the senior staff roles, the size and activities. For some, this point may arrive when The scope of particular senior executive roles complexity of the organisation and the labour 20 to 30 staff are employed and the charity’s and the link to will reflect the charity’s size and complexity, as markets in which they operate. Small charities turnover is £1 million; for others it may be when remuneration well as the specific technical skill sets, may require very little information and already the charity employs over 100 people. Larger competencies, breadth and depth of knowledge use rates of pay that are linked to external charities sometimes use independent committee the role requires. The largest charities may need The majority of charities do not incentivise comparators such as local authority, NHS or members both to bring specialist skills to the specific skills, experience or particular senior staff through use of variable academic pay scales. committee and to provide an impartial specialisms; these roles may command a remuneration or bonuses linked directly to perspective. remuneration premium as a result of their achievement of short-term performance goals. For larger charities a wider pool of intelligence scarcity or the specific high technical value that For many charities this would contravene their may be relevant. Such intelligence should be they add. For example, charities may need ethos where their staff’s main motivation for used with care and alongside other relevant Establishing a executives with international leadership achieving organisational goals is a deep internal information including recruitment and remuneration experience, specific high levels of technical commitment to the charity’s aims. However, voluntary turnover information. policy knowledge (such as in specific branches of trustees should set goals for senior staff to Some charities find it helpful to use specialist medicine, emergency aid in dangerous locations) deliver the charity’s aims and be able to review firms to provide advice on comparative salaries. or investment management. In some cases, there achievement of those goals on a regular basis. The charity’s purposes, values and These firms include Agenda Consulting, Croner, is an international market for such talent that 1 achievements, as well as its income and Performance should be part of the decision- Hays Group and XPertHR. This list should not may be taken into consideration. activities, will inform the development and making process when reviewing the be regarded as exclusive or an endorsement. implementation of its overall remuneration A charity’s size and complexity cannot on their remuneration of senior staff. own justify what may be perceived as high policy. Remuneration is typically reviewed annually in salaries. Leaders of smaller charities, for A smaller or less complex charity may develop a charities. As in in the private or public sectors, 1. See www.agendaconsulting.co.uk/benchmarking/ example, carrying out functions previously run people_count_third_sector/index.php relatively straightforward policy describing the however, it is not usual for charities to guarantee as government functions can face greater www.croner.co.uk/croner/jsp/CronerHome.do?cache=fals process followed when setting remuneration, an increase in remuneration to all or any e&channelId=-238414, challenges and organisational complexity than including the role of trustees and the charity’s employees. www.haygroup.com/uk/ and those of long-established, well-endowed www.xperthr.co.uk/why-choose-xperthr/ (all accessed income and aims. It could refer, for example, to April 2014). Back to contents 32 Guidance on Setting Pay for Senior Staff in Charities Guidance on setting pay for senior staff in charities

