THE BLOG

Are High Paid CEOs a Bad Thing? Surely We Just Need to Communicate It Openly

08/08/2013 17:43 BST | Updated 07/10/2013 10:12 BST

An article that appeared this week in The Daily Telegraph highlighted the pay of the CEOs for the 14 member agencies of the Disasters Emergency Committee (DEC). While showing that 5 out of the 14 CEOs earned £100,000 or more, the article failed to look deeper into the reasoning behind this and lacked a greater understanding of the objectives of the charitable sector.

CEO pay in the charity sector

People assume that CEOs in the charitable sector work for minimal pay. However, they fail to take into consideration the fact that these leaders are running multi-million pound organisations and that large charities require highly qualified individuals with management expertise. Attracting and retaining that type of talent requires a competitive level of compensation.

The amount a CEO gets paid is not decided randomly. Boards, especially amongst the DEC agencies, have an internal documented policy for establishing the CEO's salary. That process includes a review of the CEO's performance and benchmarking against the sector and organisations of similar size.

A 2012 CEO compensation study carried out by Charity Navigator in the US argues that donors should be wary of charities that report no salaries for CEOs and should get in touch with those organisations to understand how they have been able to attract and retain a competent leader without paying them.

Transparency and Accountability

There have always been questions over the administrative costs of charities. There is also a perception among a significant number of donors that the lower the administration costs, the better the organisation. High public expectations have emerged about costs as a result of some charities promoting that 100% of the donation will directly benefit the beneficiary.

This misinformed public perception - which does not take into consideration that low administrative costs have nothing to do with the effective delivery of aid - has led to many charities emphasising the value of their low administrative costs with others going 'on the defensive' in their messaging.

This TED Talk by Dan Pallotta highlights the benefits of changing the way we think about the sector. The level of short term thinking rather than building the correct structures and processes in place within the sector is huge, especially amongst donors and stakeholders. Administrative costs should be seen as investments with the return seen through the effective delivery of aid and programmes that a charity runs.

Low ratios don't necessarily mean that you are doing good business. What matters at the end is the impact that your charity has!

Fundraising Costs

There is no such thing as zero cost of fundraising. Another report entitled "Growing philanthropy in the United States" argues that charities who claim to have no fundraising costs should be held accountable for the damage that they do to public trust.

In the UK, the Code of Fundraising Practice requires members of the Institute of Fundraising (IoF) - the professional body for fundraisers - to avoid implying that fundraising has "zero costs". Failure to do so can result in people having their membership with the IoF revoked.

Investment into fundraising is an important exercise in broadening a charity's potential giving it scope to diversify how it fundraises in order to achieve its goals and long term stability.

Better Communication

What is required across the board is better communication from all charities about how much donor's money is spent and where it is spent. If the money is spent as an investment on human resources, it should be reported as such. Better educating donors can only be a good thing, helping them make a more informed choice when donating - and the sooner they understand the way that the charity sector works, the better it will be for beneficiaries.