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Wednesday, January 20, 2016

Choosing Charities to Donate Money to without supporting high salaries and administration costs



Choosing a charity to donate hard earned money to is not a particularly easy task. Every year the trustees of the Ten-Percent Foundation sit down to work out how to distribute our funds to worthy causes. The Ten-Percent Foundation is a charitable trust linked to Ten-Percent Legal Recruitment. Every year the company donates 10% of its profits to charity via the Foundation. There are two trustees and we determine how to spend the money, which is usually aimed at charities in the UK and Africa together with locally based sports organisations. 

This article would be of interest to all those people who feel strongly about donating money to charity that actually makes a difference. It sets out the decisions made by the charity’s trustees on a number of causes and how we came to make those decisions. We wrote an article last year detailing the top paid staff at charities and it is one of our most popular and commented on articles on the Legal Recruitment Blog. 

NB: none of charities in the article have specifically asked for funding from the Ten-Percent Foundation, although War Child was nominated to receive a donation by one of our candidates. We asked each charity for information on how they determine senior pay. War Child responded but the others failed to do so. 

NB 2: This report is available as a pdf download by clicking the link here: 

http://www.ten-percent.co.uk/choosing-charities-to-donate-money-to-without-supporting-high-salaries-costs.pdf

For donations, the Ten-Percent Foundation has preset criteria as follows: 

  1. The charity deals with a range of work that appeals to us.
  2. The charity has no ulterior motive – eg religious teachings or political leanings.
  3. The charity appears to do some good and does not just hoard money or spend it frivolously.
  4. The charity pays its staff a reasonable and not excessive level of remuneration. For us the level is £75,000 as an absolute maximum. We do not believe a charity, which by definition is dependent on donations and support from the general public, should be paying staff a higher salary than this level and we would only ever expect to see 1 or 2 members of staff on salaries of more than £60,000 in very large charities.
    Charities that Interest or Appeal to us
The trustees of the Ten-Percent Foundation are interested in the following types of charity or worthy cause: 

  1. Charities that support small tangible projects in Africa.
  2. Charities that deal with poverty and the effects of poverty in the UK.
  3. Specific support for the education of children in Africa.
  4. Support for stammering and in particular children affected by speech impediments.
  5. Support for people who have Parkinsons.
  6. Support for people who have had a stroke.
  7. Charities working with ex-offenders.
  8. Charities with links to the legal profession (we work in the legal sector).
  9. Charities dealing with victims (and perpetrators of) domestic violence.
  10. Charities dealing with youth work in areas particularly affected by poverty.
  11. Animal conservation – in particular third world conservation.
  12. Charities saving the rainforest by purchasing it. 
  13. Local sports clubs and organisations.

Charities that do not have an ulterior motive
Although one of the two trustees of the Ten-Percent Foundation is a vicar in the Church of England, we do not donate to charities that have a religious purpose to them. In fact we specifically shy away from them. We donate to charities linked to churches and religious organisations, mainly because they are very often responsible for running really good and worthy causes. 
There is a way of ensuring that the donation goes towards non-religious services or items, and that is to make a restricted donation. For example, we will donate to at least three charities linked to the Church of England and the Catholic Church, but all of these donations will be restricted and a specification made as to what the donation can be used for. For example one of the donations will be restricted solely to the maintenance of kitchen, laundry and washroom facilities for a charity linked to the Catholic Church but providing a very well regarded service to the homeless in South West London. 

Charities that do not just hoard money or spend frivolously
Charities that pay staff reasonable and not excessive remuneration 

We have lumped these two criteria together because this is the main part of this article and the two are interlinked.
There are four specific examples of charities we have been thinking about donating to this year and tried to explain our reasoning for not donating. We have included extracts from the charity accounts, taken from the Charity Commission’s website. Most of these are 2014 accounts.