If market intelligence has significantly informed term implications perhaps based upon a risk distribution of any increase in payroll spend. the decision to make a pay award to senior staff, assessment of future income and expenditure In other sectors, the ratio of highest-to-median the charity’s published remuneration statement • the appropriateness of the pay in the context of earnings of an organisation’s workforce has been should clearly state the comparator group and the charity and its beneficiaries’ needs. adopted as a suitable benchmark. The median the basis of comparison used. remuneration of an organisation is defined as the Trustees should consider the risks of total remuneration of those staff lying in the overreliance on market information in setting The relationship middle of the linear distribution of the total remuneration levels for senior staff. They should between top-level staff, excluding the highest-paid employee. The be aware that in the private sector the use of pay and the rest of calculation is based on annualised, FTE executive pay market information is widely remuneration. The rationale given for adopting believed to have driven up executive pay levels. the charity’s this multiple is that median earnings are more While there is evidence of an active labour workforce representative of the pay of the whole of an market within the charity sector at senior levels, organisation’s employees and will not be the sector generally has relatively high retention A charity’s remuneration policy needs to have a significantly affected by large or small salaries rates for these roles. clear rationale across its entire workforce. The that may skew an average (mean) and a multiple A number of charities have a policy of ‘growing relationship between different levels of pay and based upon median earnings is less sensitive to their own’ leaders as one means of countering pay structures in the charity needs to be changes in the bottom of the workforce upward salary pressures. Others invest in monitored, understood and explainable. Ratios, structure, and therefore less susceptible to succession planning and leadership development or the multiple between the highest to lowest manipulation. to keep specific individuals and so reduce the salary or highest to median salary, are risk of damage to the charity of their leaving. sometimes used to help understand and explain Calculating how the pay of senior staff relates to the pay of the wider workforce in an organisation. This is changes in A charity’s also known as ‘pay dispersion’. remuneration ability to pay Ratios can be a useful tool for charities to use and over time to help explain their approach to pay. Where In deciding a charity’s overall remuneration charities choose to use ratios they might also use The cost of living and both a charity’s and an strategy and specific levels of pay for senior staff, them to help explain, within their remuneration individual’s performance will all affect how trustees will need to consider: statement, their approach to pay. much remuneration levels change over time. • the benefit to the charity that such Ratios can help to recognise and track the impact If a charity is prioritising improving pay for the remunerated positions will bring that differential pay policies and pay outcomes lowest paid, needs to adapt to changes in the • the cost to the charity of increasing have on employees, their internal relationships minimum wage or wants to adopt the Living remuneration levels and their lives. Wage, senior staff may receive a lower salary increase than others in the organisation. The • the overall consequences of increasing pay, Considering and publishing pay ratios could also costs of such decisions will clearly have an particularly at senior levels, in terms of provide a helpful prompt to help trustee boards impact on the amount of money available to fund employee, donor and beneficiary perceptions or their remuneration committees to review annually the impact of pay decisions for the any additional salary increases. • whether it is affordable, including the longer whole charity and to consider the appropriate

Back to contents 33 Guidance on Setting Pay for Senior Staff in Charities Guidance on setting pay for senior staff in charities

In all cases, the definition and disclosure should There is strong anecdotal evidence to suggest that Publishing include the charity’s chief executive, irrespective publication of comparative data in other sectors has an annual of his or her salary. inflated salaries, with individuals using the remuneration The term ‘remuneration’ includes the total information to attempt to ‘leapfrog’ others. However, statement financial rewards made, or available, to an collecting and publishing aggregate information employee. (See the definition in the Glossary at about senior executive remuneration helps public the end of this guidance.) understanding and accountability, and the benefits As good practice, all large charities should will usually outweigh potential downsides. publish an annual statement explaining its In addition to the remuneration disclosures that remuneration ethos and policy and how this charities are required to include as a note to their impacts on the delivery of its charitable accounts, as good practice the charity’s purposes; as well as the actual remuneration, remuneration statement should be: roles and names of individual highest-paid staff. •  included within its Trustee Annual Report It is up to each charity to define their highest- •  published in a prominent area of the charity’s paid staff and the Financial Reporting Council’s website no more than two clicks away from the definition of key management personnel, as homepage. This is to ensure ease of access. adapted for charities, provides a helpful starting Below this charity audit threshold, other point for charities: charities should consider adopting a similar ‘Those persons to which the trustees delegate approach and, in all cases, report the salary of day-to-day authority and responsibility for their chief executive. managing, planning and directing the activities Charities can also use their annual remuneration of the charity; and often described as the senior statements to explain clearly the complexity and management team.’ challenges they face in delivering some services For some charities the definition might include and why they need specialist people to enable the chief executives and any staff in leadership them to do so. positions who report directly to them. If an A charity’s annual accounts will include the audited individual of any level earns more than the chief remuneration figures. So, for example, if someone executive, this should be disclosed. starts a job halfway through the year, only their Where a charity has a structure that includes half-year salary will be recorded. The charity’s subsidiary trading companies, these will appear website entry could, however, include the current in the charity’s consolidated accounts. Any staff figures. employed within such companies, who also fit within the criteria for key management personnel, or the charity’s highest-paid individual, should also be included in the charity’s report and statement of its senior staff remuneration.

