Dealing with the question of remuneration
Media attention surrounding charity pay has been recurrent. In February, research found that the number of charity executives paid over £200,000 had increased from 30 executives to 32 executives since 2013, and those paid over £300,000 increased from nine to 12.
In June the Sun newspaper criticised large UK charities - including NSPCC, Cancer Research and Marie Curie - over “sky-high salaries and the luxury lifestyles that go with them.”
With salaries and other issues in the voluntary sector on the media agenda, dealing with remuneration can be an ongoing issue for charities which want to do the right thing by their supporters, but at the same time pay staff fairly and appropriately for the roles they do.
Last year NCVO’s inquiry into charity executive pay offered trustees guidance on how to improve charities’ policies on pay. It recommended that all charities with independently audited accounts, those with a gross annual income of more than £1,000,000, should establish a remuneration policy. It also recommended that smaller charities should consider doing the same thing as best practice.
The new SORP (Statement of Recommended Practice), in place for year ends from 31 December 2015, requires greater disclosure in the area of pay. Setting up a remuneration policy might seem daunting. However, many charities will probably be following much of the NCVO’s advice already, so they can build on what they are already doing. The process should be evolutionary not revolutionary.
The NCVO recommendations and the charity SORP are a good starting point for any charity. The SORP provides the basic requirements around pay disclosures, while the NCVO goes much further and gives ideas for best practice.
At the heart of both approaches is transparency. Charities and trustees must be open and clear in their approach to remuneration. It is up to each charity to decide how far beyond the basic requirements of the SORP they wish to go. One of the most important things to avoid when drawing up a policy is getting bogged down in trying to find the “correct” figure for each senior member of staff. It is more important to have a solid rationale for the pay structure and to be able to explain to people how and why you set salaries at the level you do.
Charities also need to think about where they will publish details of their pay structures. Whether it’s on their website or in their annual report, the figures should be accompanied by a narrative that helps to explain their thinking. It is a great opportunity to describe the context that helped shape the charity’s decision making around pay. Stakeholders will increasingly want to hear the rationale behind the decisions and be reassured that there is a robust and open policy for setting pay.
Relating to values
Remuneration policies must closely relate to a charity’s objectives and values. For example, if a charity is trying to alleviate poverty, it goes against the grain to pay a member of staff a large salary. However, if the charity is a medical research charity which needs to generate world-leading work, it might need to spend more to attract the best staff.
Charities also need to understand the current market for recruiting people – who are they seeking to attract and select? If they need highly skilled employees to deliver their mission and goals then they will need to pay the going rate. Let’s not forget charities are competing for staff, particularly skilled ones. Just like private companies, they need the right people to lead them.
Remuneration ratios might form part of the discussion. They can be a useful tool, but charities should be careful not to let them become too rigid. One sensible practice is to compare senior executives’ pay to the median in their charity. Another useful consideration is the Association of Chief Executives of Voluntary Organisations’ five principles of good pay: transparency, proportionality, performance, recruitment and retention and process.
Small charities may need to get advice. There may be a trustee with HR experience or they may need to seek external professional advice. They could also consider reviewing the approaches taken by similar charities in their field and use them as a benchmark for their own policies.
Charities also need to think about how they should discuss remuneration at board level. Sensible questions need to be asked such as should a sub-committee be established to set the terms and conditions, or should the policy come from the whole board? Which decisions will be taken by trustees and which ones will be left to the executive team? For example, trustees might make decisions relating to senior managers, while those executives will determine the terms and conditions for everyone else.
The key message for charities is that they should be thinking carefully about their remuneration policy. You need to able to explain the remuneration policy to those working inside your charity, as well as to stakeholders and those outside the charity. It is what the private and public sectors have been doing for some time.
Finally, and perhaps most importantly, charities and trustees should be confident that they can explain the rationale behind their pay decisions.