Is doing good and earning good mutually exclusive?
Scott Darraugh and Dan Gregory argue it's high time we reframed the questions in the executive pay debate and advanced beyond the cliches and recieved wisdom.
How much is a social sector Chief Executive worth? One view, encouraged by the Telegraph, a handful of MPs and supported by many newspaper readers and voters - for whom such earnings are beyond their wildest expectations – is that anyone earning over a hundred thousand pounds a year is a selfish and corrupt charity fat cat.
The defensive response from social sector leaders (of course with no vested interest) sits within a wider and important narrative about civil society organisations moving beyond a hand to mouth existence, unprofessional and reliant on voluntarism, to a world where overhead costs are no longer ‘a bad thing’ per se. From this perspective, senior staff should be paid proportionately for the important work they do, with leaders of multi-million pound organisations compensated accordingly.
In our view, both these perspectives are too narrow. The first – which appeals to our social conscience – is perversely not social enough. While the second – which insists that markets play an inevitable role in setting salary levels in any sector – is not strong enough in its adherence to market principles.
We believe that those who defend such salaries on the basis of the ‘going market rate’ are too deferential to some of the more dysfunctional practices of modern capitalism. If you really believe in markets, then why not really unleash them? Why are costly intermediary institutions interfering in price setting when you can use the power of the market? Instead of relying on benchmarks and industry standards to justify how much you need to pay your Chief Executive - or HR consultants and head-hunters who stand to take their cut - use the market! Open with a low bid and see who bites! Try it. If you don’t get the right candidate, then start haggling. Sadly, on many occasions, social sector organisations will be persuaded by third parties to pay over the odds – missing the chance to let the invisible hand works its magic - and diverting resources away from other areas.
Apple, for instance, don’t benchmark the cost of their components against Samsung - they negotiate with suppliers to secure the lowest possible cost for the quality they require. So what’s the minimum salary to get the right people in place? We really don’t need to have any qualms here about driving down labour costs as we should with the lowest paid employees – this is about the highest earners in our sector. If your Chief Executive is passionate and committed to the cause for £112k per year, would they be less so for £99k? And if so, what does that say about them? Is that who you want running the organisation? And are we really sure that there’s no-one out there as capable and willing to get paid that much for the privilege of making a difference?
Our challenge to those who appeal on moral grounds is that if they really care, they should first take aim at other targets. Look at a handful of international development Chief Executive’s salaries in the context of Eton College alone paying more than 40 staff over £100k per year. Or the cost of the cake at Stephen Bubb’s birthday party in the light of the taxpayer subsidising food and drink in the House of Commons to the tune of £7 million per year.
So how much are our senior staff really worth? Our suspicion is that when it has the power to do so, our sector should be self-confident enough to develop its own approaches to determining value. Aren’t we depressingly familiar with the limitations of the price mechanism in appreciating wider value? This could mean asking a range of stakeholders close to the organisation what they think the Chief Executive is worth. What do staff think? What about patients and beneficiaries?
We need to be much more transparent and brave when we decide senior management pay. Social adVentures have been piloting a new way of agreeing remuneration levels. Co-owners are asked annually if their pay reflects the value of the job they do within the organisation. If the answer is no, then recommendations are passed on to HR to establish a proposal that goes to the entire team for approval. We believe that this process is much more open and fair then most practices elsewhere in other sectors.
Those who want to play the moral card should look at the wider game before picking on the smallest players. Alternatively, we mustn’t let ourselves unconsciously be infected by the models, institutions and norms of crony pseudo-capitalism, at least without some reflection. Nor should we slavishly follow the economic textbooks with their central assumption that we act only in our self-interest.
If we are serious as a sector about social value, then we can develop our own principles for setting salaries. Principles based on a blend of market savviness and social engagement, with a keen awareness of the former but always an ultimate commitment to the latter. Isn’t that what defines us anyway?
Scott Darraugh is Chief Executive of Social adVentures. Dan Gregory is an independent advisor, currently working for Social Enterprise UK, the Social Economy Alliance and others.