Monday, October 6, 2008

What is too much when it comes to executive compensation?

An article in the Chronicle of Philanthropy's October 2nd edition focused on the recent uproar over the Charlotte United Way's compensation package for its leader, Gloria Pace King. Ms. King was set to receive a $2 million pension upon retirement. This edition also highlighted that a recent survey showed that the median compensation among the 291 organizations surveyed was $326,500.

The issue of what is appropriate compensation comes up frequently for boards trying to determine compensation packages for their leaders. Some believe that nonprofit workers should receive much less than their for-profit counterparts, but I have always wondered why? A CEO of a for-profit $40 million corporation in most cases has the same amount of work as the Executive Director of a $40 million nonprofit. Wouldn't you think that since the nonprofit is serving the public good they should receive equal or greater pay? :)

The issue of the pension package for Ms. King started as an anonymous tip to the media, hinting that they look at the organization's 990 (for those that don't know, you can find the compensation of nonprofit leaders on the organization's 990s). The media discovered a large pension payment and immediately reported on it. Of course, many other media outlets then picked it up and the public outcry began. For those that are wondering, Ms. King's salary was around $370,000, which is a little higher than the median, but considering that she ran a $45 million organization for over a decade and brought it up to the 18th largest United Way (in terms of revenue raised), the compensation is probably reasonable. Unfortunately, the Board gave in to the public pressure and gave her a month to resign or she would be fired. Oh, and they also said they are going to exercise their option to cancel up to $1 million in promised pension payments.

Unfortunately, these types of situations happen often. So, how to avoid it? Seek independent review from outside experts when determining compensation packages, and make sure to look at what similar organizations (both in size and focus) are paying their leaders.

2 comments: said...

Are there any studies on executive salaries on small startup nonprofits? I always have a hard time in consulting with board members of startups when it comes to the ed salary. They do a quick online search and see the average rance for a nonprofit ceo and immediately think they should make at least $150,000--in an org with a $300,000 budget. Of course I explain my position, noting specifically the percentage of total budget, but is there anywhere I can send them for further research?

Nonprofit SOS said...


I haven't seen any studies that have specifically looked at ED compensation for small startup nonprofits, but I would recommend picking up a copy of the Minnesota Council of Nonprofits annual salary survey of nonprofit workers. It has ED salaries broken out by section, by location (rural vs. urban) and by organization size (budget size). It is extremely valuable for determining compensation, not only for ED's, but for all nonprofit staff. Also, the Chronicle of Philanthropy publishes annual salary data that might be useful as well.