It is clear that the revelations in the media do not tell the whole story across the sector. In fact, research by the Scottish Council of Voluntary Organisations found that the average salary for chief executive roles advertised on their Goodmoves website had fallen around £5,000 to £44,452 for the financial year 2012/13. While these figures come from only a small sample of Scottish charities, they are still significantly lower than the high salaries often decried in the media. Nevertheless, the reputation of the sector in Scotland has not escaped unblemished. Scottish charity The Halo Trust hit the headlines recently when it was reported that the charity had funded the chief executive's four children through some of the UK's most expensive private schools.
NCVO Report in England
This April, NCVO, the representative body for the sector south of the border, produced the results of its executive pay inquiry on the back of the media revelations. The report recognised that some charities need to employ highly skilled staff and that, in order to attract those staff, those charities need to pay commensurate salaries. Equally, they rejected the idea of an imposed salary cap, recognising the diversity of the sector and the difficult in achieving a suitable balance. The report's key message is that the public should have access to salary information. In that vein, the report recommends that charities should:-
- adopt certain key principles of good practice in setting their remuneration;
- put in place a remuneration policy;
- consider the esteem and value of working for a charity and consider the impact of that on remuneration levels;
- consider using remuneration ratios showing, for example, the highest paid versus the median pay in the organisation; and
- publish an annual statement of remuneration.
If implemented, the latter recommendation would see charities with audited accounts create and make accessible to the public a remuneration statement setting out their approach to salaries. Audited charities are already required to publish the number of staff whose remuneration is £60,000 or more, in salary bands of £10,000, so this may not seem like a particularly radical idea. What is more controversial is the further recommendation that they should state "the individual remuneration of their highest-paid staff by position and name".
NCVO hopes that the implementation of these key recommendations will encourage public trust in charities by improving transparency. Yet at a session on trust at the recent Institute of Fundraising convention in London, Kath Abrahams, director of fundraising at Breakthrough Breast Cancer and a board member of the Institute of Fundraising, spoke out against NCVO's findings. She claimed that NCVO were naïve to expect charities to reveal this type of information, saying, "We’re asking the public for money every day of the week, and I am not going to want to take the risk."
The Position in Scotland
There are those who feel that revelations such as those in the case of The Halo Trust serve to undermine public confidence in charities. No doubt many charity trustees will be left looking at their salary bill and worrying if it could be the catalyst for either a public backlash or some scrutiny from the regulator. The latter is a particular concern after a survey commissioned by the Office of the Scottish Charity Regulator concluded that transparency was key to public trust in the sector, with 75% of the public surveyed saying that 'knowing how much of their money goes to the cause' was key. The Regulator responded by saying that "We will continue to reinforce public confidence by publishing more information about charities and the work that we do as Regulator." More regulation or disclosure obligations could be on the cards.
So, does Scottish charity law help trustees here? At present, there are no legal rules which specifically govern the payment of charity executives and only rarely will a charity's constitution deal with this (though it's perfectly competent to do so, for example, the John Lewis Partnership constitutional documents contain a provision to the effect that the chief executive cannot be paid more than 75 times the average basic pay of non-management staff). In the absence of any specific rules, trustees will be (relatively) free to reach their own decisions as to the level of remuneration of executives. However, as with any decision affecting a charity, trustees must be mindful of their duties. This means trustees of Scottish charities should 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. It's also worth bearing in mind that when determining whether a Scottish charity provides public benefit, regard should be given to the extent of any 'private benefit'. In theory at least, this could include excessive remuneration or perks to employees. As a matter of good practice, the trustees should make sure that discussions on staff remuneration levels are properly minuted and that all relevant factors are taken into account. This might include seeking guidance from professional associations on levels of remuneration, benchmarking remuneration against other similar charities and roles, and developing a remuneration policy.
Sadly, even doing all this may not be enough to avoid public censure. Unfortunately, the public tend only to see the headline figures and not the reasoning behind them. At first glance, the figures might seem surprising but they could be entirely justifiable in the context of the field in which the charity in question operates and the decision-making process of the trustees. It is this which has led much of the discussions south of the border to focus on transparency because, if the public is made aware of both the levels of remuneration and the reasons that the trustees believe those levels are justified, then the hope is that the reputation of the sector can be maintained. With reputation in mind, charity trustees should think now about what they pay their staff, how those levels were arrived at and how well their decisions may stand up to any scrutiny in the future.
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