Nonprofit CEO Compensation Depends on What?

by Linda M. Lampkin, Senior Nonprofit Compensation Specialist 18. June 2015 10:46

 

Charity Navigator (CN) recently completed its 11th annual national study which focuses on differences among the financial, accountability and transparency practices of charities located in various metropolitan markets in the US.  Read about the full study at  http://www.charitynavigator.org/index.cfm/bay/studies.metro.main.htm#.VYLOnflViko

The findings:  For different metropolitan areas in the US, the rankings of charity executive salary levels are not particularly related to financial, accountability and transparency practices. 

The study included only about 8,200 charities that are evaluated by CN, rather than the data from the more than 100,000 that annually file Form 990, the IRS reporting form for charities.  ERI Economic Research Institute creates a database of all Forms 990 filed each year and uses the data to create the Nonprofit Comparables Assessor, a software tool that allows the user to choose a type of charity, size (based on annual revenues or assets), and geographic area.  These are the criteria specified by the IRS for selecting comparable organizations for salary data.  The resulting group of comparable organizations is used to assess what salary levels are appropriate for a given charity and provide the necessary documentation of comparable data. 

CN divided the 8,200 charities it evaluates into 30 metropolitan markets. However, there was no differentiation by type of charity or size.  For example, CEO salaries in hospitals and adoption agencies and food banks could all be averaged together in a given metro area. Using Form 990 data and a review of the charity websites, CN then ranked each charity on its “financial, accountability & transparency” practices.  Check the report for more details on the ranking criteria. 

The table below lists the areas with the highest median CEO pay for the included charities by metro area and then the Financial/Accountability Rank for the same areas.  There does not appear to be much of a relationship between these two rankings.

Metro Market

Compensation Rank

Median CEO Pay

Financial/Accountability Rank

New York City

1

$195,758

17

Washington, DC

2

$185,593

20

Boston

3

$166,849

3

Cleveland

4

$163,623

8

San Francisco

5

$158,697

9

Philadelphia

6

$158,198

26

Los Angeles

7

$155,583

4

Pittsburgh

8

$155,000

10

Milwaukee

9

$154,408

13

St. Louis

10

$152,794

16

       

National Average

 

$126,100

 

The major issue with the Charity Navigator data appears to be the limited number of charities included and the division into the 30 “markets” – the number of charities in each market varies widely, and for some charities, there would be a national labor market, rather than a more limited metro area.  As usual, ensuring that the data used are from comparable organizations is essential when assessing compensation levels.  Using ERI’s Nonprofit Comparables Assessor, the table below looks at the #1 in compensation (New York City) with #10 (St. Louis) using examples of different size and type of organization. 

Reportable Compensation for NY CEO -- ERI Data

 

Size

Health Orgs

Human Services Orgs

(Annual Revenue)

Mean

Mean

100,000,000

477,520

320,280

10,000,000

211,406

165,143

5,000,000

165,421

135,289

1,000,000

93,593

85,151

Median reported by CN -- $195,758

   

 

   

Reportable Compensation for MO CEO -- ERI Data

 

Size

Health  Orgs

Human Services Orgs

(Annual Revenue)

Mean

Mean

100,000,000

411,328

227,414

10,000,000

174,429

123,400

5,000,000

134,730

102,658

1,000,000

73,969

66,960

Median reported by CN -- $152,794

   

 

Obviously, the best way to decide on appropriate pay for the CEO of a charity is not by looking at an average for all charities within a geographic region.  Research has shown (and the IRS concurs) that the factors that should be considered most influential are type of organization and size, along with geographic location.  Increasing financial accountability and transparency might relate to compensation, but just averaging the pay for some charities in a given location, without considering the most influential criteria for comparability -- size and type of charity -- does not provide a basis for linking the two.   A much more detailed analysis is necessary.