Charities urged to be more transparent about executive pay

A new set of guidelines from the National Council for Volunteer Organisations (NVCO), aimed at charity trustees, recommends that charities should be more transparent about pay for their senior staff, and that larger charities should make the information readily available on their website.

The NCVO commissioned an inquiry into executive pay levels and decision-making processes in the Summer of 2013, following widespread media coverage of the subject.  The 18-strong inquiry panel – comprising representatives of large and small charities as well as remuneration and HR specialists – looked at the impact of pay decisions in public trust and confidence in the sector.  The inquiry report was published last month.

There are some interesting statistics in the report.  For example, there are around 161,000 registered charities in England and Wales, with an annual income of £39bn – more than the UK defence budget.  Almost half this income went to just 533 major charities, each with annual revenue of over £10m.  The vast majority are run entirely volunteers – just 9% have paid staff, but this 9% employs some 800,000 people, a substantial contribution to the employment figures.

The Inquiry found that charities are still likely to pay their employees less than their private-sector equivalents, citing a recent Hay Group survey that showed the salaries of charity chief executives were 25% lower than their peers in private sector organisations of equivalent size.  The gap widens to 45% when longer-term financial incentives are factored in.

The NCVO makes five recommendations for pay-setting in charities:

  • That pay for senior executives should be based on a set of principles covering the overriding goals, governance and considerations of charity trustees charged with making pay decisions about senior employees;
  • That all charities with gross income of more than £500,000 should adopt a formal remuneration policy;
  • That charities consider the esteem and value – financial and non-financial – that employees derive from working for a charity and the effect this may have on pay levels;
  • That all charities with gross income of more than £500,000 use the ratio between the total remuneration of the highest-paid employee and the rest of the workforce as part of their pay-setting process, and consider publishing this ratio; and
  • That all charities with independently-audited accounts should publish an annual remuneration statement explaining the organisation’s remuneration policy, how this relates to the delivery of their charitable purposes, and setting out the total remuneration, roles and names of their highest-paid staff.

The report’s definition of remuneration includes salary, bonus, any long-term incentives, pension and other benefits.  As well as appearing in the trustees’ annual report, the remuneration statement should be published somewhere readily-accessible on the organisation’s website – this is what ex-news reader Martyn Lewis, the chair of the inquiry, calls ‘two clicks to clarity’.

It remains to be seen to what extent the NCVO recommendations will be adopted as best practice across the sector.  The guidelines have no legal or regulatory substance.  However as the well-researched and coherently-argued findings of a select group of senior figures from the sector, charities are likely to consider them carefully.  The guidelines already have the backing of the sector’s regulator, the Charities Commission.

Some change seems inevitable however.   As part of a separate exercise, the Financial Reporting Council is currently considering a recommendation that the reporting requirements of charities are changed to include a requirement for larger charities to publish their remuneration policy as part of their annual report, and to extend the requirement to publish the number of individuals by pay band to all charities that prepare accounts, rather than just the larger charities as now.

The full report and associated press release can be accessed via the link below: http://www.ncvo.org.uk/about-us/media-centre/press-releases/642-full-transparency-vital-for-trust.

To find out how it might affect you, contact Yellow Hat Reward (info@yellow-hat-ltd.com).  Yellow Hat Reward are the only dedicated reward specialist in the Cambridge area, providing consultancy and on-going support in all areas of employee reward, including performance-related pay programmes, international reward, executive pay, benefits and pensions.


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