Back to contents 34 End notes end notes i. This is a wider group of charities than those com/2013/04/08/10-insanely-overpaid- A second example is Section 40 of the xi. Cunningham and James argue that the found on the Charity Commission’s register nonp_n_3038162.html?ir=Impact (accessed Localism Act 2011, which requires local ‘labour-intensive nature of public service because it includes organisations such as April 2014), and in Ireland see Phelan, S. authorities to publish a pay policy statement; work’ has had a profound impact on voluntary academy schools, which are subject to separate (2013) ‘Bosses of 14 charities get salaries over this statement must include their approach to sector employment, creating a number of regulatory arrangements. €100k’, Irish Independent, 29 October 2013, the publication of information relating to the significant challenges, not least of which has ii. Hope, C. (2013) ‘30 charity chiefs paid more www.independent.ie/irish-news/bosses-of- remuneration of their chief officers. been the pressure to be more business-like. than £100,000’, The Daily Telegraph, 6 August 14-charities-get-salaries-over- vi. See Charity Commission (no date) ‘Sector Cunningham, I. and James, P. (2011) 2013, www.telegraph.co.uk/news/ 100k-29707277.html (accessed April 2014). facts and figures’, www.charitycommission. Voluntary Organizations and Public Service politics/10224104/30-charity-chiefs-paid- iv. For an example see Blue Spark Consulting gov.uk/about-charities/sector-facts-and- Delivery. London: Routledge. more-than-100000.html (accessed April (2009) Reward for the Chief Executive and figures/ (accessed April 2014). xii. See UK Voluntary Sector Workforce 2014). Senior Management. London: Acevo. vii. See OSCR (2012) Scottish Charities 2011. Almanac 2013 website: Hope, C. (2013) ‘Nine British charities paid v. For example, legislative reforms that took Dundee: OSCR, www.oscr.org.uk/ www.3rdsectorworkforce.org.uk/2012- staff over £300k each last year’, The Daily effect on 1 October 2013 now require quoted media/294663/2012-02-02_scottish_ update/ (accessed April 2014). Telegraph, 12 August 2013, www.telegraph. companies directors’ remuneration reports to charities_2011_published.pdf (accessed xiii. For further information see Andreoni, J. co.uk/news/politics/10236183/Nine-British- contain: April 2014). (1990) ‘Impure altrusim and donations to charities-paidstaff-over-300k-each-last-year. (i) a statement by the chair of the viii. See Charity Commission (no date) ‘Do I public goods: A theory of warm-glow giving’, html (accessed April 2014). remuneration committee need to register?’ www.charity The Economic Journal, vol. 100, no. 401. Stevenson, C. and Preskey, N. (2013) (ii) the company’s policy on directors’ commissionni.org.uk/Start_up_a_charity/ xiv. See Rutherford, A. (2010) On the Up: ‘Charities chief’s £653,000 pay reignites row’, remuneration. The remuneration policy Do_I_need_to_register/default.aspx Voluntary Sector Wages in the UK 1998–2007. The Independent, 20 October 2013, www. must include a statement of how pay and (accessed April 2014). Stirling: University of Stirling, www.stir.ac. independent.co.uk/news/uk/home-news/ employment conditions of employees ix. For example, the Education Funding Agency uk/media/schools/management/ charity-chiefs-653000-pay-reignites- generally were taken into account when oversees the arrangements that provide documents/workingpapers/SEDP-2010-06- row-8891812.html (accessed April 2014). setting the remuneration policy. It must parliament with assurance that academy Rutherford.pdf (accessed April 2014). Shifrin, T. (2003) ‘Little to declare’, The also set out whether and, if so, how the schools operate to high standards of propriety xv. Magee, J. (2013) ‘Are charity sector chief Guardian, 24 September 2003,. www. company has consulted with employees and regularity, and the Higher Education executives overpaid?’ Hay Group Press theguardian.com/society/2003/sep/24/9 when drawing up the remuneration policy. Founding Council for England is responsible Release, 6 December 2013, http://www. (accessed April 2014). The article commented The statement must set out whether any for the regulation of most English higher haygroup.com/uk/press/details. on a 2003 charity chief executive pay survey. comparison metrics were taken into education institutions. aspx?id=41959 (accessed January 2014). Abercrombie, F. (1996) ‘Charity fat cats – fact account and, if so, what they were and how x. NCVO/TSRC (2014) Civil Society Almanac xvi. Most charities are required to follow the or fiction?’ Charity Finance, February, p.32. they were taken into account 2014. London: NCVO. All subsequent figures Accounting and Reporting by Charities: The article reported media accusations that (iii) information on how the remuneration for general charities are taken from this Statement of Recommended Practice in some charities, directors and executives policy was implemented in the financial publication. A longer explanation of the Charities SORP 2005 framework when were among what the article described as the year being reported on. (The report must general charities definition can be found at preparing their accounts. A few charities ‘fat cats’. include details of actual payments made http://data.ncvo.org.uk/a/almanac14/ working in particular areas, such as housing iii. For an example in the United States see by the company, set out as a single figure, why-are-our-estimates-lower-than-the- providers, are exempt from this Briody, B. (2013) ‘10 insanely overpaid for the total pay each director received in charity-commissions-figures-2/ (accessed requirement because they are required to nonprofit execs’, Huffington Post, 8 April the year.) April 2014). adhere to specialist reporting frameworks. 2013, www.huffingtonpost. Back to contents 35 End notes End notes

