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Beware The Golden Handshake: Considering Pay-outs to Senior Charity Staff in Scotland

Beware The Golden Handshake: Considering Pay-outs to Senior Charity Staff in Scotland

The Charity Commission for England and Wales has issued an official warning to the RSPCA in respect of a pay-out made to its former acting chief executive.  The Times – whose report led to the Commission’s warning - has stated that the payment was “far bigger” than his annual salary, and that the settlement payment was made following Mr Ward stating that he was a victim of age discrimination resulting in his position not being made permanent.

The Charity Commission determined that the charity trustees, of the RSPCA, had failed to act with reasonable care and skill in negotiating the pay-out, particularly given the large sum of money involved – and this amounted to mismanagement in the administration of a charity.  The Commission’s deputy chief executive, David Holdsworth, has said that “the charity’s governance has fallen short, which was led to people asking legitimate questions about the pay-out to the former executive.” 

Albeit this story relates to intervention by the Charity Commission, as opposed to OSCR, this should serve as a cautionary tale for charity trustees within Scotland as the issues are much the same and OSCR would likely have taken a similar approach.

In 2013, OSCR ruled that a discretionary pay-out to the former chief executive of one of Glasgow’s local regeneration agencies amounted to misconduct in the administration of a charity. The circumstances in that case related to a discretionary pension augmentation, but similar principles apply.  OSCR reported the following:

“The cost of this discretionary augmentation agreed by the charity trustees amounted to £232,708 from the charity's assets. We consider that the actions of the charity trustees in this instance constituted misconduct in the administration of the charity. […] We find this position wholly unsatisfactory.”

Charity trustees must always have, as their guiding principle, to “act in the interests of the charity” and when making a discretionary payment (whether a pension augmentation, or a pay-out), they must consider whether this is genuinely the best course of action for the charity, taking account of all of the circumstances.  For example, an early settlement payment might be the best result for a charity, to avoid a long-running and costly employment dispute.  Another scenario could involve the winding-up of a charity, and agreeing a deal with staff to ensure that they remain employees, and assist with its closure (rather than seeking new employment) - this may be more cost efficient than seeking external support (insolvency practitioner, HR and accountancy support etc) to fulfil the same winding-up tasks.

The moral of the tale is that each case must be considered on its own merits and that charity trustees should consider taking external legal advice before reaching a decision on any discretionary payment of the nature referred to above, and might also want to consider seeking the approval of OSCR prior to making any such payment. 

Please feel free to get in touch if you would like to discuss this further.

By Gillian Harkness, Director, Public & Third Sector

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Burness admin