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Why isn’t the sector defending chief executive pay?

In the last week or two, emergency relief charities have been pummelled by national news outlets over their payment of chief executives. But they haven’t exactly come out swinging in their own defence. Instead, they’ve put their gloves up, leaned on the ropes, and taken the punches.

Trustees take the decisions on senior pay, but only one trustee seems to have anything to say about it – Bishop John Arnold of Cafod, who justified salaries in his charity. So the sector leadership appears to consist of one bishop and a congregation of Trappist monks.

It doesn’t look good. It appears most trustees aren’t willing to justify their those decisions. Frankly, it makes them look weak.

Nor is this first time this has happened. The sector has a similar track record of failing to defend fundraisers when the spotlight has swung onto their practices – something which so infuriated Mark Astarita, fundraising director of the British Red Cross, that he used his keynote speech at this year’s Institute of Fundraising convention to tear into the sector’s leaders, labelling them “cowards” and claiming they have “run for the hills with their petticoats showing”.

I understand the thinking of trustees in these situations. I personally wouldn’t want to face the national media, with their ability to twist any debate to suit their own agenda. I wouldn’t want them looking into my own past. I’d look with trepidation at the one guy who did go on the offensive, Stephen Bubb, chief executive of Acevo, who’s taken some brutal punishment in the past week, including repeated jabs about spending charitable funds on his birthday party.

From a tactical point of view, I’m sure these charities are also worried that by engaging in a debate they will prolong the discussion and focus attention on their own charity.

I think this is the wrong attitude, though.

It’s clear the public are unhappy about many things charities do – particularly executive pay, fundraising tactics, and administration costs – and that the sector needs to make its case better that it should spend money on this stuff.

The frustrating thing is that for the most part, these things are defensible. The sector is spending its money well. The public can be convinced if they have all the information at their disposal.

But the sector needs to get on the front foot. I don’t think charities are going to win the public over by just taking the body blows and waiting for the bell.

  • Leon Ward

    Great article and so so so right. Unforunately, I also agree with your point about Trustees wanting to take on the national media and fanning the flames.

    Also, Stephen Bubb receiving criticism for spending charitable money on his birthday party is justified.

  • Rarry Revan

    Not sure if it is fair to say that “the public are unhappy about many things charities do”. Wouldn’t it be better to say “some members of the public who are interested in charities can get very annoyed around certain subjects that the media use to generate copy and sell units”? And it seems that Bubb fronted half of the costs for his birthday and ACEVO used the event as a way to strenghten their stakeholder relations. Not quite the scandal the media reported it to be (see proposed rewording above).

    Big hugs

    Rarry

  • John Barnes

    I think part of the problem is that ‘Sir’ Stuart Etherington comes across as a fat cat – his £120,000+ salary and portly appearance hardly do anything to dispel impressions that he does very well out of charities.

    And another knight ‘Sir’ Stephen Bubb although more slender comes across as earning a lot of money for not doing very much

  • Carl Allen

    So what are the principles used to calculate chief executive compensation? Point … without credible principles a defense cannot be mounted.

    Worse yet, the charity sector, per se, is seen having a well publicised (60th) birthday party in the House of Lords while those that depend on charity are in much greater need of charity.

    No bread, let them eat cake comes to mind. Followed by a guillotine event or perhaps a hara-kiri.

  • David Floyd

    I agree in the sense that trustees should come out and justify salaries they themselves have signed off.
    I imagine the fact that they haven’t done so is a conscious comms strategy – that if they let the press and pundits get some outrage of their system for a few days during the silly season, then ultimately things can just carry on as normal. If they responded and opened up a debate the potential implications are far more serious.

    I don’t agree that these salaries are necessarily easily justifiable.

    Is there any evidence that charities who pay their chief executives £90,000 per year end up with worse people than charities that pay their chief executives £140,000?

    If I’m a member of (and donor to) a charity and I don’t agree with its pay structure, what’s the process for raising my objection?

    • David Ainsworth

      We’re talking about a voluntary organisation that depends on donations. I think there is a pretty simple process for raising your objection.

      I don’t know if the evidence you want exists, nor have I any idea how you might measure whether a chief exec is worth their salary. You could try replacing them with a lawn ornament for a year and see what happens to income, I suppose.

      I have no idea what an executive is worth, but I suspect it’s less down to value and more down to bargaining power.

      Fifty years ago, a chief executive in a large company was paid around 25 times as much as the average worker. Twenty years ago, it was about 100 times as much. Now, it’s 200 times as much. Over time, chief executives as a group have gathered far more information about how much their peers are paid, and used it to negotiate a better deal.

      On the one hand you can argue that a chief exec at a big charity only has to make one better decision a year than the next best person, and they’ve already justified their whole salary. On the other you can say that success is actually mostly down to staff and systems, not individuals, and the identity of the person in charge makes little difference.

      I can see both sides of the argument. But it’s a meta-argument, about the worth of chief execs in general. For an individual organisation, I can’t see is how you can easily pay much less than another organisation of the same size, and hope to keep your senior staff.

      • David Floyd

        Well, if you knock out accountability and evidence, and go with the ‘it’s market forces’ approach then the outrage of The Daily Telegraph and the braying TV pundits are perfectly legitimate market forces.

