Rewarding Careers: Should Pay in the Social Enterprise Sector be Equivalent to that in Commercial Firms?
Over the last year, the issue of unfair pay has continued to grab the headlines. The corporate sector has been the subject of most of the criticism, particularly in relation to bankers’ bonuses. But the charity sector has also been the subject of some criticism. The extensive use of unpaid internships and voluntary workers has come under fire, as has the salary scales of those at the top of large UK charities. Social Enterprises meanwhile haven’t come under much scrutiny. However, as a growing sector (best government data estimates there are approximately 70,000 Social Enterprises in the UK contributing £18.5 billion to the economy and employing almost a million people), it is going to become more important for it to set expectations around salaries.
What is the data telling us about social enterprise pay so far? The Guardian’s ‘Because I’m Worth It’ research found that, out of 20 UK-based social entrepreneurs (founders / senior leaders) surveyed:
- Average pay for the group was £11k
- Five people said they did not earn a wage at all (and this had been going on for three years in some cases)
- A couple were hovering around £20k and four were getting £30-£40k a year
- The wealthiest had a pay packet of £56k for running an outfit which turns over several million a year.
As we approach the end of our On Purpose year, and think about getting jobs in the sector, we also need to start thinking about salary expectations. What is reasonable, given average UK wages of £26,000 and the fact 90% of people in the UK earn below £50,500? Should we demand that our salaries are at a similar level to those in the commercial sector? Kathryn (in the green corner) and Anna (in the blue corner) go head to head to debate this issue.
Round 1 starts by looking at this from the perspective of social enterprises’ customers and key stakeholders.
ROUND 1 – What do our customers think?
Same as charities, many Social Enterprises are funded through donations or grants. The public who donate money to good causes typically don’t want to pay high salary costs; they are interested in how much of their money goes directly to the cause. Research shows 40% of people would rather give money to an organisation comprising entirely of voluntary staff. Social Enterprises would risk losing the public’s support and with it their sources of funding if they were to pay salaries equivalent to those in the corporate sector.
But funders/donors are not the same as customers. Social Enterprises should not make decisions based on the views of a general public who don’t necessarily understand that without reasonable pay, you can’t run a good business! In any case, if an SE is actually a profit making business that does good, then what it pays people is its own concern. As a customer your only decision is whether or not you want to buy that good/service. Surely what matters isn’t our salary but that we do the most good? All decisions around salary levels should be based solely on how we maximise the positive impact we make, not on anything else. We need to do more to educate the public around that fact.
That may be true, but for the moment we can’t ignore the views and concerns of the general public; a good reputation is even more crucial in this sector, as funding or revenue is largely based on the organisations’ positive image. In the current climate of falling real wages and rising inequality, we have to be particularly careful on such a sensitive topic. Furthermore, higher salaries are taking money away from the cause. The social aspect of these businesses surely demands that front line delivery for beneficiaries is prioritised, even if that means sacrificing on the salary levels of staff.
Well okay then, let’s look at it another way. Shouldn’t the failure of an SE cause as much outrage as the failure of a bank? Why doesn’t it? Because people believe that those in the third sector were doing it out of the goodness of their hearts! If we paid higher wages we could actually use public opinion to increase accountability.
I disagree. High salaries are not in any way linked to better performance, and nor, as we have seen in the banking sector, are they linked to greater levels of accountability. In terms of individual performance, people aren’t that motivated by money. Once a task involves even rudimentary cognitive ability, larger salaries actually lead to poorer performance. “Happy employees stay for what they can give, while disgruntled employees stay for what they can get.”
It’s the level of salaries per se that causes public outrage, and I don’t think public opinion has much influence on performance or accountability across a sector.
ROUND 2 – Does it make good business sense?
It takes money to make money – if we pay more, we can attract the best talent, buy in expertise and increase diversity (which should boost innovation & performance). As long as the sector is hampered by under-investment it will struggle to scale, and fail to achieve the impact it could have.
Contrary to that, I would argue that in the current challenging business climate, and with falling charitable donations, we’d be far better off taking a firm line on cost control to enable investment, rather than inflating salary costs.
Businesses pay more because they know that competitive salaries actually make good business sense. High turnover is not only expensive; recruiting good people is often very hard, even in the current climate, and the wrong recruitment decision can have a lasting impact. Higher salaries actually make good financial sense.
Organisations would be better off spending the money on retention and on training and development. Typically these areas don’t receive much funding in the not for profit sector, and as a result turnover tends to be higher. It would make more business sense to focus on retaining and developing talent, rather than recruiting new (and expensive) people.
ROUND 3 – What about the social enterprise ethos & fairness?
Charity bosses like Mark Goldring, Head of Oxfam, have been criticised for being paid too much but they have really big jobs to do, with huge amounts of responsibility. They also do a huge amount of good for society. We have a classic example of market failure where the actual value of their work isn’t being properly compensated.
How do you measure how much value or social good someone contributes, and is this the only criterion that should be used to determine salary? What about personal risk, or rewarding those who do an unrewarding job? I really don’t think fairness comes into the salaries debate. The head of a large charity may get a reasonable wage, but they are, in all likelihood, doing something they really enjoy. Could you say the same of a rubbish collector? Yet they too are providing an important social service. How can you assign monetary value to social good – where would you stop? I think the real issue here then becomes inequality. But perhaps that’s a debate for another time.
Is it fair that people wanting to engage with this sector are forced to volunteer their time or accept low wages simply to be granted the right to enter? If SEs are part of a more equitable society, then they should lead by example and stop this culture of getting unpaid interns & volunteers.
People who are willing to give their time for free are getting something from the experience otherwise they wouldn’t do it. There are other things people value, not just getting paid! The not-for-profit sector should hire volunteers; it is in both parties’ interest to do so.
Social Enterprises are still mostly start-ups or small businesses. Regardless of the sector, people in smaller/younger organisations generally get paid less until the organisation is able to scale and can afford better salaries. That’s just business. Until these organisations can prove their ability to hit all 3 aspects of the triple bottom line, lower wages might just be the status quo.
That doesn’t necessarily mean that there isn’t room for us to be more aspirational & demand the salaries we want. As Social Enterprises come into their own and are able to scale into legitimate business contenders, they will viably be able to pay salaries more in line with other companies. Whilst that may be a way off, I think it still leaves room for us to be aspirational (individually, and as a sector) and start putting in more reasonable pay scales.
I think it might be a tie!
And still plenty of opportunity for further discussion. We’ve had a fun time debating, and the views presented here are starker than those we hold in reality.
As we are still grappling with the issues, we’d love to hear your thoughts…
 Based upon 2012 Small Business Survey, 2013: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/205291/Social_Enterprises_Market_Trends_-_report_v1.pdf
 Office of National Statistics, April 2012
 HMRC Tax Statistics: http://www.hmrc.gov.uk/statistics/tax-statistics/table2-4.pdf
 FSI study on attitudes to charity size
 What Motivates us? MIT study summarised in an RSA Animate production http://www.youtube.com/watch?v=u6XAPnuFjJc