PAYnotes on executive pay in the voluntary sector

This week, PAYnotes looks at the pay of Chief Executive Officers in charities and whether it should reflect market values.

Are executives in the third sector paid too much?

From the executive benchmarking we do it’s clear that different sectors attract different market rates. The market for professional institutes is different from the market for airlines. The market for housing associations is different from the one for facilities management. It’s also clear that a strong sense of purpose has a value that can offset some of the market value.

About 18 months ago I wrote a critical piece about the views of William Shawcross, Chairman of the Charities Commission, regarding the pay of Chief Executive Officers (CEOs) in leading charities. In essence, Mr Shawcross thought some of CEOs were paid too much. I didn’t like the inference in his remarks that CEOs in charities should set an example by accepting salaries well below their normal market value. 

I said at the time, and I still believe, that the logic in that argument is faulty. My concern was, and is, that it’s not acceptable to short change people just because they work for a charity. Quite simply, I think you need to attract good quality people. To do that you need to pay them realistic salaries, especially if there are no generous bonus schemes, LTIPs or share plans available. 

Whilst browsing the internet the other day I found something that suggested that some people, not just Mr Shawcross, clearly disagree with me. 

I had stumbled on a survey that was conducted earlier this year by nfpSynergy. The headline that caught my eye was: “A third of people want to see charity CEOs and directors work for free”. 

Reading further it was clear that a sizeable minority feel that charities shouldn’t have to pay for anyone to work for them - they should be entirely staffed by volunteers from the Chief Executive down. Interestingly, there was greater support for charity shop managers being paid than there was for CEOs.

No matter how tempting that approach may sound, especially when funding is tight, I think it is based on a flawed understanding of what is entailed in running a charity. 

I am not dismissing the contribution of volunteers.  They have an incredibly important role to play in charities. They will always be needed and thankfully there always seem to be people with energy and enthusiasm who are prepared to give freely of their time. 

But the reality remains - if you want to run a large, world-class, and in many cases complex global organisation, you need world-class people at the top. That applies whether or not you’re a charity. That means you should pay a reasonable salary – not necessarily the best in the market, but at least something that is competitive enough to attract talented people. 

It may be possible to pay less than the general market because there is a strong sense of purpose or a close identification with an organisation. That’s the silver bullet that so many of us are hoping for with our employee engagement initiatives. But that should never be used as an excuse for effectively exploiting people’s generosity. 

By Peter Brown