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Presented at the 20th Voluntary Sector and Volunteering Research Conference, 10-11 September 2014.
http://www.ncvo.org.uk/training-and-events/research-conference
Presented at the 20th Voluntary Sector and Volunteering Research Conference, 10-11 September 2014.
http://www.ncvo.org.uk/training-and-events/research-conference
Presented at the 20th Voluntary Sector and Volunteering Research Conference, 10-11 September 2014.
http://www.ncvo.org.uk/training-and-events/research-conference
charities Voluntary Sector and Volunteering Research Conference 2014
John Mohan, Third Sector Research Centre, University of Birmingham Steve McKay, University of Lincoln
Introduction Given the stated purposes of charitable organisations it is reasonable that they should consider the appropriateness of the salaries they pay their senior staff. Many organisations conduct benchmarking exercises in which senior staff remuneration is compared with that of broadly similar entities operating in related spheres of activity. The range and complex nature of activities undertaken by large charitable organisations, combined with the sensitive social challenges to which they respond, as well as the multiple demands for accountability from a range of stakeholders, mean that management and leadership in the charitable sector is demanding. Charities operate in a competitive labour market in which executive talent is in short supply. Recent press coverage has commented unfavourably on the salaries paid by particular organisations, for example those international aid charities that are part of the Disasters Emergency Committee consortium. Given that proposals for an increase in the salary of MPs to 74,000 have been widely condemned, should there be similar concerns in the charitable sector? An obvious difficulty is that there are no normative guidelines which might be used for benchmarking. An individual charity will probably compare its own senior salaries against those of a small number of broadly equivalent organisations. But there is no mechanism for providing general recommendations (such as the Review Bodies for doctors and dentists). Such entities can assemble considerable volumes of evidence but whether such a process could be done (or whether it could be considered desirable for the voluntary sector, given its heterogeneity) is debatable. Concern is also sometimes expressed about high pay in the public sector, enough to prompt a review by Will Hutton (2011). That review proposed, in particular, using pay multiples to track executive pay against that of all employees. It also made the case for transparency of pay, and in the process of setting pay. It also warned of the dangers that too much negative publicity concerning well-paid people in the public sector would decrease the attractiveness of the public sector to high-fliers. The evidence base on the subject of high pay within the charitable sector is quite limited one report looked at the 150 largest charities 1 while another company analysed 50 organisations on the grounds that they were among the best known charities according to a charity awareness monitor 2 . One press report focused on a still smaller subset of the charity population, organisations affiliated to the Disasters Emergency Committee. 3 In none of these cases can inferences be made about the wider population of charities. Relatively few academic studies of the topic are 1 http://www.thirdsector.co.uk/Management/article/1174882/analysis-senior-pay-fair-price-good-leadership/ 2 nfpSYnergy (2013) A chief concern: how CEO pay has changed in the UKs best-known charities over the last five years; available fromhttp://nfpsynergy.net/chiefconcern-blog 3 http://www.telegraph.co.uk/news/politics/10224104/30-charity-chiefs-paid-more-than-100000.html 2
available and the only one known to us in the UK concentrates on the largest 100 charities. In contrast we draw on data gathered from a representative sample of 10 500 charities in England and Wales, and compares the statistics so generated with national survey data on individuals. This permits us to: assess how the prevalence of salaries above a threshold value (in this case, 60,000, because charities in England and Wales must report the numbers of staff paid at or above that level) in the charitable sector compares with the public and private sectors; estimate the total numbers of charity employees paid at or above particular thresholds; describe the characteristics of organisations that do, and do not, pay such salaries to their staff. An income of 60 000 would be placed just below the top 5% of the income distribution. In a wider context, discussion of financial rewards often focusses on FTSE 100 companies. In the recent analysis KPMGs Guide to Directors Remuneration 2012 (KPMG 2012) it was found that Chief Executives in the FTSE-100 companies had annual compensation packages worth a median of 3.1 million. Their pay was also complex in its composition, with the median earnings figure being only 830,000 of this total the rest comprising bonuses, benefits and share options. Such rewards are exceptional but for comparison, hardly any salaries in the charitable sector exceed the median for the FTSE 100; we found very small numbers, mostly in medical or other health-related organisations, of salaries greater than 250 000. The two highest examples we have found were one charity employing someone on a salary of at least 990,000 during 2011, and another with a worker on at least 920,000 in 2010. These are high numbers by (almost) any standards, and somewhat removed from the levels found in other charities. Indeed the third highest paying charity in our sample had a top salary below 600,000. An Institute of Directors study showed that a typical salary for a small business with a turnover of up to 5Mn pa was 70 000; for enterprises with a turnover between 5 - 50Mn it was 100 000; and for larger enterprises, salaries averaged 128 000. Since these figures were obtained in autumn 2010 they are broadly comparable with our charity data, which relate to 2010-11. 4 In contrast, 22% of charities with turnover of up to 5Mn in 2010-11 reported that they had any employees paid over 60 000.
