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Equity rules: why high charity salaries equal success 1

Finance | Martin Birch | 25 Feb 2011

Christian Aid has a 6:1 pay ratio policy. Martin Birch believes that moral justice demands it.

Poverty is an outrage against humanity. The fact that almost half the world’s population live on less than $2 a day should unite us all, rich and poor, in urgent action. And this stark fact should also provide the backdrop for any discussion about high levels of executive pay.

The Ethics of Executive Remuneration, a report commissioned by the Church Investors Group, of which Christian Aid is a member, was published in March 2010. The report identifies a clear challenge. The pay of FTSE CEOs is on average almost 100 times that of the average salaries in these companies. Yet, in 1970 this differential was just 10:1. Can we expect to see the same trend in the voluntary sector in the years ahead?

At Christian Aid, we believe the causes of poverty can be seen as having their roots in the unjust behaviour of humans and the breaking of some of the relationships that link us together – such as those between rich and poor, men and women, people and the state – and the violation of human rights. Such fractured relationships go hand-in-hand with injustice, such as the loss of developing countries’ tax revenues, unfair trading relations and so on. Only by addressing the causes of poverty can we ultimately eradicate it.

The reader of this article should therefore not be surprised that Christian Aid is concerned about avoiding high levels of executive remuneration within its own pay policy. There are obvious issues for Christian Aid of reputation and accountability, but also of moral justice.

Pay ratio policy

Christian Aid’s pay policy in Britain and Ireland has, for many years, been that the most senior job in the organisation is paid no more than six times the most junior job. Since pay levels in most paybands are benchmarked against other organisations, this policy caps the salaries of the executive team, but does not distort pay for the majority of Christian Aid employees.

We believe the value of an explicitly stated pay ratio is as significant as absolute pay levels for many Christian Aid staff.

Pay policy at Christian Aid is a board-level decision. Our pay scale is based on benchmarking the competencies required in Christian Aid alongside equivalent roles in a pool of other organisations. We compare ourselves with other charities of similar size working in the NGO sector, and/or other charities with a faith-based identity. On an annual basis, comparisons are made with this comparator database to check if our salaries remain within 5 per cent of the median for our ‘market’.

Subject to affordability, salaries are increased annually in line with the average of the Average Earnings Index and the Consumer Price Index. In the last two years, however, pay awards have been zero and 1 per cent respectively – a reflection of the current challenging economic environment.

But despite the clarity of our pay ratio policy, we certainly do not have all the answers. Policy under pressure As other organisations have increased salaries for their senior staff in recent years, a number of our paybands have slipped significantly from the target of being within 5 per cent of the median of our pool of like-minded, benchmarked organisations. This slippage is causing problems for Christian Aid. We risk losing good staff, whilst the cost of recruiting and developing new staff is very high. There is an increasing tendency and pressure to re-evaluate jobs even though changes may be minimal or even cosmetic, in order to re-scale them upwards to facilitate recruitment or retention.

We are experiencing difficulties in recruiting and retaining staff in functions such as fundraising, IT and finance. We have seen a decrease in the number of good-quality applicants for some senior positions.

We face a dilemma. Do we bow to the laws of supply and demand and simply accept that if executive talent is thin on the ground then high salaries are necessary to attract the most talented staff? Or do we hold to our principle of justice as it affects pay policy?

Of course, many people derive motivation and fulfilment from sources other than money. The nature of our work at Christian Aid offers an intrinsic reward that for many staff is the primary motivating factor. But we must be careful not to exploit this. Salaries are therefore just one part of a range of benefits that include pension, life assurance, maternity and paternity leave and sickness pay, which are over and above statutory requirements. So working for Christian Aid offers a package of intrinsic and tangible rewards. Future pay policy looks set to continue to be a lively topic in the boardroom of Christian Aid in the years ahead.

Martin Birch is director, finance and information systems, at Christian Aid 

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