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Finance | Ian Allsop | 28 Feb 2011

As a self-employed freelancer, Ian Allsop has capped his organisation’s pay ratio at 1:1.

As the cuts debate rages, the Big Society slides into a pit defined by its own lack of definition, and the public sector braces itself for some right proper carnage, one can’t help thinking that the fault lies mainly with salaries. Yes, astonishingly people expect to get paid for doing their job, which is clearly a drain on resources.

Pay is an emotive issue and never more so than in the charity sector. Therefore any research into remuneration, such as Will Hutton’s Fair Pay Review, is likely to be of great interest and provoke strong opinion.

Underpinning Hutton’s review is the frankly startling revelation that some people get paid more than other people. This might be because they are better at their jobs, or undertake more difficult tasks with greater responsibility, or work longer hours. If only a measure could be formulated with which to compare and contrast organisational value, based on just how much disparity they had in employee pay.

Hutton’s work was triggered by press outrage that some people in the public sector earned more than the Prime Minister, which is apparently ‘shocking’, especially if we ignore the PM’s position of inherited privilege and the huge opportunities for future earnings from memoirs and sun-tanned consultancy projects on the world stage (The Blair Rich Project). Why, even Gordon Brown has managed to sell three copies of his most recent book since last May, while sulking in Kirkcaldy and Cowdenbeath.

Anyway, Hutton was paid to explore a proposal that there should be a maximum pay ratio of no more than 20:1 between the highest and lowest-paid in public sector organisations. And he really earned his corn by recommending that there should be a maximum pay ratio of no more than 20:1 between the highest and lowest-paid in public sector organisations. Which was handy. It is always good to have a likely conclusion worked out in advance when doing these exercises.

There are few examples of public sector bodies where the ratio is higher than 20:1 but it offers a benchmark against which potential largesse can be monitored. And then beaten down. Probably by Eric Pickles.

The fat-cat accusation

At the heart of this is the worrying perception that people running vastly complex and hugely important operations with taxpayers’ money are somehow not worthy of high reward. And of course some may not be. But it is very easy to throw the lazy ‘fat-cat’ accusation around, especially if you are a lazy overpaid commentator.

As many wiser pundits than me have commented, boiling this down to a straightforward ratio risks oversimplifying a whole host of related issues. For example, the ratio could be high in some organisations because the lowest paid are, to use a technical term, shafted. Therefore the ratio could be reduced by raising salaries at the bottom, which I am sure is not what the government wants at all.

The fat-cat salaries issue is one that the charity sector has long had to deal with. Therefore the finding on page 24 that the pay ratio is 10:1 in large charities, and 4:1 in charities generally, is on the surface a good thing. It is positive in that it shows the sector on the right side of restraint and fairness. But it could also be used to attack any charity that is deemed to have a higher ratio without exploring why that might be.

My personal view is that if you pay peanuts you get clichés. Surely it is better for a charity to pay a good salary to attract someone who can do a more effective job, at whatever level, as this will be more efficient in the long run. Measuring someone’s effectiveness to justify the salary, and communicating that, is more tricky. But I am sure if Hutton is given time he could come up with a metric. It might be determined by assessing such factors as whether a chief executive has earned his £180,000-plus if his or her charity goes into insolvency.

Luckily, the voluntary sector has no shortage of reasoned advocates saying that charities shouldn’t be ashamed of professional (high) levels of pay – coincidentally, usually from those who are being paid well and want to ensure that no-one need be ashamed on their behalf.

In the interests of transparency I have done some additional research that looks at the pay ratio in my place of work. And as a selfemployed freelancer it comes in at a very respectable 1:1. If I extend that to the household it rises sharply to a still tolerable 7.5:1 (or a disgraceful infinite ratio if our young children’s contribution is included). Which just goes to illustrate how arbitrary these ratios are and how dangerous applying them at face value might be.

Meanwhile, we still await the figure for pay ratios among groups of people paid to undertake pay ratio research. 

Ian Allsop was editor of Charity Finance magazine from 2004 until early 2009 when he left to become a full-time father

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Ian Allsop

Ian Allsop is a freelance journalist and editor specialising in not-for-profit management and financial issues.

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