Data In taking forward our analysis, we look at data of two kinds. First we look at data from a large sample survey the Annual Population Survey. The advantage of this kind of data is that it enables us to compare pay levels in each different sector, private public and third sector. The disadvantages are that such surveys are voluntary, and may well under-represent the very highest paid, and that the comparative scarcity of those on the highest incomes means that few will be identified in such sample surveys. We then look at administrative data on the sector. This has the advantage of covering the whole population, rather than a sample. However we lose much of the ability to make comparisons between the different economic sectors. Charities with incomes greater than 500 000 are required to report the numbers of staff to whom they pay at least 60 000 in the reporting period. There are some 9700 charities of this size or larger in our sample and data has been gathered from their accounts, and notes to the accounts, on the numbers of people paid at this level and above for the financial year 2011-12. Note that the data includes information on the most highly paid members of staff; this may be the charitys chief executive, and often will be, but could instead be another person. Descriptive findings Survey estimates The Annual Population Survey is the largest survey sample available for looking at third sector workers the closest that the UK has to a micro-census. We analyse the survey for July 2012-June 2013 (ONS 2013), with a sample size of close to 3,000 in this sector on whom we have salary data; this will include people working in the broader third sector as well as in charities. In Table 1 below we show raw numbers, grossed-up numbers and percentages. So, we find that 0.4% of those in the third sector were earning 48.08 or more per hour, which equates to an annual salary of around 100,000. This roughly equates to 2,000 people in the UK population, but this number cannot be regarded as reliable because it is based on only 12 people in the actual survey so the true national figure could be a lot higher or a lot lower. Even so, it is clear that the proportions of employees paid the equivalent of 60k or 100k or greater, are highest in the private sector, and are higher in the public sector than in the charitable sector. Table 1: Rates of high pay by sector
Rate of hourly pay, with Private Public Third All 4
Raw N in survey 28.85 - 48.07 (60k- 100k 2596 998 65 3569 48.08 + (about 100k + ) 713 419 12 874
Source: Annual Population Survey July 2012-June 2013. Administrative data At TSRC, working with NCVO, we have assembled a database of charities that enables us to examine numbers and proportions of higher paid staff. 5 We capture information on a sample of 10,000+ charities in England and Wales which is representative of the 5 Collecting and classifying data fromcharity accounts for England and Wales, David Kane, Jenny Clark (NCVO), David Clifford, John Mohan (TSRC), Joy Dobbs, Pete Bass (NCVO Associates), TSRC working paper 93. 5
size (income bands, in powers of 10 from 10,000 upwards) and regional distribution of the charity population. It includes some 9700 charities with incomes greater than 500 000. The data we hold also includes: classification of charities according to the ICNPO (international classification of nonprofit organisations) schema, a classification of the income of charitable organisations, including identification of income from government and from individuals, NCVOs General Charities classification, geographical identifiers. Because it is a sample, we do not name individual organisations in this paper. Charities are required to report the numbers of employees who earn above 60,000 per annum, and the numbers of employees, if any, in each 10,000 income band above that threshold. The requirement for this disclosure was introduced in the 1995 Statement of Recommended Practice (SORP) for the preparation of charity accounts; at that time the threshold was 40,000. Our understanding is that this was an intuitive figure rather than one based on a particular position in the income distribution, or on the thresholds for higher tax bands. A precedent for such reporting had been set by the 1985 Companies Act which had required disclosure starting at 30,000. Some organisations were not, in the financial year for which we captured the data, required to report numbers of employees; these included housing associations. We therefore excluded such organisations. There are also several universities in our sample, but since not all universities file reports with the Charity Commission, we excluded these from analysis. The combined effect of this was to reduce the sample size further. In our sample, we found reports of banded salaries covering 9935 people, which when grossed up gave an estimate of some 11600 staff, in English and Welsh charities, who were paid at least 60 000. This compares to a Labour Force Survey estimate of the third sector workforce, for 2011, of around 800 000 or approximately 1.3% of the total workforce in the sector. Taking the charitable sector as a whole, our calculations suggest an absolute minimum employment figure for English and Welsh charities of around 650 000 (based on actual reports by charities). Other estimates from survey data put the figure considerably higher than that, 6 so our view is that the Annual Population Survey figure (of c.3%) is likely to be an 6 The regional distribution of employees in the third sector in England: estimates fromthe National Survey of Third Sector Organisations (NSTSO), Frida Geyne-Rajme and John Mohan, TSRC working paper 80, 2012. 6