Charities that had an income of more than Schlegelmilch, B. S., Diamantopoulos, A. found that only 26 per cent of people xxix. There is also evidence to suggest that there £500,000 in the relevant financial year, or had and Love, A. (1997) ‘Characteristics surveyed knew that educational are limits to how far the public wants to be an income of more than £250,000 and assets affecting charitable donations: Empirical institutions could be charitable. Sixty-five actively involved in delivering what are worth more than £3.26m, are required to have evidence from Britain’, Journal of Marketing per cent viewed a hospice and an animal currently public services. See, for example, their accounts independently audited. Practice: Applied Marketing Science, vol. 3, shelter/refuge as organisations that could Ipsos MORI (2010) What do People Want, The Charities SORP uses the term no. 1, pp.14–28. be registered as charities; these were the Need and Expect From Public Services. ‘emolument’ instead of remuneration, as this xxii. Stevenson, C. and Preskey, N. (2013) organisations that were selected most London: Ipsos MORI, www.ipsos-mori. is the term that has historically been used in ‘Charities chief’s £653,000 pay reignites frequently by respondents as possible com/researchpublications/ case law. Emolument is defined as including row’, The Independent, 20 October 2013, charities. publications/1345/What-do-people-want- salaries and taxable benefits in kind but not www.independent.co.uk/news/uk/ xxv. Ipsos MORI (2012) Public Perceptions of need-and-expect-from-public-services. employer pension costs. home-news/charity-chiefs-653000-pay- Charity: A report for the Charities Act 2006 aspx (accessed April 2014). xvii. Figures quoted by Mohan, J. in ‘Analysis: reignites-row-8891812.html (accessed review. London: Ipsos MORI, www.gov.uk/ xxx. Quoted by Mason, T. (2013) ‘Adebowale: I High pay in charities’ www.birmingham. April 2014). government/consultations/charities-act- will not be silenced by the Lobbying Bill’, ac.uk/generic/tsrc/research/quantitative- Hope, C. (2013) ‘Charities set to be forced to 2006-review (accessed April 2014). Civil Society Media, 12 November 2013, analysis/High-pay.aspx?dm_ be more open about how much they pay xxvi. This is not new. For an example, see also www.civilsociety.co.uk/governance/news/ i=A1N,23LNC,4UFA7T,7KQCO,1 (accessed their top executives’, The Daily Telegraph, Gaskin, K. and Fenton, N. (1997) Blurred content/16415/adebowale_i_will_not_be_ April 2014). 14 December 2013, www.telegraph.co.uk/ Vision: Public Trust in Charities. silenced_by_the_lobbying_bill?utm_sourc news/politics/10516542/Charities-set-to- Loughborough: Loughborough University, e=12+November+2013+Governance&u xviii. http://data.ncvo.org.uk/a/almanac13/ tm_campaign=12+November+Governance what-are-the-sectors-different-sources- be-forced-to-be-more-open-about-how- which reported the results of research much-they-pay-their-top-executives.html conducted to explore public trust in &utm_medium=email (accessed April and-types-of-income-2/ (accessed April 2014). 2014). (accessed April 2014). charities. xxiii. Ipsos MORI (2012) Public Perceptions of xxvii. Impact Coalition (2013) Through A Glass xxxi. St Andrew’s is quoted as paying its chief xix. Some forms of social investment do provide executive £325,000 in Mair, V. (2013) ‘St a ‘return’ to the donor or investor, but the Charity: A report for the Charities Act Darkly: The case for accelerating the drive 2006 review. London: Ipsos MORI, www. for accountability, clarity and transparency Andrew’s Healthcare chair to face MPs on donor will have decided in advance whether CEO pay’, Civil Society, 12 December 2013, they are ‘investing’ or donating to the gov.uk/government/consultations/ in the charity sector. London: Impact charity, as different accounting and charities-act-2006-review (accessed April Coalition, http://cfg.org.uk/resources/ www.civilsociety.co.uk/governance/news/ investment rules apply to each. 2014). Publications/~/media/Files/Resources/ content/16583/st_andrews_healthcare_ xxiv. Charity Commission (2008) A Balancing Briefings/Through%20a%20Glass%20 chair_to_face_mps_on_ceo_pay (accessed xx. Wixley, S. and Noble, J. (2014) Mind the Gap: Darkly.ashx (accessed April 2014). April 2014). What the public thinks about charities. Act: New Perspectives on the charity/ London: NPC/Ipsos MORI, www.ipsos-mori. beneficiary relationship. London: Charity xxviii. Charity Commission (2008) A Balancing xxxii. Commons Select Committee (2013) com/researchpublications/ Commission, www.charitycommission. Act: New Perspectives on the charity/ ‘Charity chief executive pay’, www. researcharchive/3352/State-of-the- gov.uk/about-the-commission/our- beneficiary relationship. London: Charity parliament.uk/business/committees/ Charities-Sector-poll-for-New- research/research-reports/ (accessed Commission, www.charitycommission. committees-a-z/commons-select/ Philanthropy-Capital.aspx and www. April 2014), p.10. See also www. gov.uk/about-the-commission/our- public-administration-select- thinknpc.org/publications/mind-the-gap/ charitycommission.gov.uk/media/95305/ research/research-reports/ (accessed committee/inquiries/parliament-2010/ (accessed April 2014). rs18moribal.pdf (accessed April 2014). April 2014), p.14. charity-chief-executive-pay1/ (accessed The report quotes research carried out for April 2014) and House of Commons Select xxi. Instead see, for example, the nine typical Committee on Public Administration charity donor profiles described in the Commission by Ipsos MORI, which Back to contents 36 End notes End notes

