Charity CEO Pay: The Goldilocks Formula Mercer

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Charity CEO Pay: The Goldilocks Formula
Beyond Benchmarking
Calendar12 December 2018

The British are loath to talk about money. Except, that is, when shooting season starts. Then, CEOs of charities, social enterprises and other voluntary outfits brace themselves for less-than-flattering attention when their executives’ pay packets hit the headlines.

Setting CEO pay and rewards in the voluntary sector is an important trustee responsibility. The package needs to be sufficiently attractive to appeal to qualified, diligent and passionate candidates and to motivate performance, yet not be so excessive as to eat into beneficiary funds.

“Charity CEO pay must be set prudently, balancing the need to attract the right leaders while ensuring maximum benefit for beneficiaries. So, how much is fair, and how much is too much?”

It is also a matter of trust. Confidence in a charity often correlates with leaders’ pay. In one poll for New Philanthropy Capital, 42% of those surveyed said charity executives’ salaries were too high. This attitude colours public perceptions of a charity’s ability to make independent decisions, to ensure a reasonable proportion of donations make it to the end cause, and to govern the charity well.

So how much should CEOs of charities be paid?

The private, public and voluntary sectors all have guides on setting executive pay. In the voluntary sector, the National Council for Voluntary Organisations set up an inquiry in 2014 in an effort to advise trustees on senior executives’ salaries. The resulting report emphasised, among other considerations:

  1. Setting pay policies that attract and retain the appropriate calibre of leader while discounting pay based on the intangible benefits of working for a charity (the “charity discount”).
  2. Paying leaders with an eye on performance expectations and outcomes.
  3. Being mindful of the public-benefit mission of charities.
  4. Ensuring leadership pay is in line with pay for other staff.

Although the guidance is heavy on principle and process, it is light on a formula for assigning specific value to a particular job. By examining the drivers of pay in the voluntary sector today (from the charity discount to the pay ratio with junior employees, charity size and funding make-up) we can get closer to a rule of thumb on what to pay.

Our proposed approach offers trustees a sustainable model to help determine how much is fair, and how much is too much.

To find out more, download Mercer’s Perspective in which we discuss:

  • The relationship between leaders’ pay and public perceptions of trust
  • The four drivers of pay in the voluntary sector today
  • A model to help determine fair and competitive pay

This article was first published in Governance & Leadership magazine in September 2018.

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