overestimate of the proportion of charity sector workers who are paid salaries of 60 000 or more. What are the characteristics of charities which pay salaries at this level? The proportion of charities with higher paid staff rises quite sharply with the income level of the charity (Table 2). Where the charitys annual income is between m and m, only 2 per cent had workers with salaries of 60,000 or more. This reached close to three quarters (72.5 per cent) where the income was 10million or higher, though there are fewer than a thousand charities of this magnitude. Table 2 Proportions of higher paid staff by income of charity
Annual income level Per cent with some paid 60k + Per cent with some paid 100k + Unweighted number of organisations
We may also look at the distribution of higher paid staff across the sector, by income levels (Table 3). So, 66 per cent of higher paid staff are found in the 9 per cent of organisations above 500000 with an income exceeding 10m per year. Under two per cent were found in charities within an annual income of between half and three- quarters of a million pounds. 7
Table 3 Distribution of higher paid staff by income of charity
Income level Number of staff paid 60k + Proportion of all higher paid staff Proportion of organisations
We also provide a breakdown of those subsectors, classified in terms of the by ICNPO (International Classification of Non-Profit Organisations) schema, that have higher and lower proportions of well-paid staff. We see a preponderance of the education sector, business/professional associations, nursing homes and medical research charities among the most likely to have some staff paid 60,000 or more. The largest proportions are in private educational establishments (where 50% of all organisations have at least one member of staff paid over 60000), followed by professional associations (44%, though these are numerically small, then medical research and nursing homes (the latter includes a number of hospices). The base proportion is around 22%, so it could be argued that these organisations are over- represented. Another way of looking at this is to consider the types of organisation with the largest share of people paid a high salary, compared to their share of the number of organisations in the dataset. Thus, private educational establishments constitute around 9% of the number of organisations, but account for 27% of organisations which have at least one employee paid over 60000. It could therefore be said that they are over-represented. Conversely, in the broad social service category there are 12% of organisations paying at least one member of staff over 60000, but this category constitutes 15% of the total number of organisations. Charities operating in 8
the sphere of economic, social and community development account for 3.4% of organisations but less than half (1.6%) of the share of organisations paying salaries of 60000 or more. Organisations classed in the ICNPO religious classification constitute some 14% of organisations, but account for only 6% of the organisations which pay at least one person a salary of 60000 or more. The numbers of staff in receipt of salaries in excess of 100 000 is small, particularly at the top end of the distribution where fewer than 100 salaries above 250 000 were recorded, largely in private hospitals and medical research. In the range between 100 000 and 150 000 we see that private schools account for over 3/10 of the total but otherwise the shares of the numbers by ICNPO classification are broadly consistent with the share of the total number of organisations.
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Multivariate analysis Survey data In Table 4 we show the results from a logistic regression model for being paid more than 60,000 (or the equivalent in terms of hourly pay). We show three models: one just with sector, that explains very little of the earnings variation; a more developed model with demographic factors, and a third model that also adds occupation and industry. The results are shown in terms of odds ratios. Table 4 Logistic regression of being highly paid earning 60,000+ (odds ratios)
Variable Sector only Sector and demographics Plus occupation and industry (not shown)
Sector (ref=private) Public 1.381** 2.066** 1.465** Third 0.617** 0.564** 0.503**
Age group (ref=40-49) 16-29 0.094** 0.125** 30-39 0.453** 0.476** 50-59 1.042 1.096 60-69 1.039 1.240** 70+ 1.478* 1.789**
Female 0.426** 0.543**
Region (ref = South-East) North East 0.389** 0.436** North West 0.455** 0.499** Merseyside 0.452** 0.495** Yorkshire & Humberside 0.467** 0.529** East Midlands 0.519** 0.572** West Midlands 0.578** 0.638** Eastern 0.837* 0.848* London 1.522** 1.582** South West 0.586** 0.616** Wales 0.427** 0.471** Scotland 0.610** 0.651** Northern Ireland 0.299** 0.347**
Marital status (ref= Single, never married) Married, living with spouse 1.951** 1.773** Married separated from spouse 1.506** 1.552** Divorced 1.301** 1.259** Widowed 1.272 1.318 Civil partner 2.731** 2.305**
Graduate 8.012** 3.811**
Pseudo-R-sq 0.004 0.214 0.294
Note: ** = sig at 1% level, * = sig at 5% level. N = 88,929. 10
