The debate on setting senior executive pay in the charity sector reached Westminster this week. At the House of Commons public administration select committee, MPs tried to get their heads around concepts as diverse as social value, ethos and value for money. The committee asked the question: just how do charity trustees decide how much their employees are paid?
It is no surprise if the discussion came across as confusing. The charity sector is incredibly diverse. It includes everything from tiny community groups to huge multi-million pound disaster relief agencies crossing regional and even national boundaries in times of great need. There’s no one kind of charity, no one kind of chief executive, no one kind of charity trustee. Setting pay, in such circumstances, is as much a question of values as it is of good value.
We can debate the charitable principle and the nature of charity, but at heart the setting of pay involves practical questions: how you deliver value for money? What policies and processes do you have in place? How do you communicate your decisions openly and transparently? Currently there’s too little guidance for trustees – those who take decisions on pay – to help get such contentious matters and processes right.
That’s why Acevo, the charity leaders network, has produced The Good Pay Guide for Charities and Social Enterprises. It is a practical tool, that reifies a somewhat nebulous concept – delivering value for money – and articulates how, by following five principles, trustees can ensure their decisions are good for donors, staff and beneficiaries. The following principles apply.
In the 21st century if you compromise on transparency you erode trust, and the charity sector cannot afford that. Charities have nothing to be afraid of. The sector does incredible work each and every day, and that’s why we recommend that a charity’s activities, decisions and strategy should be accessible to all.
A great example is Christian Aid’s move in the summer to publicise not only its chief executive’s pay and pay ratios, but also to give a detailed explanation of the principles and values behind setting pay. Transparency means not just openness on numbers, but on thought processes too.
Proportionate pay is a contentious question for charities. A recent survey showed that a third of people think charity chief executives should be unpaid. At the other end, there’s been surprise at the levels of senior executive pay in many modern, large charities.
We can’t issue blanket guidelines on proportionate pay, but it’s worth trustees being mindful of pay comparisons within their organisation, within the sector and compared to other sectors when making decisions.
We do think, though, that charities should publish their own pay ratios, comparing top pay either to median or lowest pay. There’s a great story to tell here: our sector is much fairer than most. From the highest to lowest, pay tends to be a 3:1 or 5:1 ratio, compared with local government, which is 15:1, or university vice-chancellors, 18:1. And that’s before you get to the private sector.
Workers in the charity sector generally aren’t motivated by the same things as workers in the private sector. But let’s be honest: some link between pay and performance can improve a charity’s outcomes.
We do also recommend that regular appraisal is conducted to track performance. An interesting example here is Victim Support, a charity in England and Wales which supports witnesses and victims of crime, turns over £43m a year. Beside regular appraisals for senior staff, it actually has boards of regional and national advocates, who meet the chief executive and chair at least twice a year. This allows Victim Support to engage its supporters and beneficiaries in the remuneration process.
Recruitment and Retention
No organisation – private or charitable – benefits from a high turnover of employees. And it’s true to say that charities need stability at the top more than most. When you have turnover at the top, you might have periods of uncertainty or hiatus, and if that filters down to a charity’s beneficiaries that’s not a good thing.
So good pay means keeping hold of good staff. That’s not just about pay levels. Values and ethos matter too. The guide emphasises the importance of making sure that a new employee’s personal values and ethos correspond with those of their organisation and gives tips on privileging values at every stage of the recruitment process and beyond. The good news is this comes easily for charities: a charity’s values are its biggest asset.
Finally, any principles for setting pay must be underpinned by a strong and established process. Remuneration committees are trustees with their own terms of reference, who specifically examine the pay of senior executives in their absence.
We recommend that charities everywhere convene these committees and that their procedures are easily accessible to the public. Process is the final principle because one of the things that as a sector we must learn is that we must be seen to be doing good as well as do good. And if you get that principle right, the results will follow.
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