Back in the summer, the media had a field day looking at charity CEO salaries and finding out how big they are. The problem was the research about what charity CEOs were paid was highly selective – Red Cross got far more attention than the Royal Opera House, even though the latter’s CEO is paid nearly four times more. Overall, more heat than light was generated.
But it did get us to thinking, how did we get here? What is it that drives CEO salaries? Market forces, or organisational growth? Over the last few years, have the top salaries kept increasing irrespective of how much the organisation has grown?
We decided to carry out our own research. Using the accounts on the Charity Commission website, we looked at the 50 charities in the UK with the highest levels of spontaneous awareness. Here’s what we found:
CEO salary increases broadly correlate with growth in charities’ income
Our research shows that in the period 2007 to 2012, CEO salaries in the top 50 best-known UK charities went up by an average of 18%. That’s one headline. But in that period, those 50 charities increased their income by an average of 17.7%. Not far apart at all. Certainly not bad for the austere times we’ve been living in.
Voluntary income was up 11.6% on average as well. Staffing costs have gone up by 24.2% in this period, not too far from the level of income. Of course, these factors are interrelated as staff are always going to be one of the biggest costs for charities.
£100k is a key salary boundary for many charity CEOs
Looking at the figures reveals something else that’s very interesting; a £100k salary is a key issue for many boards. When they pay a CEO more than £100k for the first time, they have tended to exceed it by a fair margin in the period 2007-2012. Those that paid their CEO less than £100k in 2007 increased the salary by an average of 38% (£32,000) by 2012. Those that paid their CEOs over £100k had a much lower increase overall - just 6% on average (£9000).
Indeed, a number of those charities with the highest paid CEOs in 2007 had actually reduced that salary by 2012. So what appears to be happening is a rebalancing of CEO salaries based on market forces.
Beneath the average there are huge variations
There are organisations in our sample that have grown substantially and whose CEO pay has hardly changed at all. There are also organisations which have barely grown, yet increased CEO pay substantially. Although they broadly correlate, increases in CEO pay are clearly based on a number of factors, with changes in income appearing to be just one factor. Others may be CEO performance, the appointment of a new CEO, or particular strategic challenges for an organisation. The circumstances for each organisation are different.
We can’t in any way claim that the charities in our sample are typical; we have only looked at the 50 best-known. What is needed is to see if charities with lower incomes or who are less well known have similar patterns of CEO pay. The difficulty of course is that only where salaries are above £60k (the threshold set by the Charity Commission) are the changes measurable.
Where does this research get us to?
Ours is the first research, to our knowledge, to look at trends in charity CEO salaries. We really hope it won’t be the last. There is a need for this kind of analysis on charities whose income comes largely from government or earned income sources and less from donated income. It would also be good to look at smaller charities with an income of around £10 million.
Overall, our conclusion is that, for our sample, CEO incomes are neither out of control nor has their growth been excessive. While charity CEOs salaries are growing by 3.6% a year, those of their FTSE 100 counterparts have grown by 14% over the last year and are typically 20 times higher in the first place. At the same time, average pay is rising by around 2.5% to 3.5% for the general working population as a whole.
This is just a summary of what we discovered. We have a range of charts and analysis for this important issue, which are all in our free report, ‘A Chief Concern’, based on this research. It’s available to be downloaded for free here.
Do you agree with our executive decision? Or are you thinking CE-O no? Leave us a comment below.