The effect of working in the third sector actually becomes stronger, the more that other information is added, with the odds of being highly paid dropping from 0.62 (sector-only model) to 0.50 (most developed model). Among other factors, being highly paid was statistically associated with: Working in the public sector. Being aged 60+, although fewer are in work at such ages. Being male, to a considerable extent. Working in London, particularly, or the rest of the South-East. Having a degree. Being married (or in a civil partnership), or having previously been so. The size of the effect of working in the public sector, and having a degree, were considerably reduced once information on occupation and industry were added, in the third model. The incidence of high pay was greatest for those who were managers and directors, and in a few industries (Energy and water; Transport and communication; Banking and finance). Administrative data A number of factors might influence the likelihood that an organisation pays one or more members of staff a salary of 60 000 or more. These include the size of the organisations (measured, for these purposes, in financial terms); the numbers of volunteers and staff it has; its location; the subsector within which it operates (education, environment, international development, etc); and its funding mix. We used a logistic regression model to explore the probability that organisations did, or did not, employ someone with a salary of 60,000 or greater. This was supplemented by a negative binomial model, that models the number of staff who are highly paid (it is a more flexible approach than the poisson model). It turned out, however, that the models give rise to relatively similar conclusions for results see Table 5. The following points may be noted: Table 5 Logistic regression of organisations having highly paid staff (odds ratios, incidence rates)
Whether any such staff (binary logistic Number of such staff (negative binomial 11
regression) regression)
Area of operation (ref = one LA) 2-10 Las 1.349** 1.128 Wide area 2.015** 1.821** EW and int'l 2.527** 2.073** Int'l only 3.046** 2.597**
Type of charity (ref=general charity) Independent School, College or University, Academy 2.067** 1.796** NHS administered charity or Independent Hospital 0.901 1.072 Religious body or place of worship 1.047 1.206 Trade association, professional body 1.099 1.423* Housing association 0.123** 0.251** Others 1.057 1.414
S_ic600 share 1.700** 0.985
Share of income from government 1.150 0.746
Vol sector_share 1.590* 0.939
Av N volunteers 1.000 1.000
Av N employees 1.001* 1.000**
Region (ref=East Midlands) East of England 1.137 1.096 London 2.044** 1.604** North East 1.415 1.197 North West 0.784 0.903 South East 1.684** 1.506** South West 1.135 1.095 West Midlands 0.985 1.082 Yorks & Humber 1.350 1.191 Wales 0.865 0.827 Not known 1.339 1.535
(ICNPO included, available on request)
Note: All results run using survey software, taking account of sampling weights and stratification. Note: ** = sig at 1% level, * = sig at 5% level. N = 88,929. The most important variable here was the overall income of the charity consistent with table 2, the proportion paying such salaries rose substantially with income. Charities based in London, or in the South East outside of London, were more likely to pay such salaries. This is likely to reflect the presence of many headquarters of national or international organisations. This mirrors the findings from the survey analysis, based on the location of employees. 12
Moreover, charities involved in any kind of international work were more likely to be paying higher salaries than national charities, who in turn were more likely to have higher paid staff than those working within one or a small number of local authorities. This is independent of the size of income. There were some evidence that the particular funding mix of a charity could affect the likelihood that they were paying salaries in excess of 60000, but the evidence was relatively weak. The number of employees was also a significant predictor, but not the number of volunteers. Conclusions The proportion of employees in the charitable sector who are in receipt of salaries above 60 000 is lower than in the public or private sectors. This figure is drawn from national survey data, and is confirmed by information from charity reports and accounts. At most some 3% of paid staff in charities received such salaries. We estimate that approximately 11600 people in charities with incomes in excess of 500 000 receive such salaries. The proportion of organisations paying salaries of 60 000 or more is strongly associated with charity income. Certain types of organisation are much more likely than others to pay salaries above 60 000. This is particularly true for organisations operating in the health and education fields and there is also some evidence that organisations in the employment and training sphere, and in advocacy, are more likely to pay such salaries. Funding mix is not significant. Holding other characteristics constant, there is no reason to suppose that receipt of funding from one source rather than another renders an organisation more or less likely to pay a salary above 60 000. There is evidence that in London organisations are more likely than elsewhere to pay high salaries. Charities with an international scope were also more likely to be paying high salaries. As well as income, the size of an organisation, measured in terms of employment, also influences the likelihood of paying any one individual at least 60 000.
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References Hutton, W. (2011) Hutton Review of Fair Pay in the public sector. London: HM Treasury http://webarchive.nationalarchives.gov.uk/20130129110402/http://www.hm- treasury.gov.uk/d/hutton_fairpay_review.pdf KPMG (2012) KPMGs Guide to Directors Remuneration 2012 www.kpmg.co.uk Office for National Statistics. Social Survey Division, Annual Population Survey, July 2012 June 2013 [computer file]. Colchester, Essex: UK Data Archive [distributor], October 2013. SN: 7396 , http://dx.doi.org/10.5255/UKDA-SN-7396-1.