Charities are the last place you would expect to find performance-related
pay schemes, but in a competitive environment, the voluntary sector is adopting
modern pay structures to get the most out of staff. Mike Broad reports
Charities are under increasing pressure to perform, with rising demand for
their services, intense fundraising competition and close media scrutiny. It is
forcing voluntary organisations to get the most out of their paid staff.
High-performing staff are often highly motivated staff, and the voluntary
sector has always benefited from employees and volunteers who want to make a
difference. But with charities operating on increasingly tight budgets and
struggling to recruit and retain staff, many are looking to improve loyalty and
motivation through the pay packet.
Research by Reward Group shows that 16 per cent of charities have
implemented some form of performance related pay (PRP) – it did not exist in
the sector 10 years ago. And many more charities are considering it.
The survey of more than 150 large charities shows that 78 per cent of those
not operating a PRP scheme believe that high-performing staff should be paid
more than non-star performers.
But employee benefits and rewards are a controversial issue in a sector
characterised by a voluntary, low-pay ethos. Pay levels remain up to 20 per
cent behind the national average, according to Reward Group.
Tesse Akpeki, head of trustees and governance at the National Council for Voluntary
Organisations, and author of a recent report on chief executive pay, said:
"Benefits need to be compatible with an organisation’s ethos. The
stakeholders of a homelessness charity will not take kindly to their CEO being
driven around in a private limousine.
"Most controversial of all are the various forms of performance-related
pay. These schemes are coming over from the private sector and are often
treated with hostility."
The MS Society introduced PRP in 1998 for its headquarters staff. The charity,
which has an annual income of more than £21m, wanted to attract and retain
staff during a period of significant change. It moved its 100 headquarters
staff into a national centre at Cricklewood, north London, to make the charity
more accessible to, and representative of, people affected by Multiple
High performers have been rewarded with either 2, 3 or 5 per cent increases
in annual salary on top of the annual cost of living increase that all staff
receive – typically 2 per cent.
Carolyn Ison, head of human resources of the MS Society, and who joined the
charity from the private sector six months ago, said: "The decisions we
are taking are not that different from the private sector. We need to recruit
and retain high calibre staff. If staff leave additional recruitment costs have
to be met and it can threaten the standard of service delivery. We cannot offer
lucrative share options or healthcare plans like the private sector, so
performance-related pay can be an effective device for us."
The Royal National Lifeboat Institute has taken PPR a step further. In
April, its employees will receive pay increases based solely on performance. It
will be the end of the first full year of operation of its performance and
But the 178-year-old lifeboat charity implanted its scheme for very
different reasons – to improve the quality of its people management.
Terry Clark, personnel director of RNLI, explains that the charity had a
"command and control" style of leadership under which the staff
appraisal was a chore rather than a useful management tool and staff could rise
to the top of their pay scales by "keeping their noses clean" rather
than being judged on performance.
Cutting down the size of the wage bill was also a key driver. The RNLI’s
trustees had been questioning the sustainability of annual pay rises of 2 per
cent to 3 per cent above inflation.
Under the new system staff sit down with line managers several times a year
to assess performance, discuss objectives and plan development.
Individual performance is rated from one to five, with a rating of three
likely to bring a 2 to 3 per cent increase in salary, four about 5 per cent and
five up to 9 per cent.
Clark expects that most staff will get a three rating. He said: "The
PRP regime is a vehicle to focus staff on how people can best be managed.
"If our managers are more professional, then our service delivery will
be more professional. The voluntary sector is always being equated with
amateurism, but the aim of the big charities is to be every bit as efficient
and effective as commercial organisations."
But the trade union Amicus is concerned that the PRP scheme will damage
rather than strengthen worker morale.
Dave Griffiths, shop steward at the Cowes Lifeboat Centre, said: "There
are so many different job specifications in the RNLI that it is very difficult
to put in a system of performance-related pay that is fair.
"How can you tell someone working in a team of 15 people all doing the
same job and building an excellent lifeboat that they are not as good as one of
their colleagues, who then gets paid 5 per cent more that year?"
The problem of management inconsistency and subjectivity undermining the
value of rating employee performance was highlighted by a number of the
charities involved in the Reward Group research. Another issue was tight
budgets in the voluntary sector restricting management’s ability to give staff
meaningful payments, says Andrew Walker, director of Reward Group.
There are also concerns that if charities introduce PRP for the fundraisers
– particularly through a commission-based system – they could be encouraging
them to pester donors and potentially damage the charity’s image.
Andrew Watt, head of policy at the Institute of Fundraising, said: "Charities
have to avoid putting unfair pressure on donors. It is one thing to send out an
emotive mailing, but it would be inappropriate for fundraisers to be too
insistent and make one call too many for a donation."
There are risks attached to PRP, but charities are under pressure to fund a
deliver their services in a tough financial environment.
The RNLI’s Clark explains that PRP schemes that are designed specifically
for individual charities can help to improve the way they are managed.
But charities need to assess the risks, said Gill Lucas, head of public
sector and not-for-profit recruitment at KPMG.
"Many charities are considering how to improve their performance, but
they have to assess the level of efficiency and effectiveness that PRP will
deliver," she said.
"Charities have to work out whether it is part of the organisation’s
culture. PRP can be an incentive, but it can also act as a disincentive."