What’s Ahead for Nonprofit Executive Salary Increases? Not Too Much!

by Linda M. Lampkin, Senior Nonprofit Compensation Specialist 27. September 2011 09:16

The Chronicle of Philanthropy recently reported that planned increases for CEOs of charities and foundations will be modest again in the coming year–averaging around 3%. The median increase from 2009 to 2010 was a modest 2%. However, bad economic signs could affect those planned increases, as budgets for 2012 are getting finalized now.

The medians do not tell the whole story. The answer to what your nonprofit should pay its executives is, as usual, “It depends.” Some organizations may want to start rewarding their executives who have received no or very small raises since 2008. Other boards fear that a top performer with a stagnating salary may not stay, so increases are needed. Other organizations may be more concerned about the public perception of increasing executive salaries while unemployment is persistently high and the economy uncertain. Some are keeping salaries frozen or even decreasing them, as their funding is uncertain and asset levels are still lower than they were several years ago.

If boards do decide to increase an executive’s salary, it is more important than ever to be careful that the increase will be recognized as appropriate by clients, donors, and even state regulators. The board must be able to provide a rationale. If the charity is paying a bonus, the payment must be clearly based on goals meaningful to the organization.

Sometimes, when boards are looking for a new CEO, they may be more concerned about finding the best person, rather than the public perception of the salary. However, creating the rationale for the salary is crucial, because inevitably there will be public–and regulator–scrutiny.

The best way to set the salaries is to do what the IRS wants–look at comparable salaries for similar jobs in similar organizations. A simple way to do that is to use ERI’s Nonprofit Comparables Assessor. Select the geographic location, the type of service provided, and the revenue size, and instantly find the average salary for all of the organizations who report compensation data on their Forms 990. The free demo version of the software will provide the information needed for most charities to make a data-based decision on executive compensation that will satisfy all stakeholders.