Charities need great CEOs: so do we need a more nuanced debate around charity CEO salaries?

In this week's blog, Max Roche looks at some potential methods of quantifying charity CEO earnings beyond our fixation with the number of zeros at the end of the salary.
Max Roche
 

The British public still see ‘fat cat’ charity CEO salaries as a major source of discontent. Large pay-outs and six figure salaries are often employed in the media to illustrate the supposed moral depravity at the heart of largescale charitable operations in which fat cat bosses’ line their own pockets at the expense of those they purport to serve.

Is the reality always as simple as that though? Research done at nfpSynergy (soon to be released in full) has sought to dig deeper into a debate that has traditionally been condensed into a black and white morality at the top of the sector.

Our January 2020 public survey of 1000 members of the general public found that 72% agreed with the concept of capping CEO salaries within the third sector, and in fact 79% agreed that CEO salaries should be kept under £100,000 per year.[1] The paranoia around personal donations being spent on six figure salaries no doubt contributes to this relatively entrenched public opinion, and in many cases motivates an exodus away from large fundraisers and towards small and medium sized charities. Public opinion is black and white, whilst the sector contains shades of grey.

Does donating to smaller charities guarantee more goes directly to the cause?

Studying the relationship between fundraised income and CEO salary for the top 50 national fundraising charities we can see that this logic is somewhat misguided. In fact, the relationship between the two appears to flatten to the point that large increases in fundraised income have a minor effect on CEO salary.

To illustrate this point, consider the 2019 performance of the following two anonymised charities. Charity A fundraised £449m and their CEO took home £185,000 (an extortionate salary by most public viewpoints). Charity B fundraised £3.2m and their CEO took home £75,000 (a far less contentious salary). However, calculating a ratio from those stats of CEO salary vs fundraised income actually shows that with Charity A, for every £100 fundraised, the CEO takes home 0.04% whereas with Charity B the CEO takes home 2.38% - a much higher percentage despite being a much small charity and paying a lower salary.

Undoubtedly larger charitable organisations by the very nature of their size must spend more on overheads, but the idea so commonly pedalled that donating to smaller charities guarantees that your donation goes more directly to the cause and away from high salaries is relatively fictitious.

Large charities are complex organisations and charity CEOs are comparatively underpaid

The second nuance that ought to be considered is that large charities paying high salaries are themselves complex organisations. Save the Children International, for example, operates across 117 separate countries, often in unstable or dangerous environments, employing 25,000 employees and partnering with numerous local organisations on the ground to achieve their mission. No one could realistically deny that the role of the CEO is both complex and important, and yet the current CEO salary of £189,000 is an eyewatering amount for many members of the public.

When making comparisons with public sector organisations and FTSE 100 companies of a similar size, the disparity between sector pay becomes apparent. The BBC employs around 22,000 employees and CEO Tim Davie earns £525,000, whilst the CEO of Diageo employs around 28,000 and earns an annual salary of £11.7m. Given the complexity of operations that charity bosses are in charge of and the international reach that many manage, they are paid a relatively minor amount when contrasted with organisations of a similar size and scale across other sectors.

Furthermore, resentment towards CEO salaries, in general, is relatively pervasive across the board with recent research at nfpSynergy suggesting £95,000 as the average acceptable salary for the CEO of a bank.[2] This would suggest that actually the largest and more problematic rupturing of social expectation and reality exists in the private sector, and that charity CEOs represent relatively good ‘value for money’.

Let’s persuade the public to focus on efficacy rather than fixate on figures

Of course, this line of argument won’t appeal to all. Many will highlight the fact that charities and FTSE 100 companies are fundamentally not the same beasts and that any form of comparison between an organisation measured in terms of profitability against one grounded in impact is never appropriate.

However, if a FTSE 100 company such as Diageo can justify a £11.7m salary based on the efficacy with which the CEO made the company profitable and competitive, can charity CEOs employ a similar argument grounded in impact delivered? Perhaps this is a dangerous parallel to be drawn but the intention is to illustrate that there appears to be a somewhat hysterical focus on the number of zeros attached to charity CEO salaries, where perhaps greater attention to efficacy and impact could be employed.

With this in mind consider the performance of Save the Children International. In 2018 the organisation reached 40.8m children in need, 9.3m of those reached were through 113 separate emergency responses across 58 countries. They equally reached around 8m through global education programmes.[3] Since 2011 the salary of the CEO has risen by around £25,000 to £188,900, a point many of the public would consider unacceptable. However, considering the magnitude and scale of the above figures as well as the fact that each of those has at the very least doubled, in some cases tripling or quadrupling since 2011, and perhaps that salary doesn’t seem quite so nauseating.

Is our outrage misdirected?

Ultimately there seems to exist a somewhat perverted logic in the way we approach remuneration across society. The collective apathy that surrounds the absurd salaries for FTSE 100 companies (or professional footballers for that matter) flies directly in the face of the outrage so commonly expressed over charity CEO salaries.

Whilst scrutiny into any sort of powerful multimillion-pound organisation is always important, it seems like charity bosses bear the brunt of this scrutiny. The somewhat puritanical societal approach to charity finance means there is a danger that the expectation of what a charity CEO should be paid no longer reflects the complexity of the position, nor the impact being delivered.

The answer, of course, is not to call for a realignment of charity salaries with its corporate counterpart. The answer is surely for the sector to work much hard on explaining why a charity CEO salary of £150,000 is not an outrage but exceptional value for money. Public attitudes will only be changed by a consistent, engaging and long-term campaign to persuade the public that their donations will be better spent with a decently-paid and highly capable charity CEO.

Of course, with Covid-19 making redundancies and pay cuts commonplace across the sector, it is a sensitive time to be making an argument of this nature. Once things return to normal, however, there is certainly a case to be made that we need to consider the value of CEOs and think about remuneration accordingly.

 

[1] Charity Awareness Monitor, January 2020 | Base; 1000 adults 16+

[2] Charity Awareness Monitor, January 2020 | Base; 1000 adults 16+

[3] Save The Children Annual report 2019

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