Why “fat-cat” charity bosses are actually thin on the ground
Professor John Mohan
Recent headlines about charity chiefs paid hundreds of thousands of pounds have sparked public concern and prompted an investigation by the House of Commons Public Administration Select Committee into the salaries of charity bosses.
Given the stated purposes of charitable organisations it is reasonable that they should consider the appropriateness of renumeration paid to senior staff. Many organisations conduct benchmarking exercises ensuring pay is broadly in line with comparable posts elsewhere. The range and complex nature of large charitable organisations makes their management and leadership particularly demanding.
Charities operate in a competitive labour market. Executive talent is in short supply. Salaries in excess of £100,000 for large charities are by no means unknown. Recent press coverage has commented unfavourably on the salaries paid by particular organisations, for example those charities that are part of the Disasters Emergency Committee consortium. Given that proposals for an increase in the salary of MPs to £74,000 have been widely condemned, should there be similar concerns in the charitable sector?
In fact, high salaries are the exception rather than the rule in the charitable sector, and information on this is transparent. Charities in England and Wales must report the numbers of staff paid more than £60,000. Taking this as a benchmark for comparison, survey evidence on individual incomes compiled by the University of Birmingham and submitted to the Committee inquiry, suggests that less than 3% of those who work in charitable or voluntary organisations are paid at that level or above. This compares to 4.5% in the public sector and more than 6% in the private sector.
From information provided in the annual reports of nearly 10,000 charities we estimate around 12,000 individuals in English and Welsh charities were paid at least £60,000 in 2011-12. This equates to at most 2% of the voluntary sector workforce, although our figures do not include housing associations or universities (many of the latter have several hundred people on such salaries). When we looked at which organisations were most likely to contain individuals receiving high salaries, the pattern is driven by the size of the charity: statistically, levels of expenditure explain most of the variance in the likelihood of paying someone at least £60,000. Certain types of organisations were much more likely than others to pay such salaries – private schools and hospitals, medical research charities, hospices and nursing homes, but also business and professional associations. Since many such organisations employ several individuals paid above this threshold, they account for the majority of high-salary employees in the sector. However, the great majority of organisations in our sample had no more than two people paid £60,000 or more, and in most cases their salaries barely exceeded that threshold.
This evidence raises questions about the emphasis in media coverage on a small number of charities operating in particular spheres of activity – such as international development. There needs to be an informed debate about what exactly the "problem" is here. Is it the reward to individuals that provokes criticism? There are around 2,000 charities with an annual budget in excess of £10 million, some 60 of which spend more than £100 million a year, and those financial figures do not describe the complexity of the workload of charities. Is the question one of income inequality? By comparison with the private sector very small proportions of the employed workforce in the charitable sector are paid £60,000 or more. Are critics worried about loss of donor confidence? If so, it should be pointed out that more than half of employees paid £60,000 or more are in organisations supported largely by individuals paying high fees for services (principally private schools and medical establishments), and not in organisations who draw the majority of their income from individual donors, or from government contracts.
Are there objections to the effects on charity budgets of these salaries? Again, senior staff salaries often account for a minuscule proportion of total expenditure. If we reduced every salary of someone in the charitable sector paid more than £60,000 to the current salary paid to an MP, it would certainly save some money. But in practice the amount would be less than one third of one percent of the total budget of the organisations in our sample. For many organisations the savings would have a limited impact on their overall budget.
If this is the target of criticism, the debate should be widened to look at other aspects of cost structures, such as the costs of maintaining central London offices. This may be defensible for the most senior level executives but for routine administrative functions there is no reason why jobs could not be decentralised in the manner practised by the civil service over many decades.
There is considerable information available about salary levels in charities – in our database we have captured such information for nearly 10,000 organisations - and there is ample scope for trustees, who are the proper persons to do this, to make relevant comparisons in order to inform their decisions about salary levels. And there is also plenty of information for donors on the performance of charities. If you’re thinking about giving money to a charity, consider its impact and effectiveness in the round, and don’t focus on a single indicator such as how much it pays its chief executive.
Professor John Mohan is deputy director of the Third Sector Research Centre, University of Birmingham