How Do We Calculate the Value of a Nonprofit Executive?

The salaries of nonprofit executives have become targets for politicians, from New Jersey to Washington, D.C. The brouhaha is focused on the $1 million benefit package paid to the chief executive of the Boys and Girls Club of America.

nonprofit executivesIn return for her $1 million, she led the organization from 800 clubs to 4,000 and a revenue leap to $1.4 billion from $438 million, according to an article in The New York Times.

Political outrage is a selective, temperamental beast. As pointed out in many responses to The Times article, the government officials who are so outraged by the pay scales of nonprofits that take government money to end social ills are not the least perturbed by executive salaries of for-profits taking government money to, say, re-build Iraq.

Funny how that works.

I don’t think the government should be telling nonprofits what salaries they should be paying their executives. If you want to attract good talent you have to pay a good salary and provide good benefits. 

What causes discomfort, I think, is that people look at the alternative use of the money for a nonprofit: If the executive took half as much, we could provide this many more teachers or this many more doses of AIDS medicine. In the for-profit world, no one makes that comparison.

But it is an unfair comparison if not balanced by how much efficiency or funding the executive brought to the organization, how many more doses of medicine are now possible because of his/her efforts.

It takes talent to run a multi-million dollar organization, whether for-profit or nonprofit. That being said, nonprofits should be subject to rigorous standards of accountability and transparency to ensure that salaries don’t get bloated.

While I subscribe to the idea that nonprofits compete for talent with for-profits, I don't think that nonprofits should match the multi-million dollar payouts made by Wall Street. I do believe in rewarding nonprofit executives who lead their organizations to greater and more effective service to those in need. Key here is measuring impact, not just income. 

Ken Berger, president of the nonprofit rating agency Charity Navigator, has a different view.  “I’m not advocating poverty wages,” he said in The Times article. “But arguing that those working for the benefit of the neediest people in our society should make millions and multimillions like corporate leaders defies common sense.”

That being said, I found the issues raised by those commenting on The Times article far more intriguing than the political rhetoric. Some interesting questions raised:

  • Is taking a job with a nonprofit in itself an act of charity? 
  • Is anyone complaining about the salaries of coaches at "nonprofit" universities and colleges?
  • What about the high salaries of university presidents whose institutions take advantage of low-paid graduate students/interns? 
  • The CEO of a nonprofit is primarily fundraiser. S/he has to associate with and attract high-rollers from for-profit world. 

(That last point raises another question for me: If donors and funders don't want nonprofits to waste money, should they expect first-class accommodations when being wooed by their alma mater and other nonprofits?) 

Finally, the recurring and, I think,  most important aspect of the nonprofit salary discussion: How do the executive salaries in question compare to the rank-and-file pay scales at the Boys and Girls Club or the American Heart Association? How do those salaries compare to the local living wage?

As one comment noted, "the bigger problem is low salaries for rank and file who may be forced to choose between raising families and working for a cause they believe in."

A CEO who builds a nonprofit so it can help more people live better lives deserves good compensation but so, too, do the employees – from janitors to social workers – who do the actual work. If nonprofit CEOs are earning 200 times the salary of their average worker, that's a red flag. It's another red flag if workers are not paid a living wage but the exec is into six figures.

Nonprofits shouldn't be "let's lose money" organizations" for anyone: funders, management, or employees. 

What do you think? Are nonprofit executives overpaid? As a group or only a few? Is the pay of front-line staff a factor in setting executive salaries?

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