The Parkinson’s Disease Society (Parkinsons UK)
The first is the Parkinson’s Disease Society. Parkinson’s Disease is a horrible debilitating illness that at the moment has no cure. A former trustee of the charity suffers from the disease, and in the past we have donated to the Society. 
When we consider a charity now we look at the annual accounts to see what has been happening.
Parkinsons UK (as the society is now known) had income of just over £22.5 million in 2014. Legacies account for £11 million and donations & memberships make up £8.2 million. Total costs generating funds were £6.2 million, making a total of £16.28 million available for charitable application. 

So in effect just over 75% of the donations made to Parkinsons UK are eaten up in costs. 

The charity spends just under £13 million on employee costs including pensions. There are 337 staff at the charity. Just 13 of these are involved in research, which was a surprise to us. 

 

Four of the staff at the charity earned £70,000-£80,000 salaries in 2014, two earnt £80,000 to £90,000 and one earnt £110,000 to £120,000. Pension contributions on these staff in 2014 were £53,100.



This means that out of total income of £22.5 million, which remember includes £8.2 million of donations and membership, the charity is paying out just over £600,000 to just 7 members of staff. This equates to 7% of the donations being made to the charity. 

13 trustees of the charity claimed travel and subsistence expenses at a cost of £20,940. It is not clear from the accounts how many times in a year the trustees meet. 


Our Decision: we will not donate to Parkinsons UK as we do not think the charity passes criteria 3 and 4. The salaries being paid are way above anything we would expect to see and the charity appears to spend the vast majority of donations on remunerating its staff. Furthermore the trustees appear to have claimed quite a considerable amount in travel and subsistence. Naturally whether or not this is excessive depends on how many meetings they have been required to attend in a year. 

We asked Parkinsons UK for information on how they reach a decision on pay structures for senior executive staff. We received no reply.

We also like donating to charities with a legal connection. This year we considered (amongst others) Amnesty International and the Solicitors Benevolent Fund. 

The Solicitors Benevolent Fund
The aim of the Solicitors Benevolent Fund is to provide relief and assistance for persons in need who are or who have been admitted to the Roll of Solicitors for England and Wales. Relates also to partners of solicitors. Financial assistance is via a grant or a loan.
The SBA has a partnership with LawCare, a charity we support, and also two partnerships with an employment agency specialising in CV coaching and an insolvency practice.  The employment agency appears to have provided 15 beneficiaries with careers advice and 8 received advice on insolvency.
The total income was £1.95 million, with £154,700 of this being donations and subscriptions. 


The charity appears to have an investment portfolio worth £14.7 million and secured loans to beneficiaries of £4.1 million.
The amount of work the charity has undertaken is as follows:
Ten trustees of the charity have claimed their travel costs - £6,389.
The work undertaken by the charity during the year appears to have been to make arrangements for grants totalling about £600k.
We then checked the remuneration of staff information. 

 

One employee received a package worth £80,000 to £90,000 in 2014.
The charity employed one person to deal with the welfare, one person to deal with fundraising and two administration and management employees. One of these was the chief executive, Tim Martin. His salary in 2014 was £76,875 with additional benefits totalling £9,297 plus a £2,000 bonus. 

Our decision: We will not donate to the SBA. Our assessment is that they fail on criteria 4 and our reasoning is below.

  1. We feel that the Chief Executive is earning a salary considerably higher than just about every employed solicitor in a similar sized solicitors practice in England and Wales with c.5-10 employees.
  2. The vast majority of this charity’s income appears to be coming from guaranteed or pretty safe sources – investment income, secured loans and residual balances from client accounts. £154k of donations is not a large amount.
  3. In relation to the salary, this is a charity servicing the legal profession, and I would guess that a large chunk of the beneficiaries are from outside the London city firm bubble and hence receive average salaries.
  4. Most high street solicitors with 10+ years experience earn about £40,000-£50,000 throughout their career. At partner level this can admittedly increase, but the partners are in business and take a risk that is rewarded by the commercial return. Charities do not have the same risk, particularly those with investments and/or external funding.
  5. The charity appears to be effectively outsourcing work to other parties, eg LawCare. Quite why a charity of this size and with such resources needs to expend such a large proportion of it on one member of staff when most of the work seems to be external is an interesting question. We calculate the salary of the chief executive to be 4.5% of the total income of the charity in 2014 and 57% of donations received during the year.

