Charities: the pay debate

What do you think of when you imagine a charity? A volunteer-run group that gets together around a kitchen table to tackle a local need? A multi-million-pound organisation delivering national services? Or even one working across the globe? All three types of organisations exist within the third sector – and it is this diversity that lies at the heart of the controversy over how much charity managers should be paid.

Of the 164,000 registered charities in England and Wales, 42 per cent have an annual income of less than £10,000; 75 per cent have an annual income of less than £100,000. However, a tiny but significant fraction – 2,000 charities – have an income of more than £5 million. For example, children’s charity the NSPCC had an income of £130 million in 2012/13 and employs some 2,000 people. On an even larger scale, international relief charity Oxfam had an income of £276 million and employs more than 5,000 in the UK and overseas.

"These are complex, challenging organisations, operating in difficult circumstances. To say that just because they are charities you should expect to earn less for running them is, I think, pants,” says Neil Stott, Chief Executive of Keystone Development Trust, Senior Teaching Faculty at Cambridge Judge Business School and Entrepreneur in Residence at the Centre for Entrepreneurial Learning. “People should be paid at an appropriate level for the role, provided the organisation can afford to do so."

This is not a view universally held. There was an outcry in the media and among some politicians when it was revealed that 30 senior staff of the 14 leading UK-based overseas aid charities each earned more than £100,000 in 2013, and in some cases significantly more than the prime minister’s salary of £142,500. At the time, William Shawcross, Chair of the Charity Commission, which regulates charities in England and Wales, warned that “disproportionate salaries risk bringing organisations and the wider charitable sector into disrepute”.

The debate has been given an added edge by the increased involvement of many charities and social enterprises in the provision of public services, often alongside large corporatations. This for-profit/not-for-profit partnership model is common in welfare-to-work programmes and will be at the heart of the planned privatised probation system.

Dr Jonathan Trevor, Lecturer in Human Resources & Organisation at Cambridge Judge, and an authority on pay and reward, describes these partnerships as potentially “a real clash of culture, but also a systems clash.” Getting agencies from different sectors to work together effectively can be hugely challenging, he warns. Pay can be a strong motivator to do so – but it can also be a strong demotivator.

This is because, whether they like to think so or not, says Trevor, pay has always been a central feature of the employment relationship, and research suggests that employers are using financial incentives more than ever to drive performance. The most successful charities counter this by creating among their staff a sense of value about what they do. “This can supersede, or at least partially supersede, financial self-interest as a motivation to work.”

Trevor argues that the key individuals to motivate in partnership settings are “network leaders,” as they have the ability to work across silos and align the right people in the right teams behind a mutually understood purpose. These may not necessarily be the highest people in the organisational pecking order. “It’s knowledge and competence, as opposed to formal authority, that really determines the success or failure of these integrated operations.”

The scarcity of such skills is likely to exert a continuing upward pressure on senior pay levels in the voluntary sector, according to Sir David Bell, affiliated lecturer at Cambridge Judge and chairman of the syndicate of Cambridge University Press. He thinks that corporates chasing lucrative public services contracts will seek to poach talent from the best charities, while larger charities will in turn look to recruit from smaller ones that are closer to service users.

Bell, a former chairman of the Financial Times, was for 10 years chair of homelessness charity Crisis and retains several roles in the voluntary sector. He agrees strongly that charities must pay salaries that are appropriate for the scale and complexity of the job, but adds: “Any charity starts from an assumption that what it is spending is not its money; therefore its job is to spend it as beneficially as possible.”

Often, in Bell’s experience, talented individuals have chosen to work in the voluntary sector for much less than they were earning or could command in the commercial world. And this is doubtless true of Stott, whose four days a week at the Keystone Development Trust, a Norfolk-based charity, earns him a salary nearer £50,000 than £100,000.

“Given the context – the funding challenges and the pay that people get locally – I think my wage is appropriate and realistic,” says Stott. “I have in fact taken wage cuts over the past year. That’s about leadership. In the end, though, I think there are bigger things to worry about. Ethics and values are much more important than pay. If the sector ever became less transparent about any of this, for example, then that would be something to really start getting concerned about."