Charity governance, pay and perception25/09/2017
Pay is a perennial problem for charities. Historically, executive teams at charities were low paid and often undertook their work for deep-seated commitment rather than financial reward. Whilst the commitment amongst executive teams is still present, the workload has increased and the skill levels required to run a charity have grown, making it harder to recruit individuals with the correct skills, at low pay, especially when they can earn more in industry.
As charity executive pay increases, trustees come under pressure for spending charity money not on charitable purposes, but on people to run the charity. This gets even more complicated when charities are engaged in the provision of public services as part of their charitable delivery.
University of Bath criticised
Recently the University of Bath has faced criticism for the amount it is paying its Vice Chancellor, echoing criticism that has been levelled against CEOs of a range of charities over several years.
However, in relation to Bath University, an investigation has been announced by Higher Education Funding Council for England (HEFCE) about governance practice in relation to the remuneration of senior staff following a formal complaint by Lord Adonis following what has been described as a “scathing attack” on the pay of its Vice Chancellor, Dame Glynis Breakwell.
Bath University is an exempt charity. This means that whilst its charitable activities are regulated by the Charities Act 2011, it is not required to register with the Charity Commission. The principal regulator for Bath University for all matters is HEFCE. This being said, the Charity Commission can launch an investigation into the charitable activities of a university following consultation with HEFCE, so two investigations is a distinct possibility.
Whilst two investigations are possible in relation to a university and some higher education bodies, this issue does not affect schools generally. Since the Charities Act 2006, all charitable schools have been required to register with the Charity Commission. Therefore the Commission has become their principal regulator, reducing the complexities of no or multiple regulators.
How much is too much?
The issue of pay can be a tricky subject for governing bodies of all charities. Often the trustees are responsible for complex organisations which need leaders with great skill. Sector grown leaders often have all of the necessary skills, but are not as common as you would hope. They are usually committed to the sector, having accepted that they will receive lower payment than if they were in industry. However, their skills are in demand and they can be poached by other charities, tempted into industry, move to non-profits which are not charities or move to the US where leaders are paid much more than in the UK.
Therefore, how much is too much? In the case of one charity with a turnover of over £1 million, the trustees considered that paying the chief executive more than £25,000 would be excessive. On investigation, it transpired that the retiring CEO had effectively been paid less than the minimum wage due to circumstances and commitment. The trustees truly believed that the CEO should not be paid a market rate due to the need to show commitment to the charity. This leads to a concern that they are not acting in the best interests of their charity.
In other charities, trustees have shown a much more commercial approach to executive pay. Their duty as trustees is to act in the best interests of the charity as a whole. Paying more than the charity can afford or paying beyond market rate would be a breach of their duty. However, to ensure that the best person for the role is in post and paying accordingly is within their power and duty. A clear argument can be made to pay a market rate for the right person to lead the charity, even if considered to be a large salary by the public.
Realignment in public perception with charities’ needs?
The role of trustee is about balance, in this case balancing the need for the right person at a large salary against the impact of a public backlash. It is also important to make the right decision for the charity and to explain these decisions. In a university, the right Vice Chancellor may be giving up potentially remunerative research opportunities, may have the skills to bring increased donations, student numbers or high profile academics, enhancing reputation and impact. Any one or a combination of several factors could result in a justification for a large salary. Conversely, if the impact of the salary causes a negative impact which outweighs the positives, it cannot be the right decision.
However the decision is reached, perception of the public, the employees and the media will all have to be considered. It is important our charity leaders are appropriately remunerated and that trustees act appropriately. If public perception is out of tune with what is needed by charities, the sector and the Charity Commission will need to work together to achieve realignment and this may be more effective than multiple investigations.