No doubt the SBA does extremely worthy and valuable work within the profession, but we feel that it yet again highlights the endemic problem within the charity sector – where do these salaries come from? How does a charity determine that it should spend so much of its income on its staff?
We asked the SBA for information on how they reach a decision on pay structures for senior executive staff. We received no reply.

Amnesty International
Amnesty is a charity the trustees admire and are keen to support.
In 2014 their total income was as follows:

Most of their income comes from donations, and a significant proportion of these are from individuals. The Amnesty charity is somewhat confusing because it appears to have other branches/charities linked to it with related costs. 
Employees at the charity cost £1.382 million.
Naturally the biggest part of Amnesty’s work requires a considerable amount of staffing, hence the costs. There were the equivalent of 31 full time staff at the charity in 2014.
5 of these staff received income of £352,218 excluding pension contributions, which Amnesty do not publish in their accounts.
This means that 26 full staff equivalents were receiving £1.03 million between them, which makes the average wage at Amnesty £39,607.00.
No trustees claimed travel costs etc.. in 2014.  

Our decision: Reluctantly we will not donate to Amnesty International. We find that they fail on criteria 4. Not just one member of staff but five are receiving salaries at a high level. For a charity of this size it is not clear why and how salaries have got to this level.
We asked Amnesty International for information on how they reach a decision on pay structures for senior executive staff. We received no reply.

Charities with links to Africa
We are very keen on supporting projects in Africa and came across a number of charities who seem very worthy of as much support as possible. One of these is War Child.  

War Child
War Child is a very worthy cause. They aim to help thousands of children caught up in war zones around the world. According to their last annual report, they worked in a range of countries including Afghanistan, the Democratic Republic of Congo, Iraq and Jordan. Some of the funding for War Child’s work in Afghanistan seems to come from the US government, which is interesting to say the least!
The charity seems very tightly run.
The vast majority of their income is derived from donations, together with grants from external organisations.
We took a look at their staffing levels. There are 30 employees in the UK plus many more overseas. War Child works with external organisations to deliver their projects as well.

However the charity appears to employ two members of staff out of the 30 on salaries of over £80,000, plus pension contributions on top for one of these.
When you look at the total cost of salaries, it would appear that 28 members of staff share £975,000 in salaries, which puts the average employee at War Child on a salary of £34,821.
The trustees of War Child do not claim any expenses at all.
Our decision: not to donate to War Child. We do not believe the charity fits criteria 4. 

The response from Sarah Welsh, Finance Director at War Child, to our request for information on how they reach the figures for senior executive pay is as follows: 

“Salaries for the Senior Management team are subject to the same approach as used for employees generally. The salary of the CEO is specifically approved annually at the April meeting of War Child’s Board of Directors. Every three years a salary scale review is undertaken, with the aim of ensuring that War Child UK is paying at the third (upper) quartile when compared to the relevant charity sector. This review takes account of market research into charity pay, either through paid or free mediums, together with a review of the results by the HR Manager and CEO.” 

Salary Comparisons
Here is a comparison for other sectors of pay:

  • Chief Constable of North Wales: £135,774 (responsible for 2,600 police officers and staff).
  • Hospital Consultant: £75,000 - £101,000 per annum, plus private work/overtime etc..
  • Chief Fire Officer of Staffordshire: £149,000.
  • Member of Parliament (to 2015): £67,060.
  • Average salary in the UK in 2014: £26,600.