(2013) Formal Minutes of the Select Public Administration (2013) Formal hm-treasury.gov.uk/d/frem_hutton_ Companies and Groups (Accounts and Committee on Public Administration, Minutes of the Select Committee on Public review_fairpay_additional_guidance_ Reports Amendment) Regulations 2013 Session 2013–14. London: House of Administration, Session 2013–14. London: update_2012-13.pdf (accessed April and related amendments to the Companies Commons Select Committee on Public House of Commons Select Committee on 2014). Act 2006 impose new obligations on listed Administration, www.parliament.uk/ Public Administration, www.parliament. xl. Ipsos MORI (2012) Public Perceptions of companies. documents/commons-committees/ uk/documents/commons-committees/ Charity: A report for the Charities Act 2006 xliv. The Financial Reporting Council is the public-administration/ public-administration/ review. London: Ipsos MORI, www.gov.uk/ body that ultimately authorises and issues FormalMinutes2013-14.pdf (accessed FormalMinutes2013-14.pdf (accessed government/consultations/charities-act- the charities SORP. All entities reporting April 2014). April 2014). 2006-review (accessed April 2014). under the new Financial Reporting xxxvi. This is not meant to exclude the payment xli. The Charity Commission and OSCR, the Standard (FRS 102) will need to make this xxxiii. By comparison, unless a private limited of bonuses for staff at lower levels within Scottish charity regulator, are authorised by disclosure in the notes to their accounts company’s articles of association say it a charity, for example for those working the Financial Reporting Council as the (not the trustee annual report). See must, or enough shareholders ask for in charity shops, and in parts of SORP-making body for charities. To assist paragraph 33.6 of FRS 102. This standard one, it will qualify for an audit exemption fundraising, where offering incentives them in fulfilling that role they have applies to periods commencing on or after 1 (ie it does not need an audit of its annual through bonuses may be seen as convened an expert committee – the SORP January 2015. The SORP consultation accounts) if it has at least two of the appropriate. Committee – and they act on the reflects this requirement. following: xxxvii. The Inquiry also received evidence from Committee’s recommendations. The xlv. Defined as those charities with •  an annual turnover of no more than some charities that had adopted the recommendations of the SORP Committee independently audited accounts (currently £6.5 million Living Wage as a proxy for the amount are also tested through extensive charities with a gross income of more than required for what they regarded as the consultation before recommendations are £500,000). •  assets worth no more than £3.26 basic cost of living in the UK. See www. finalised and published. million xlvi. CFG (no date) ‘How we decide how much to livingwage.org.uk/ (accessed April xlii. Charity Commission (2008) Accounting and pay our staff’, www.cfg.org.uk/about-us/ •  50 or fewer employees on average. 2014). Reporting by Charities: Statement and how-we-pay-our-staff.aspx (accessed April xxxiv. Comment by David Hoghton-Carter on xxxviii. See, for example, the Fair Pay Code Recommended Practice Charities SORP 2014). 22 October 2013 in response to Karl within Hutton, W. (2011) Hutton Review 2005 (2nd edition). London: Charity Wilding’s blog posted on 17 October 2013: of Fair Pay in the Public Sector: Final Commission, paragraphs 234–238.

