pay coverSince publication of the Inquiry report into the pay of charity senior executives I’ve been asked several times about how the Inquiry’s recommendations for charities sit against expectations in the private and public sectors.

To help answer the question I have prepared a chart for charities to see how they compare against these sectors.  Space reasons means that the chart is simplified.  For example, in considering the evidence about charity pay the Inquiry used a definition of charity that excluded academy schools and universities, as most of these charities are subject to separate regulatory and reporting requirements.  We know however that these charities’ remuneration practices have also been the subject of media interest.

With these caveats the table shows an interesting picture.

If the Inquiry’s recommendations for charities are compared against the expectations of private companies, of any size, than the gap is quite dramatic.  Private companies are largely exempt from any reporting requirements relating to pay; either regulatory or as good practice.  Presumably this is because they are not seen as having stakeholders such as shareholders, nor are they accountable to a public interest.

However, the picture for listed companies and the public sector is very different.  Local authorities, for example, are expected to disclose more than the Inquiry is recommending for charities.  These local authority regulations were derived from the Hutton Report on Fair Pay in the Public Sector, and its associated Fair Pay Code.  My understanding is that the reporting regulations for Clinical Commissioning Groups are also broadly similar to those of local authorities.  The BBC is another public body with transparency about its senior executives’ remuneration .

Listed companies have to comply with very detailed and prescriptive regulations about the contents of their remuneration committee report.  For example, the report has to say whether and, if so, how the company has consulted with employees when drawing up its remuneration policy.

Interestingly my straw poll examination of the accounts of the top 15 housing associations (all of whom have incomes that would qualify them for FTSE 350 status) found that half broadly follow the  Corporate Code which applies to listed companies, with the remainder going no further than the housing SORP, which has a similar requirements  to the current charities’ SORP.   It will be interesting to compare this approach with the reactions of the top 15 charities to the Inquiry’s recommendations.

In summary, private companies appear to be the one area which has escaped greater transparency on pay.  Elsewhere there is a cross-sector trend towards greater transparency on remuneration, which suggests that charities will not be alone if they were to adopt the Inquiry’s recommendations.   It will be interesting to see the extent to which they do.

 

Features: Charities SORP(Note 1)  Inquiry recommendations A private company(Note 2)

 

Listed Companies (Note 3)

 

Local Authorities(Note 4)
Adopt good practice principles for setting remuneration N Y N Arguably implicit Y
Adopt a remuneration policy Disclose remuneration policy (from 2015) All who employ -consider.  If produce audited accounts – adopt N Y on directors’ remuneration y
PublishRatios N Consider N N Y
Publish an annual remuneration statement N Y N Y (Note 5) Y
Publish number of staff whose remuneration fell within each band of £10,000 from £60,000 upwards Y YAll charities who prepare accounts N N (Note 6)
Publish aggregate remuneration of senior staff Y(from 2015) Y N N N
Publish names, roles and exact salaries of highest paid N YInclude in trustee annual report and website N YFor each non-executive and executive director Y (Note 7)

 

Notes:

1             Items in brackets to be adopted as part of the new 2015 charity SORP

2             Defined as any company that is not listed.

3             Applies to those companies whose shares are traded.  New company regulations came into effect from 1 October 2013

4             The Localism Act 2011 requires relevant authorities to prepare and publish an annual Pay Policy Statement which outlines the local authority’s approach to the pay of its workforce and in particular the pay of its senior staff. Local authorities also have to comply with the Code of Recommended Practice for Local Authorities on data transparency and the accounts audit regulations 2011.

5             Chair of the Remuneration Committee to report on:

  • The company’s policy on directors’ remuneration
  • Major decisions taken, and any substantial changes
  • Any stakeholder engagement
  • How pay and employ conditions of employees generally were taken into account when setting the company’s remuneration policy
  • whether and, if so, how the company has consulted with employees when drawing up its remuneration policy.
  • whether any comparison metrics were taken into account

6             Required to report in bands of £5,000 from £50,000.

7             Required to report unless an individual objects and the authority agrees that the disclosure would be inappropriate.

A shorter version of Rosie’s article first appeared in the July 2014 edition of Charity Finance.

August 1st, 2014

Posted In: Public Trust and Confidence, Regulation

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