Pennsylvania Compares Nonprofit and For-Profit Executive Salaries for Providers of State Service

by Linda M. Lampkin, Senior Nonprofit Compensation Specialist 26. April 2013 08:26

The Budget and Legislative Sub-Committee of the Pennsylvania legislature was asked to compare compensation of for-profit and nonprofit human service contractors. The resulting report, released last week, may surprise some readers. 

The study looked at nonprofit and for-profit service providers “for intellectual disability consolidated (Medicaid) waiver and community-based programs, community-based mental health, child welfare, and drug and alcohol services.”  While the committee staff was tasked with making recommendations to improve these services, none were included with the report.

Here are some findings for the 662 nonprofit organizations studied, using Form 990 data:

  • 317 (48%) reported no individuals receiving over $100,000 per year in reportable compensation from the filing organization, and an additional 124 (19%) reported only one such individual.
  • At least 910 individuals received more than $200,000 in total compensation. Of these, 39 received more than $1 million in total compensation. All but 2 of the individuals receiving $1 million or more were associated with general acute care hospitals.
  • Total compensation includes reportable compensation from the filing organization plus compensation from related organizations and certain other income, as listed in the IRS 990 instructions.
  • Most (446) nonprofits had less than $10 million in assets; 47 organizations had assets of more than $100 million.

Here are some findings for the 113 for-profits providing information, with data from questionnaires and SEC filings where available:

  • 74 (65%) indicated no one in their organizations received over $100,000 in compensation.
  • 16 (14%) indicated only one individual received over $100,000.

So are the nonprofits really paying higher salaries to their executives?  A final caveat in the study included the statement: “Readers should be cautioned against making direct comparisons with the nonprofit organizations, however, because for-profit organizations with highly compensated employees may have been more likely to not submit questionnaires. It is also likely the for-profits did not include all the forms of compensation nonprofits are to report in the Form 990.”  The authors also note the information needs to be much more closely scrutinized before any recommendations are possible.

This study appears to be comparing apples and oranges, but at least the authors understand that direct comparisons between the nonprofit data and the for-profit data were not appropriate, so to date, fruit salad is not the result. 

As usual, what people are paid depends on what they do and where they do it (the industry/subsector, and the size of the company/organization).  Appropriate pay should reflect the market, rather than focusing on an arbitrary salary level, in this case, $100,000.

Read the study, draw your own conclusions, but if you are responsible for setting salaries, collect the data that shows what comparable individuals make in entities of similar type and size.  The goal is to determine what is needed to attract and retain the executives but not to pay more than is needed.   ERI’s Nonprofit Comparables Assessor provides that information instantly.