In comparison to other sectors, charity sector pay could be considered quite unique. Non-profit organisations are typically working with smaller salary budgets so often do not have the capacity to offer the larger salaries of the private sector. In addition, those choosing to work for charities are often doing so because the organisation’s purpose aligns with their personal values, so salary might be less of a driving factor.
A recent report we undertook at 3R Strategy examined salary data across various sectors, looking at 500 businesses in the UK and 50 countries globally. We uncovered interesting trends and potential changes we may see in the next few years across pay and performance. This included the charity sector’s pay frameworks.
Here I delve into some of the findings of the report and what we can expect from pay in the third sector over the next few years.
Salary budget increase
With the cost of living crisis in 2022 encouraging employers to allocate larger salary budgets to help employees as inflation began rising, eventually reaching 8.6% according to The Consumer Prices Index including owner occupiers’ housing costs (CPIH), we expected a lot of sectors to align their pay budget increases with inflation.
We found that the median charity salary budget was 4%. This is aligned with the national average and surpassing sectors such as education, healthcare and hospitality which all had a median increase of 3%. However, it is worth noting that this is behind inflation. While the median salary increase for the UK was less than we expected, it was impressive to see the charity sector keep up with other industries that typically have larger salary budgets to utilise.
The charity sector does however fall behind in the predicted salary budget for 2023. The median across the UK is predicted at 5%, but the charity sector increase is predicted to be 3%.
Shockingly, the report found that very few organisations across different sectors were publishing salaries. Despite 59% of organisations saying they used salary ranges, only 24% of those publish them or make them publicly available.
However, the charity sector was the most transparent with salary ranges. Out of the 64% of respondents who had salary ranges, 100% published them, demonstrating the role of the charity sector in leading the way with clear communication about salaries with employees and job seekers.
Pay for Performance
Traditionally, linking pay to performance is most common among organisations in the financial services, manufacturing, media arts and energy/utilities sectors. It is relatively uncommon in the charity sector, perhaps because economic incentives are not a driving factor for charity sector employees.
The 3R Strategy report did however find that 26% of charities were using performance-based pay in some form.
Whilst the percentage of charity organisations using performance-based pay is still relatively low, this could demonstrate a clear change. More charities are moving towards adopting frameworks with differentiated pay based on the contribution they are making to the organisation. While many people involved in charity work are incentivised by the goals of the organisation, an equal outcome is not always fair if one person is demonstrating exceptional commitment and work.
Because of this, we are likely to see this change over the next few years towards more financial incentives for those performing highly in the charity sector. However, demonstrating fairness and transparency remains a critical objective for charities. So while some may move towards differentiated pay, they will need to ensure the process is still fair and transparent.
The report drew interesting conclusions and illustrated the evolving nature of charity sector pay and provides insights into what the future of charity pay may look like. The charity sector is still leading the way in terms of clear communication and transparency with employees and job seekers and is now evolving to recognise achievements through financial rewards. While the charity sector is likely to remain focused on a shared vision and goodwill between employer and employee, dedication and high performance are likely to become more frequently rewarded with financial incentives.
Rameez Kaleem is the founder and managing director at reward consultancy 3R Strategy and the author of A Case of the Mondays. With his team at 3R Strategy, he helps businesses build a culture of trust through pay transparency. 3R Strategy recently released its Global Salary Planning Report, with data from more than 500 companies on the salary budgeting process. It is available to download for free online.