What are you paying for?

The Charity Commission warns that spiralling levels of chief executive pay risk bringing organisations and the wider charitable sector into disrepute, following news in The Telegraph  that 30 charity chiefs are paid more than £100,000.

At New Philanthropy Capital (NPC), we help donors select effective charities to give to, so we know first-hand that high levels of pay and administration costs can be a real turn off. This comes from a natural desire to ensure that money is well-spent, which for a number of people means as much money as possible goes directly to the front-line, to helping people most in need.

However here at NPC, we see things slightly differently: To begin with, if all the money goes to the front-line, but staff at the front-line are being ineffective because the strategy’s poor, then that money’s been badly spent. For us, there isn’t a level at which pay in the charity sector becomes too high; charities are trying to solve some of our most stubborn social problems and they need to attract talent to be able to do that.

Pay in charities is a much more finely balanced argument than is usually supposed. We’ve put together some advice on how donors can think about whether or not giving to a charity with high salaries should be a cause for concern:

Firstly, and most importantly, it’s all about impact. Knowing that children have been sponsored or that schools have been built isn’t enough: you need to know exactly what difference the charity is making, and how this is happening. Action on Hearing Loss’s annual report provides a summary of what it has achieved against its aims, which helps donors decide whether the organisation spends their money well.

Secondly, you need to consider the complexity of the charity. The CEO of Oxfam is paid £120,000, and is responsible for a £360m budget, 700 shops in the UK, and 5,000 employees and 20,000 volunteers who work in over 90 countries across the world—some of them very risky places to be. £120,000 doesn’t feel like a lot in the context of that job description. The CEO of Next also runs 700 shops (but no humanitarian aid) and gets nearly £1.5m. Of course, this is all proportionate to the task and budget at hand: you don’t want a £500,000 income charity to spend £100,000 on its CEO’s salary.

Thirdly, although its difficult to tell from the outside, what value is the CEO bringing? Have they increased the charity’s profile and fundraising? Have they devised a good strategy? If the case is that you need to pay up for talent, then supporters should be able to see the fruits of that talent.

Lastly, its worth thinking about the quality of the staff throughout the organisation. If the charity is making an argument that they need to pay well to attract the best staff at the top, then you want them to apply the same logic to front-line staff. Medicins Sans Frontieres has a rule that the chief executive can’t be paid more than three times the pay of the lowest paid member of staff.

By making the judgement call based on these factors—and not on gut feelings about pay—more money will be well spent. We’d like to see the impact of the UK’s leading Aid charities make the headlines, instead of six-figure salaries that really say nothing on their own.

This blog was first published by Spear’s here.