‘Executive pay: what’s the magic Report. London: HM Treasury, ht t p:// xliii. For example Hutton, W. (2011) Hutton formula?’ http://blogs.ncvo.org. webarchive.nationalarchives.gov. Review of Fair Pay in the Public Sector: Final uk/2013/10/17/executive-pay-whats-the- uk/20130129110402/http:/www. Report. London: HM Treasury, ht t p:// magic-formula/ (accessed April 2014). hm-treasury.gov.uk/indreview_ webarchive.nationalarchives.gov. willhutton_fairpay.htm (accessed April uk/20130129110402/http:/www.hm- xxxv. Commons Select Committee (2013) 2014). ‘Charity chief executive pay’, www. treasury.gov.uk/indreview_willhutton_ parliament.uk/business/committees/ xxxix. Explanation taken from Cabinet Office fairpay.htm (accessed April 2014), which committees-a-z/commons-select/ (2012) Hutton Review of Fair Pay: led to increased transparency public-administration-select-committee/ Implementation guidance. London: requirements of local authorities inquiries/parliament-2010/charity-chief- Cabinet Office, ht t p://weba rchive. contained in Section 40 of the Localism Act executive-pay1/ (accessed April 2014) and nationalarchives.gov. 2011. The Enterprise and Regulatory House of Commons Select Committee on uk/20130129110402/http:/www. Reform Act 2013, Large and Medium-sized

Back to contents 37 Appendices Appendices

Appendix A Summary of responses by NCVO members to a survey on senior executive remuneration

