The Outlook for Nonprofit Executive Pay Increases

by Linda M. Lampkin, Senior Nonprofit Compensation Specialist 28. September 2012 08:45

The Chronicle of Philanthropy's annual report of executive salaries for the largest U.S. charities reported that increases of 2.5% to 3.5% were expected for nonprofit top executives in 2012 and in 2013, although some might fare better.  Expected cuts in federal and state spending would also affect nonprofit budgets, as many receive a larger proportion of their budgets from government contracts and grants than from private donations or payments for services.

Another report, the 2012 GuideStar Nonprofit Compensation Report, confirms that the compensation of 41% of incumbent CEOs remained static or declined from 2008 to 2009 and concluded that the effect of the downturn in the economy lasted into 2010. In fact, from 2009 to 2010, the proportion of chief executives who received no pay increase was, again, around 40%.  The median increase in salaries for nonprofit CEOs was 1.6% in 2010, according to GuideStar’s analysis of data reported on Forms 990. Before the 2008 recession, annual increases tended to be 4% to 5%. 

When the recession hit in 2008, many charities froze executive salaries or even had pay cuts. But now, some are reporting that competition for top nonprofit talent may be requiring salary increases to meet market rates.  Some charities are giving raises to top executives, even as they phase out annual raises for all staff members.  But nonprofit salaries tend respond quickly to the variations in revenues which are common in the sector – if a contract or grant is not renewed, and fundraising efforts cannot make up the shortfall, then salary freezes and even cuts may be an option. But that is clearly not a long-term solution. 

Of course, there is the ever-present problem of “average” or “median” increases. The market rate for a position is dependent on the industry (think subsector in the nonprofit world) and the size of the organization (level of revenues or assets, where appropriate).  Since the sources of revenues and the demand for services vary among types of organizations, looking at median or average increases may not be particularly relevant for a specific organization. 

ERI’s Nonprofit Comparables Assessor allows you to analyze what is really comparable.  You select the job title, the type and size of organization, and even geographic location, and the software accesses ERI’s database of Form 990 compensation data for the relevant organization and provides an estimate of the market pay for that position.  This customized analysis provides the information needed to determine the reasonableness of a given salary.  In fact, this is the software used by the IRS to check on executive salary levels.