And so the controversy continues…

The latest news story (highlighted in the Nonprofit Quarterly Newswire) covers nonprofit executive salaries in Charlotte, North Carolina.

The question:  “Are nonprofit executives paid too much?” My answer:  “It depends!”

Here are some factors to consider.  Please leave a comment with other factors that are important to the issue of nonprofit executive compensaion

  • Some subsectors of the nonprofit sector do operate in direct competition with for-profit entities.
    • Consequence:  This competition is not only for service delivery but also for employees.
    • Subsector examples:  Hospitals, day care programs, nursing homes, cultural/arts organizations, and educational institutions often compete with for-profits.
  • Increased competition (with for-profit businesses and among nonprofits) has lead to increased professionalization in the nonprofit sector.
    • Higher Expectations:  There is a demand for nonprofit executives with more professional experience and more educational credentials.  (Here’s a list of Master’s level programs.)
    • Transferable Skills:  Anecdotal information suggests that business executives are increasingly interested and transitioning to nonprofit careers.  (Here’s a related article.)
    • Argument:  Nonprofit executives should be compensated, according to their skills, experience, and education.
  • Some people argue for legal compensation caps (with a specified $ maximum) because nonprofits receive tax exemption benefits.
    • Reasoning:  The government is financially invested in the nonprofit sector and has a legitimate ability to set limitations on its financial operations.  (Here’s an article.)
    • Further thoughts:  Some persons also argue that a compensation cap is reasonable because nonprofits receive government grants and contracts.
    • Important note:  For-profit businesses also receive government contracts and are not legally limited in compensation packages.
  • The nonprofit sector receives approximately 15% of its revenue from charitable contributions; individual donations represent 75% of total charitable contributions.  In 2008, this equated to $229.28 billion (Giving USA).  Some argue that the general public is not interested in supporting 6-figure salaries.  (Certainly, the public comments on the news story indicate outrage!)
    • Suggestion for donors:  You can always specific how your gift will be allocated – only to direct program costs.  Nonprofits, then, can refuse your gift if they do not want to honor your gift restrictions.
    • Further action:  You can find detailed financial information about reporting nonprofits on their IRS 990 tax forms.  It does include compensation data on the top five paid employees.  Free access is available at Guidestar and the Foundation Center.  Here’s an article that explains how to read the 990 tax form.
    • A warning:  Organizational financial positions are much more than the numbers.  Each organization faces very different circumstances that may not be authentically represented in a quantitative format.
  • There are still other factors to consider…
    • Cost of living varies considerably by geographic location.  (Here’s a calculator.)
    • Health care costs are increasingly expensive and affects total compensation packages.  (Here’s some data.)
    • Pay discrimination, based on gender and race, exists in the nonprofit sector – particularly for high-level positions.  (Here’s a research article.)
    Please leave a comment.  What other factors must be considered when discussing nonprofit executive compensation? 

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