Friday, October 30, 2009

what's a fair wage for a nonprofit CEO?

for some reason, i read (or i should say skim) paul ogden's blog. ogden is a local conservative attorney, and his blog reads a lot like advance indiana, only with less seething resentment and fewer amusing typos.

lately, ogden has been on a crusade against local nonprofits. one of his regular complaints is that they all pay their executives too much (he's posted about it six times in just the past two months). this is a puzzling attitude coming from a conservative, but he apparently believes that "nonprofit" means "everyone works for peanuts, if not free." of course, it doesn't work like that. as any conservative should know, if you want talent, you have to pay for it. $100,000 or more might sound like a lot... until you realize that most of them could earn way more in the private sector.

i mocked him for this last month, pointing him to a CEO compensation study by charity navigator that shows that most of the salaries he's so up-in-arms over are perfectly reasonable salaries for that sector. but though he did show up in the comments to call me a hypocrite, he clearly never read the report. so let's look at the report in more depth, shall we? let's start with the introduction:

Charity Navigator has completed its fifth annual CEO Compensation Study. This year's study examined the compensation practices at 5,448 mid to large sized U.S. based charities that depend on support from the public. Our analysis revealed that the top leaders of these charities earn an average salary of $158,0752 representing a pay raise of 6.1% over the previous year studied.

We know from the conversations taking place in the comment section of our charity ratings pages that many donors will be appalled by this figure. They believe that charity leaders should all but work for free. But these well-meaning donors fail to consider that these CEOs are running multi-million dollar operations that endeavor to change the world. Leading one of these charities requires an individual that possesses an understanding of the issues that are unique to the charity's mission as well as business and management expertise similar to that required of for-profit CEOs. Attracting and retaining that type of talent requires a certain level of compensation. While there are nonprofit salaries that we would all agree are out-of-line, it is important for donors to come to terms with charity executives earning a fair wage – which is roughly $160,000 according to our research.

yes, a six-figure salary is perfectly reasonable for someone with the skills to run a multi-million-dollar organization. of course, it depends on geographical location: the report finds that compensation in the midwest is below average ($148,781), and that average compensation here in indianapolis is $126,204.

compensation also varies depending on the nonprofit's charitable mission. CEOs in education and the arts tend to earn a lot more; executives for environmental, human services, or religious-based organizations tend to earn less. the size of the organization also matters, as you might imagine: CEOs at larger charities earn more.

  • Above Average Pay: Organizations with total expenses greater than $13.5 million ($286,760)
  • Below Average Pay: Charities with total expenses under $3.5 million ($90,747) as well as those between $3.5 and $13.5 million ($149,306)
[...] These figures demonstrate that as the size, and thus the complexities of running a nonprofit increase, so does the salary of the institution's top executive so much so that if we probe deeper into the top tier of charities (by size), we see even larger salaries. A look at organizations with total expenses between $50 and $100 million pay their CEOs on average $378,026 and organizations with total expenses of $100 million or more pay their CEOs on average $462,037.

to be sure, some nonprofit CEOs are overpaid, and the report gives a few examples. (the head of the university of delaware gets $2,377,100!) but the $80k earned by the director of the peace center, which ogden complained about today, is actually below the national average for a charity that size. and that's just one of the nonprofits paul has unfairly maligned.

running a large organization is is hard work, and to get people with the skills and knowledge to do the work properly, you have to pay them what they're worth. this isn't to say that there aren't some shady nonprofits out there—steve buyer's frontier foundation comes to mind—but you can't judge an organization merely on what it pays its executives. as the report says, "salaries really should be examined in the context of the charity's overall performance."

update: he's still at it, now maligning goodwill of central indiana. funny how an org whose mission involves giving people jobs would spend a lot of money on paying its employees, isn't it?

update: still writing nonsense about local charities. he writes "This morning I heard a radio broadcaster bragging about Irsay's charitable offer of donating $1 to United Way for ever person who attended the game last night. That amounts to a whole $67,476. Once the United Way's administrators take their cuts for their six figure salaries, there might be $476 left over to be distributed to actual charities." had he bothered to check, he'd see that only 5.8% of UWCI's budget goes to administrative expenses, whereas 85.7% goes to program expenses. of course, his argument isn't about facts.


Paul K. Ogden said...

You're missing the point, which I guess I should not find surprising. With many of the non-profits, almost their entire budget is spent on adminstrative costs, the chief one being salaries and benefits for executives and top employees of the non-profits. Many of these nonprofits are using our tax dollars or preying on the charitable impulses of people.

I find it funny that a so-called Democrat would cite to other salaries in a sector as justifying particular salaries within that sector. That kind of logic would say it's okay to pay a CEO millions in bonuses while the CEO's company is losing millions. The answer is no. Yet, by your logic it's perfectly okay because everyone else is doing it.

The issue regarding fair compensation is not what others are paying,but rather whether that amount of money HAS to be paid to obtain someone of that particular CEO's quality. The answer is absolutley not. We don't need to pay $400K of taxpayer money to get someone as good as Don Welsh who heads up the ICVA, for example. It's the same with many of these non-profits who exist simply to make their executives and top employees wealthy.

Like in the for profit world, non-profits are getting those types of salaries because the people who sit on their boards also are profitting from the system. It's a "you scratch my back, and I will scratch yours" system. They're not getting them because they have to pay those kind of salaries.

I do find it interesting that you, a liberal Democrat, have no problem with charitable and other nonprofit organizations spending almost all of their money, much of which is taxpayer money, on themselves rather than the mission they purport to serve. But, hey, you're not the first local Democrat who has claimed to be for the poor, but who is really about preserving the elite power structure.

I suppose you don't have any problem with those TV preachers livingin mansions and flying on private jets taking money from hard working men and women struggling to pay their mortgages, Hey, after all, they all do it don't they? That makes it okay in your book.

stAllio! said...

The issue regarding fair compensation is not what others are paying,but rather whether that amount of money HAS to be paid to obtain someone of that particular CEO's quality.

did you read the report?

the answer is that yes, to get someone with the skills and knowledge to run a decent-sized nonprofit, you often have to pay them (low) six figures. that's simply what they're worth.

I do find it interesting that you, a liberal Democrat, have no problem with charitable and other nonprofit organizations spending almost all of their money, much of which is taxpayer money, on themselves rather than the mission they purport to serve.

don't put words in my mouth. i said nothing of the sort. my post was addressed solely to the issue of executive compensation. i even mentioned buyer's frontier foundation as an example of a shady foundation that doesn't actually do what it claims to, and seemingly exists only to pay out salaries to the politically connected.

paul, i highly recommend you check out you would love it. they rate nonprofits based on how much they spend on services compared to administrative costs, and other financials. for example, IMA gets a 4-star rating (the highest, whereas the indiana state museum merits only one star.