Charities urged to shine light on executive pay

October 29, 2014

In 2013, following heated media debate about the salaries of senior executives of charities, particularly large international aid charities, the NCVO set up an inquiry into charity senior executive pay and has published a report on its inquiry into charity senior executive pay and guidance for trustees on setting remuneration. The report calls for greater transparency in the way charities report on the pay of senior staff.

While the recommendations and guidance do not create any new legal obligations for charities support from the Charity Commission and influential figures in the sector has been evident. With the issue currently under the spotlight, charity trustees should consider reviewing their charity’s policies and practices on setting and disclosing senior executive pay.

Most charities in the UK are required to follow the Statement of Recommended Practice for Charities (SORP) framework when preparing their accounts. The current SORP is due to be replaced with a new SORP that will apply to reporting periods starting on or after 1 January 2015 (SORP 2015).

Those larger charities that are required to have their accounts independently audited must currently indicate the number of staff who are paid over £60,000 in bands of £10,000 in their trustees’ annual report. The charity regulators have proposed extending this reporting obligation in SORP 2015 to all charities who prepare their accounts on an accruals basis. However, they rejected a proposal to require charities to disclose the name and salary of their highest paid employee.

The inquiry panel has recommended that:

• All charities publish the exact salaries of named senior staff members in an accessible place on their websites, giving donors “two clicks to clarity”.

• Charities consider publishing the ratio between their highest and median salaries to indicate the level of pay throughout the organisation.

The report includes guidance, which is intended to be clear and definitive, on how charity trustees should go about setting senior executive pay.

The report has, in the main, been well received by the sector, although some commentators have mdoubted whether detailed disclosure of senior executive pay will stamp out criticism in the media and increase public trust and confidence.

The data the report publishes will assist in reassuring donors. It estimates that the proportion of highly paid staff in the sector is significantly lower than that in the public and private sector. It also demonstrates the staggering numbers of people involved in charities as volunteers, stating that over twelve million people volunteer at least once a month and nearly one million as charity trustees.

With the issue currently under the spotlight, charity trustees should consider reviewing their charity’s policies and practices on setting and disclosing senior executive pay, taking into account the recommendations and guidance that is now available. Charity trustees who decide not to disclose detailed information about senior executive pay should be prepared to defend their position in the light of these recommendations.

Please note; the content of this article is for information purposes only and further advice should be sought from a professional legal advisor before any action is taken.
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