In autumn 2013, 227 NCVO members completed cap of £100,000 should be the norm. users. To work in a charity is a vocation. Other Q4. Transparency a survey and submitted it via the Inquiry’s •  The principle of accepting a reduced salary for sectors pay too much. Should charities be required to be more dedicated email address. The following is a working for a charity may no longer be valid. •  A charity ‘discount’ should apply, but it should transparent about what individual senior summary of the recurring themes in the Being a charity is not a relevant factor when not be excessive. executives are paid? responses from these NCVO member setting salaries and trustees should seek to •  There is no reason why the pay of charity chief Responses to this question were broadly split organisations to the questions. Some of the attract the best people for the job. responses were by trustees on behalf of the executives should be different to other sectors. between the following views. charity; others came from staff. •  The sector needs to be more comfortable with People should be paid according to the skills •  A majority view that it is fundamental that greater levels of transparency (see question 4 and expertise they bring. To do otherwise runs charities are transparent about the levels of Q1. Key principles for setting salaries – below for suggestions that were made.) the risk of not getting the right people for the is there a core set? pay their senior executives receive, with a few •  The sector should be prepared to defend the job. respondents suggesting that this should also Of the 160,000 registered charities, only 20,000 salaries it pays, especially as charities are an Q3. The role of benchmarking and ratios in include publishing individual job descriptions are employers. Are there particular values that easy target. Most charity staff are not overpaid, setting senior executives’ salaries and responsibilities. Several of these charities should abide by when setting the although one or two executives may be. respondents also stressed the important role salaries of their senior executives? Is it possible, •  There was a lot of interest in the potential use •  The main motivation for working in the sector of ratios; this was a recurring theme of many of that charities needed to play in educating the or desirable, to propose common principles that public about charity salaries. trustees can apply irrespective of the size of the should not be income-led. the responses. There were a variety of views on charity? Or should different principles apply to •  Large charities are equivalent to some large what might be ‘acceptable ratios’ with •  The view amongst a significant minority that larger and smaller charities? businesses and need to pay accordingly. suggestions ranging from 1:3.5 through to 1:20. the existing requirements to publish salary However, several of the responses argued for a details in £10,000 bands above £60,000 went There was no majority view or consensus on this Q2. Comparisons with others ratio benchmark of 1:8 to 1:10, because this far enough and that publishing any more question. The responses reflected a wide range of ratio was seen as the equivalent of the gap details would just encourage criticism by the views, including the following. Is it possible, or desirable, to compare senior executive salaries with other sectors? Or is the between the Living Wage and a salary of public. A public education exercise was seen as •  It is difficult to set a common set of principles sector unique? Is there, or should there be, an £100,000. There was a lot of support for using being required before any further disclosure for all types of charity. expectation that charity senior executives be ratios as a benchmark, which some people was introduced. •  Pay should be determined by the charity’s paid a lower salary (a ‘charity discount’) than suggested as mirroring the Scandinavian •  A view expressed by a few respondents that, in budget, complexity, staff size, risk (financial, they might expect in a similar role in another approach to pay. addition to greater transparency on senior client group etc), location, area in which it is sector? Or does such an approach affect the •  There was overwhelming support for executive pay, charities should publish more working (eg anti-poverty charities) and quality of service that beneficiaries receive? benchmarking, with the caveat that while information about the salaries of their demands on the individual. Responses were evenly spread, reflecting three benchmarking techniques should contribute lowest-paid staff. •  Charities must be able to justify their pay levels broad positions. to decisions on pay, they should not determine •  The comment by a few people that these decisions. morally and intellectually. •  Charities are unique, and have unique values, transparency requirements should be the same •  Salaries should be related to principles. An therefore a ‘discount’ should apply if charities across the public, private and charity sectors executive’s salary should appear ‘reasonable’. A are to remain connected to their cause and – no more or less. Back to contents 38 Appendices Appendices

