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December 7, 2016

Charity CEOs deserve to be well paid

By Spear's

Sophie Mazzier claims charity bosses should be well remunerated to allow their causes to prosper, though the same does not necessarily apply to FTSE 100 CEOs.

When Theresa May was elected as leader of the Conservative party and prime minister in July this year, she pledged, from the steps of 10 Downing Street, to tackle inequality, stating that her government would not be driven by the interests of the ‘privileged few’.

This rhetoric was repeated last week, when a government consultation proposing corporate governance reforms was released, claiming that the government would build an economy that works for everyone, not just the privileged few. In particular, the recent consultation highlighted the government’s wish to reform executive pay, which has grown much faster over the last two decades than both the average UK wage and typical corporate performance.

The Financial Times recently reported that pay for top level management of FTSE100 companies has risen from an average of £1m in 1998 to £4.3m in 2015. According to statistics from the High Pay Centre, in 2015 the average pay ratio between FTSE 100 CEOs and the average wage of their employees was 147:1.

Somewhat understandably, there is widespread bad feeling amongst the general public on the issue of executive pay, and as companies such as BHS continue to make headlines, this feeling looks set to continue. However, in the not-so-distant past, and particularly in the wake of widespread coverage of the demise of Kids Company, it was charity executives who were in the media firing line.

Research undertaken by Charity Finance Magazine has suggested that in 2015, chief executives working for the UK’s top 100 charities had an average remuneration package of just over £167,000. This number pales in comparison with the £4.3m average salary of FTSE 100 CEOs, but perhaps the reason for the public outcry is a misunderstanding of the true cost of running and establishing a charity.

Although charities are often reliant on volunteers at the grass roots, running a charity successfully has many similarities with running a business, and executives must be qualified for the job. The time and skill involved in managing a charity and ensuring that funds are available to fulfil the charity’s objectives should not be underestimated.

A charity cannot make grants or commit to projects unless there are funds available to do so. To achieve its long term aims, a charity will often need to consider how best to maximise its existing funds through investment as well as through raising their profile in the public eye to attract support and donations.

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Happily, it seems as though there is now a growing acknowledgement that charities making money through means other than from donations from charitable benefactors is no bad thing. The investment opportunities available to charities are growing and improving. The newly introduced Charitable Authorised Investment Funds, which will be ‎registered with the Charity Commission but regulated by the Financial Conduct Authority will be able to take advantage of the various tax exemptions available to charities, as well as VAT exemptions on fund management fees, ‎while in some cases operating within an ethical investment policy that is in tune with the objectives of the participating charities.

The recent Autumn Statement announced that the government will increase the availability of tax relief for social investment schemes, and draft legislation released this week confirmed that this focused relief, aimed at helping social enterprises and charities raise finance from individual investors, had been significantly extended. Perhaps then it is also time to accept that in order to attract ‘the brightest and the best’, who are capable of managing and running charities in a way that enables funds to be applied for charitable purposes for years to come, the brightest and the best will need to be compensated.

Whether the brightest and the best of the FTSE 100 will be viewed in a similar vein remains to be seen.

Sophie Mazzier is Counsel at boutique private wealth law firm Maurice Turnor Gardner LLP. 

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