        • David Ainsworth

          True enough. Actually quite powerful market forces. A survey of listed companies in the States found, I believe, that scrutiny by stakeholders was the single largest driver in keeping management salaries down.

          You can look at it both ways, though, can’t you. If I was offered a job where one of the essential requirements was to take regular flak from the slavering hacks of Wapping, I’d want to be paid a bit more.

    • Nick Posford

      Just to answer your last question – if a member, you probably have the right to ask for executive pay to be on the AGM agenda and you can attend the AGM and register your objection. There is usually a section for any other business during which you could ask to be heard. As a member, I would think you can also ask the Trustees to write to you and justify their decisions.

      As a donor, the process is to stop donating if you disagree – or at least warn them of that fact.

      I agree it would be interesting and useful to see harder evidence that higher pay equals better quality people. What I would be more keen to see is better evidence of what the pay has achieved. In the same way that charities publish annual reports (and summaries) to tell donors how their support has benefitted the cause to which they donated (eg lives saved, lives turned around, species saved etc.), it would be beneficial and interesting for the charity sector to lead the way in transparency and have annual performance appraisals of their top executives published. I think some people are worth £100k+ salaries and I suspect they could prove it, so why not?

      I would also like to see the focus on CEO pay not be linked to their charity’s income, but to their charity’s impact. If a CEO has ensured a charity improved its impact despite falling income, that it achieved more with less, that makes their pay packet more justifiable. But in a media frenzy, sensible analysis of this issue is unlikely to happen.

  • Richard Radcliffe

    I would defend it within reason. Perhaps if the charity commission had better salaries they would not be in the mess they are now.

  • Mark Atkinson

    I was with initially bemused by the recent articles about the so called fat cat pay of charity chief executives. However, as the tirade went on, this became disdain and then anger.

    I find the story poorly informed, inflammatory and ultimately contrary to the public interest. At a time when charities continue to be needed more than ever and in the context of ongoing public sector funding cuts, articles which go out of their way to negatively portray charities in such an imbalanced manner to the very people who need them the most cannot be a good thing. This can be evidenced by the thousands of people who have posted comments on various websites and taken part in the likes of the self-serving Telegraph on-line survey. Some people are now stopping their charitable donations which in turn can only place front-line services under greater pressure.

    Let’s get some of the facts right.

    There are 163,095 registered charities in England and Wales. 75.4% of them don’t even have an annual income of £100,000. Only 6.2% are known to have an income over £500,000, with 1,891 (1.2%) having an annual income in excess of £5million. De facto, we can readily state straight away that excessive pay for the vast majority of charities is actually impossible…the money simply does not exist.

    In November 2012, it was reported by ACEVO and published in Third Sector that the median pay for charity chief executives had actually fallen from £60,000 to £58,139. Extrapolating this against the previous ACEVO salary survey, this represents the amount most typically paid to those who lead charities in the £1-5million annual income band (circa 5% of registered charities). Prima facie, major salaries are consequently only potentially paid in circa 1% of registered charities in England and Wales.

    Let’s take this a step further.

    Assuming the stats have not massively changed in the last 18mts, in 2011, the median pay for chief executives at charities with a turnover of over £100million was £130,000 according to ACEVO. The Charity 100 Index, compiled by Charity Finance magazine, revealed that up to and including 31 March 2012 the minimum entry requirement was a three-year average income of £48.7m. The 2010 analysis published by the Guardian listed only 35 charities with an income of over 100million (probably best to forget the Cup Trust at number 36…which was just shy of £100m!)

    So… of the potential 163,095 registered charities we can safely say that somewhere between 35 and 100 have chief executives who are paid £100,000 or more. If we take the median (and mean) in this case as 68, that equates to a whopping circa 0.042% of charity chief executives who are paid £100,000 or more.

    We clearly have a major problem? I don’t think so.

    I read a suggestion that charity chief executives shouldn’t be paid more than £50,000…the majority aren’t.

    I also read that pay should be capped at NJC levels – currently just shy of £60,000 for PO9. As already demonstrated, the majority are paid less.

    What is actually wrong with a tiny proportion of the leaders of the UK’s largest charities, which tackle some of the world’s most challenging issues being paid £100,000+? Is their responsibility not commensurate or indeed greater than that of chief executives of councils throughout the UK?….Waltham Forest CE @ £180k, Suffolk CE @ £170k, Derbyshire CE @ £150k.

    I for one do not think it is inappropriate for a Board of a charity with a turnover of £100million+ to use less than half a penny in the pound to remunerate its leader. Incidentally, this mirrors the finding of the chief executive survey conducted by the Guardian of the top 100 fundraising charities way back in 2002 which cited average pay at £79,805 equating to £0.45 for every £100 of income.

    So what next?

    I am dismayed to hear that NCVO and the Charity Commission are going to work on the production of a joint remuneration guidance document for use by Boards. This strikes me as not only an unnecessary usage of their resources but also something which indirectly gives credence to a non-issue. I hope they will reconsider and instead, work with ACEVO and other sector bodies to educate the media on the value of charity chief executives.

  • Richard Tomlins

    Interestingly Christian Aid adopted a “email us and we’ll justify our salaries” position. I did…have they replied…no.