A recent blog by George Weiner suggests the following approach for a nonprofit to reduce those pesky overhead costs that are so often the focus of criticism:
One-Year Overhead Plan
In response to the changing demand of funders we are looking to reduce all overhead including but not limited to office space, technology and software, salaried employees, donation processing fees, benefits, impact analysis and transportation costs. Ideal candidate should be able and willing to bicycle (or drive at own expense) to retrieve our donor's sacks of cash to deliver directly to our stakeholders.
Salary: $0 (incommensurate with experience)
Benefits: Working for an incredible cause, warm fuzzy feelings
Obviously, this modest suggestion reflects the ongoing frustration of nonprofits in responding to critiques of their compensation levels to all their stakeholders – donors, funders, clients, federal and state regulators, as well as the public, informed by the media. Most of the attention on compensation is concentrated on where most of the money is in the nonprofit sector – the large “meds” (hospitals and health organizations) and “eds” (colleges and universities). But the negative fallout from high compensation for some organizations is felt by the whole sector.
The table below uses the ERI’s Nonprofit Comparables Assessor to calculate average salaries for Executive Directors of nonprofit organizations of smaller sizes, which comprise the vast majority of the nonprofit sector. The Form 990 data show that the head of a typical $1-million organization would be expected to earn around $87,500. Executive Directors of Human Services organizations with $1 million in annual revenues have a typical salary of around $78,000, while those in Arts and Environmental organizations fare slightly better. These smaller organizations and these salaries are far more typical of the nonprofit sector than the large “meds” and “eds.”
Clearly, these salaries are not very high. When an organization of these typical sizes and types pays much more than the average salaries shown, a responsible board of directors needs to be able to justify its compensation practices. But it is clear that most nonprofit executive salaries are not what could be considered high. When the much higher compensation levels in a few organizations is criticized, the smaller organizations, even though paying much less, also need to be able to show the reasonableness of their executive salaries.
ERI’s Nonprofit Comparables Assessor can easily show what salaries would be expected in various types and sizes of organizations; a specific geographic location can also be added as a criterion to complete the analysis needed to determine comparable compensation. To learn more about average salaries in the nonprofit sector and where the highest salaries are likely to be found, check out ERI’s white paper “Charity Executive Pay.”