To put a salary of £100,000 into figures, this is how it breaks down (courtesy of www.theSalaryCalculator.co.uk): 

·      Net annual salary: £65,325.70   
·     Net monthly pay: £5,443.81       
·     Net weekly pay: £1,256.26          

It is also interesting how many charities have their headquarters in central London or thereabouts. May be a relocation out of an expensive area and into more regional locations could assist in keeping salaries and administrative costs lower?

Report of the Inquiry into Charity Senior Executive Pay

The National Council for Voluntary Organisations produced a report in 2013 looking into the pay of senior executives at charities in the UK.
The members of the inquiry panel included:
1.       the Chairman of the British Red Cross who pay salaries to staff as follows – albeit with a turnover of £261 million):
2 Deputy Chairman of the Citizens Advice Bureau who pay salaries to senior staff as follows:
(Interestingly neither the CAB or the Red Cross reimburse their trustees for any costs). 

The Chair of Save the Children, who pay salaries to senior staff as follows:

4
   Various lawyers and accountants from larger size commercial practices. By way of example, one of the members of the panel was a partner at Clifford Chance, a Magic Circle solicitors firm in central London who pay partners at least £300k per annum.

The conclusion of the panel was as follows:

No effort was made by the panel to indicate when remuneration became unacceptable, irresponsible or in danger of appearing to be completely contrary to the whole purpose of charity in the first place.

 

 (extracts from the Summary and Recommendations of the Panel). 

So the summary of the report basically puts the onus on trustees to determine pay and not any external body.

We have included details above on exactly who the members of the panel were because so many originate from the City of London bubble – where salaries in six figures are the norm. 

Summary
  • 91% of charities have no paid staff at all. However out of 161,000 charities and a £39 billion income, 533 charities received £19 billion of this.
  • Pay for senior executives in some charities seems to be disappearing off the top of the scale of a reasonable level of remuneration bearing in mind that a charity relies on the goodwill of someone else, usually unsuspecting members of the public.
  • The charity sector apparently provides employment for 800,000 people and the report of the panel above highlights this – indicating that this is a healthy contribution to society. Perhaps this is true – we should support charities and pay their staff because it keeps them in employment - a charitable aim in itself. Miners could probably have used the same argument in the 1980s…


Jonathan Fagan is Managing Director of Ten-Percent Legal Recruitment and a non-practising Solicitor. Ten-Percent Legal Recruitment provides online Legal Recruitment for Solicitors, Legal Executives, Fee Earners, Support Staff, Managers and Paralegals

1 comment:

Jonathan Fagan said...

Teresa Forgione, Head of Philanthropy at Parkinson's UK has very kindly responded to my query asking how they determine senior executive pay as follows:

"You asked about how we determine the level of senior staff remuneration, and the criteria employed and I appreciate you will be considering these things as a previous supporter of our work. I can understand the Ten-Percent Foundation’s particular interest in our approach and your gifts in 2006 and 2007 were very much appreciated.

We do indeed use an external evaluation scheme in order to ensure all its’ posts are objectively evaluated and in line with the appropriate market rates. We have chosen to use Croner Charity Rewards as it has supplied remuneration statistics and advice for over 40 years and is widely recognised as one of the leading providers of pay and benefits data into the UK. The survey it undertakes to benchmark posts coves the pay and benefits of job titles ranging from executive to unskilled.

This enables us to rank all roles in the appropriate job function, not just senior positions and decide whether to pay in the upper, median or lower quartile of the advised pay range. Parkinson’s UK has taken the decision to pay in the lower to medium quartile, but will review how this fits with existing salaries within the organization... We are committed to attracting people with the best skills and experience to work with us to ensure we achieve the change our donors want us to for the people we serve, whilst being mindful of how far we need to make our funds stretch.

We have a public statement on executive pay which can be found on our website: http://www.parkinsons.org.uk/content/executive-pay-parkinsons-uk and are always prepared to have the discussion about how we make the choices we do."