Sadly, it sometimes seems as though third sector organisations only receive media attention when something goes wrong. People who had never heard of the valuable work undertaken by Kids Company since it was founded in 1996 can hardly have failed to have heard about its recent demise. Many of the allegations levelled at the charity in the past weeks relate to the remuneration of staff members. It has also been suggested that funds from the charity were used to pay the private school fees for children of some staff members as part of their remuneration package.
The payment of children's school fees might sound familiar. In 2014 the Scottish charity The Halo Trust came under scrutiny when it was reported that the chief executive's salary package included payment of fees for three of his children to attend fee paying schools. After receiving a barrage of negative publicity, the charity, understandably, felt a governance review was required. Unfortunately, this review has now come in for significant criticism itself. Earlier this month it emerged that trustees of the charity were paid over £120,000 to conduct a governance review. Angelina Jolie has now stepped down from her role as a patron of the charity.
With reports such as these grabbing the headlines, it is not difficult to see why public perceptions of third sector pay are grave. However, do these perceptions match up with the reality?
The results of a survey of the UK's highest paid charity chief executives were published recently by Charity Finance magazine. This looked at the salaries of the top executives in the Charity 100 Index and produced, on the face of it, some staggering results. The highest paid charity chief executive commands a salary of £780,000 per year. While the average chief executive salary is far less, coming in at £170,000 per year, this is still a 3.4% increase over the last two years. There are however some important qualifications to note. According to the Chief Executives Survey 2015, the average salary was inflated disproportionately by the UK's four highest paid charity chief executives, who are primarily the bosses of medical charities. The highest salary of £780,000 is paid to the chief executive of Nuffield Health which has charitable status but whose activities are arguably more akin to a traditional corporate body (it runs hospitals, health clubs and gyms, and charges users, investing the profits back into the services).
As you may expect, the findings in Scotland are somewhat different from those for the UK as a whole. The highest paid charity executive in Scotland is believed to earn around £185,000 a year - around 24% of the salary of the highest paid UK executive. A different survey undertaken by the Scottish Council for Voluntary Organisations indicated that the average salary of Scottish charity chief executives in 2014 was £46,756 - around 28% of the UK average.
How can charities protect themselves?
Each charity is different and so, ultimately, there is no amount which is an appropriate figure for a charity executive. Nevertheless, trustees can find themselves and particularly their decisions regarding remuneration under the microscope. Understandably, the public want to know how their donations are used and, unfortunately, can find it hard to reconcile generous remuneration packages with charitable purposes.
As we have said before, there are no specific laws in Scotland which cover levels of remuneration for charity executives, and so the decision really does come down to the trustees. Of course, this must be exercised in line with their duties as charity trustees - to act with due care and diligence, in the interests of the charity, in a manner consistent with the charity's purposes and to ensure compliance with law. Public perception of any decisions made, especially within the area of executive remuneration should rank closely behind these other responsibilities. It is important for charity trustees to carefully consider the benefits they offer to staff, and be mindful of the fact that these packages could come under scrutiny further down the line.
Our advice, as always, is that all charity trustees making any significant decision should keep proper records of that decision and the factors taken into account. Trustees should seek professional advice, consider using benchmarking or other comparators where appropriate and develop policies to help them make difficult decisions. Helpfully, OSCR have provided a brief statement on running costs which sets out what they, as the sector's regulator, expect from charities in this area.
If you'd like to discuss the issues raised here please contact us using the details below.