Analysis: high pay in charities

TSRC Deputy Director Professor John Mohan writes:

Given the stated purposes of charitable organisations it is reasonable that they should consider the appropriateness of the salaries they pay their senior staff. Many organisations will conduct benchmarking exercises in which senior staff remuneration is compared with that of broadly similar entities operating in related spheres of activity. The range and complex nature of activities undertaken by large charitable organisations, combined with the sensitive social challenges to which they respond, as well as the multiple demands for accountability from a range of stakeholders, mean that management and leadership in the charitable sector is demanding. Charities are operating in a competitive labour market in which executive talent is in short supply. 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. Charities in England and Wales must report the numbers of staff to whom salaries of greater than £60,000 are paid. Taking this as a benchmark for comparison, survey evidence on individual incomes suggests that under 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 over 6% in the private sector. From information provided in the annual reports of nearly 10,000 charities we estimate that around 12,000 individuals were paid at least £60,000. This equates to at most 2% of the voluntary sector workforce, although our figures do not include universities, some of which have several hundred people on such salaries (mostly professors and senior managers), or housing associations. When we looked at which sorts of 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 value, 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 above, and in most cases their salaries barely exceeded that threshold.

This analysis is at variance with media coverage, which has emphasised 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 rewards to individuals that provokes criticism? There are around 2000 charities with an annual budget in excess of £10 million, some 60 of which spend over £100 million a year, and those financial figures do not describe the complexity of the workload of charities. Are salaries of £60 000 really excessive for such responsibilities? 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 over half of employees paid £60,000 or more are in organisations funded principally by individuals paying high fees for services (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 conducted a thought experiment, and reduced every salary of someone in the charitable sector paid over £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.

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.