What You Need to Know about Nonprofit Executive Compensation

What You Need to Know about Nonprofit Executive Compensation

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When vetting nonprofits to support, individuals take a number of different factors into consideration. Each of these factors will have a different impact on the final decision depending on what is important to the individual donor. One of the issues that has gained increasing attention in recent years is executive compensation.

executiveThe amount that officers, trustees, directors, and high-paid employees make at nonprofits is public information since it is reported on the 990 form. A congressional hearing about Planned Parenthood in 2014 revealed that its CEO made over $500,000 annually. High compensations are not, in themselves, a cause for concern. The IRS only demands that nonprofit executives make similar to what would be paid in a comparable organization.

People using executive compensation as a criterion on for selecting nonprofits to support should not rule out an organization just because its officers are well-paid. A better rule of thumb involves looking at a range of nonprofits that are similar in size and reach. If one organization pays significantly more to executives, that could raise some red flags.

Individuals should also investigate further when the executive compensation is listed as $0. That could point to attempts to hide how much officers actually make. For example, the second-largest nonprofit in terms of donations is Fidelity Charitable, which lists all officer salaries as $0 on the 990 form. This is because another company, FMR LLC, is contracted to pay the salaries. When looking up the amount going to FMR LLC from Fidelity Charitable, which is more than $32 million, individuals can get a sense of how much executives are actually paid at the nonprofit.

The Debate about Executive Compensation

People disagree about how much a nonprofit executive should make. Some organizations are happy to pay higher, more competitive salaries because they believe doing so helps them reach more people in the long run. For example, the St. Paul and Minneapolis YMCAs merged in 2012 to form one of the largest Y organizations in the world. After the merger, the organization began searching for extraordinary business talent to guide the new venture and didn’t hesitate to offer a high salary. Glen Gunderson ended up becoming the CEO and president of the YMCA of the Greater Twin Cities, where he earned more than $530,000 in 2015.

A member of the YMCA board defended the decisions by saying that top talent was necessary to help the organization reach its goals, and top talent demands competitive pay. Board members who take this position argue that spending more money on talent ultimately translates into helping more people and spending donor money more strategically.

At the same time, there are individuals running nonprofits who take very little or even no salary, depending on the situation. These individuals believe that making an impact on the community is reward in itself and do not see money as a motivating force.

The idea of the nonprofit board is also a contentious one among some crowds. For-profit companies have shareholders to answer to about administrative costs, which helps keep compensation in check. For the most part, nonprofit board members are volunteers who do not have to answer to anyone, so their decisions about salaries are final.

Critics believe that some boards put too much emphasis on high compensation as a means of attracting and retaining top talent when these individuals are interested in making a difference and would be happy with lower compensation. Lower compensation would then enable organizations to make an even greater impact with donor money.

What Do Nonprofit Executives Really Do?

The question of what nonprofit executives do is difficult to answer because it depends on what exactly the organization does. Many nonprofits rely heavily on fundraising. CEOs of such organizations must focus much of their time and energy on attracting attention and donations to the organization.

executiveFundraising can involve making pitches to donors for support, attending community events to build a larger network of supports, and developing personal relationships with high-level donors to get feedback and garner loyalty. Sometimes, fundraising is an extremely subtle process. Paying top dollar for an experienced professional also means paying top dollar for his or her extensive professional network.

Many nonprofits look for a fundraising background in the individuals that they hire. Someone with a background of doubling fundraising amounts obtained by organizations can easily be worth a higher price tag. Still, some nonprofit executives devote little time to fundraising.

The president of WellSpan Health, a nonprofit hospital network, makes $1.6 million annually. The majority of the hospital’s operating costs come from its own revenues, so fundraising is not a major responsibility. At the same time, the president oversees operations at 12 different facilities, each of which brings in more than $5 million in revenue. As a result, the position looks much more like a traditional CEO role.

The Bottom Line About Executive Compensation

Donors need to consider how important executive compensation in the nonprofits they support is to them. High executive compensation is not necessarily a reason to write off an organization if the individual’s presence helps the organization have a greater impact. At the same time, some donors want to support organizations full of people devoted to the mission of the organization rather than being motivated solely by money. This decision is a very personal one.

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