Q5. Role of public perception Q6. Other comments Appendix B What should be the role of public perception, Do you have any other thoughts on pay in the Acknowledgements beneficiaries’ views and donors’ opinions in charity sector? determining the salaries of senior executives? The Inquiry also received other comments The Inquiry would like to thank all those who • NCVO Governance Forum, 3 March 2014 • Many replies said that trustees should be relating to remuneration. have contributed evidence and insights to the mindful of all stakeholders’ perceptions in • NCVO Large Charities Chairs’ dinner, 18 • A few respondents expressed the view that Review. (See Appendix A.) February 2014 determining remuneration policy. However, while some senior executives’ pay is clearly too these respondents also said that charities We would also like to thank those organisations • Work Foundation seminar, 19 November 2013: high and they had been shocked by the figures, and individuals listed below, who have helped should ensure that public perception was not most charity workers were not overpaid. Risk and Reward, where next for executive pay the dominant influence on salary setting for shape the Inquiry’s views in meetings or in the UK? senior executives in the charity sector or, as • Some charities’ salaries have got out of hand one-to-one discussions. • Four former donors to two national charities many argued, of any influence. and so the introduction of a pay structure for • Kai Adams, Green Park Interim and Executive the charity sector would be very helpful. The Inquiry would also like to thank Karl • Trustees’ responsibility for setting senior Search Wilding, Charlotte Ravenscroft, Elizabeth executive salaries was seen as paramount, with • There is insufficient understanding, in the • Fiona Ellis, Vice Chair, and Joe Irvin, Chief Chamberlain, Aidan Warner and Alison Evans many arguing that pay could not be set by country as a whole, about the volunteer/ Executive, NAVCA from NCVO, along with Sush Amar and Ray reference to public opinion. employee divide. • Charlie Elphicke, MP Jones, for their help and advice. • A distinction was also drawn in some replies • There is a geographical north–south divide on • Duncan Exley, Executive Director, The between the role of donors – who fund charities pay; it is not an issue in the north. Pay is a Equality Trust – and the public more generally. London-centric agenda. • Simon Hebditch, Chair, and Alex Swallow, • The role of charities in educating the public was • The sector needs to do more to defend itself; it Chief Executive, Small Charities Coalition seen as vital by several respondents. These is an easy target. respondents saw a big gap between the public’s • This debate reflects a political agenda and is a • Tina Lewis, Head of Human Resources, perception of what charities do, including how distraction. National Trust much their staff should and do earn, and the • Jonathan Magee, Hay Group reality. A few responses developed this theme • The sector has exercised considerable restraint by saying that charities have to be able to compared with the private sector. • Steve McKay and John Mohan, explain and account for their practice and • Introducing a Charter Mark for terms and Third Sector Research Centre actions, which nowadays includes executive conditions could be helpful. • Julia Oliver, Odgers Berndtson pay. • Priti Patel, MP • Charity Finance Group’s Large Charities Special Interest Group meeting, 13 February 2014

Back to contents 39 Appendices Appendices

Appendix C Appendix D Glossary Useful publications

This report uses the following definitions within Severance arrangements include an Acevo (2013) The Good Pay Guide for Charities NHS Commissioning Board (2012) Clinical the charity context. enhancement contractual or discretionary and Social Enterprises. London: Acevo. Commissioning Groups: Remuneration guidance Allowances may include regional pay premia, payment over and above the statutory Charity Commission (2013) It’s Your Decision: for chief officers and chief finance officers. other special payments on joining the redundancy payments to which an employee is Charity trustees and decision making. London: Redditch: NHS England. organisation and any cash allowances paid, for eligible. Note: this is not included in calculation Charity Commission. Russell-Cooke Solicitors (2009) Contracts of example, in lieu of participation in an employer of total remuneration on an annual basis, but Employment. London: Acevo. should be considered as part of pay policy. Dorothy, D. (2010) Good Governance: A practical pension scheme. These are generally taxable. guide for trustees, chairs and CEOs. London: Third Sector Research Centre Knowledge Portal: Benefit in kind includes goods or services Total Remuneration (or pay) consists of the NCVO. www.birmingham.ac.uk/generic/tsrc/index. available to the individual, such as a company total financial rewards made, or available, to an aspx (accessed April 2014). employee. These may be in the form of cash or Hay Group (2012) A Spring Clean for Chief car, health care or child care vouchers. Generally Executive Pay in the Housing Sector? London: Hay these are taxable. benefits in kind and include pension arrangements. (The Charities SORP and HM Group . Bonus is a variable cash amount that may be paid Revenue and Customs use the term ‘emolument’ Institute of Chartered Secretaries and linked to performance of the individual, team or to describe total remuneration, and the new Administrators (2010) ICSA Guidance on Terms organisation. Bonus may be paid weekly, accounting standard uses the phrase ‘short-term of Reference: Remuneration Committee. London: monthly or annually, at a varying level, or not employee benefits’.) Institute of Chartered Secretaries and paid at all. Administrators. Pension includes defined benefit and defined contribution plans. Salary (or base salary) is the individual’s contractual fixed annual cash earnings. This may be expressed as an annual, monthly, weekly or hourly rate of fixed pre-tax earnings.

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