Is Nonprofit Executive Pay Too High?

by Linda M. Lampkin, Senior Nonprofit Compensation Specialist 20. September 2012 08:47

Earlier this month, the Chronicle of Philanthropy released its annual report of executive salaries in the largest U.S. charities with the headline “Executive Pay Increased by Median of 3.8% in 2011, Chronicle Survey Finds.” Bloomberg News picked up the story and covered the report with the headline “Nonprofit CEO Pay Topping $1 Million Rises with Scrutiny.”  This is an indication that the mainstream media finds high pay more interesting than moderate median increases.

The Chronicle’s analysis of the 2011 data concluded that the median pay of $429,512 for nonprofit executives of the nation’s largest nonprofit organizations had increased about 3.8 % from 2010 to 2011, slightly more than the 3% inflation rate for the year.  This median increase was compiled from 132 large nonprofit organizations.

However, the survey also noted that the review of a much larger 2010 data set (for 282 organizations), revealed that 20 chief executives passed the threshold of $1 million in pay in 2010, compared with 15 in 2009.  More organizations provided 2010 data for the survey, and Form 990 data were also available. There is about a two-year year lag for Form 990 to be released, in most cases, because of the timing of filing deadlines, extensions, and form processing. 

In general, what makes the headlines is the list of high-end salaries for leaders of nonprofit organizations.  The report also noted that, in some cases, there are people paid even more than the CEO, for example, a surgeon at a large hospital or a football coach. 

Are these salaries unreasonable compensation?  As usual, it is impossible to draw a conclusion until comparable data are reviewed. Key factors in what organizations should and have to pay are always size and type of organization.  The IRS says that comparable data should reflect executives with similar responsibilities in similar organizations.  Sometimes, that may include data from for-profit companies, of which salaries may be higher due to the labor market for executives where nonprofit organizations also seek the same talent.

Setting the “right” nonprofit compensation requires data from the relevant comparables – those from a similar industry, size, and geography. Such data is provided in easy-to-use software by ERI that collects all the Form 990 compensation data.  Download a free demonstration version of theNonprofit Comparables Assessor to see if executives receiving $1m salaries are in line with the market for their skills.