Capping nonprofit CEOs salaries and bonuses?

For the last two days, I have blogged about the impact of government funding on non-profit organizations’ fundraising programs. All of this talk about Uncle Sam and the non-profit sector got me thinking about government funding and the for-profit sector (e.g. bank bailouts, farm subsidies, Occupy Wall Street, etc). So, it wasn’t a big leap in my head when I jumped from for-profit corporations taking public funds to limiting CEO compensation and then back to how this all relates to compensation of non-profit CEOs who accept public funds.

LOL … yes, my mind has been wandering a lot lately.  I blame the sugar rush from Halloween.  😉

You only need to go back a few years in the news cycle to recall that segments of the public were incensed by the federal government’s TARP program, which was our country’s bank re-liquidation and bailout program. Part of that public debate (and it is being rehashed by the Occupy Wall Street protesters) is that for-profit corporations that accept public funds subject themselves to a different level of accountability and regulation by “We The People”.

Well, if you buy into this argument, then don’t you need to logically do the same for non-profit organizations who accept government funding?

While the IRS is currently charged with monitoring 501(c)(3) non-profit organizations’ executive compensation to ensure it is in line with similar size agencies in similar sized communities through a provision called the “private inurement rule,” the question I pose goes a little bit further. The aforementioned question asks if local city councils, state legislatures and Congress can or should legislate concrete rules around non-profit executive compensation for those who accept public funding. For example, if “non-profit agency X” accepts a grant from their local city council, then that board of directors of “non-profit agency X” agrees to abide by a local ordinance that defines what the city council sees as reasonable and acceptable compensation.

This debate was well frame by two individuals who I saw commenting on a Charity Navigator blog post.

Here is how one side of the coin sounds:

“I would suggest that we put some of these salaries in context (just as you did with the American Red Cross).  Some of these CEO’s are managing organizations that are multi-million dollar “businesses.”  As such, their salary compensation is reflective of the size of the organization’s revenue and project stream.”

Here is how the other side of the coin sounds:

“Comparing these salaries to “for-profit” salaries is just ridiculous. These organizations exist out of the goodness of the people who contribute. We give under the impression that we are Helping others….NOT Helping CEOs to get rich.”

Of course, neither of these points-of-view deal with the issue of what to do with non-profit organizations who accept public sector funding like the for-profit banking sector did when they accepted TARP funds.

So, here is the deal . . . I sometimes write blog posts with a very specific point of view. Other times I’ll approach a subject without any idea of what my opinion is and organically let things unwind. I am approaching this subject with a very open-mind, and I’ll use tomorrow’s and Friday’s blog posts to focus on this subject.

What this means is that I would like a spirited discussion among the readership of this blog. Please use the comment box below to weigh-in with your thoughts. You are even encouraged to post questions if you’re as undecided as I am.

If you want to read more on non-profit compensation best practices, our friends at “Nonprofit Law Blog” did an outstanding job with their posts titled: “Compensation Strategies and Best Practices for Non-Profit Organizations” . . . click here for Part One and here for Part Two.

How does your agency currently ensure that its compensation is in-line with community standards and in compliance with IRS rules? Does the acceptance of public funding “change the math” in your head when you look at this issue? Do you see similarities or differences between the comparisons I draw between for-profit corporations accepting public funds and non-profit organizations doing the same? What role does the donor play in all of this? Should donors expect total transparency for the non-profit organizations they support?

Please take a few moments to weigh-in using the comment box below. It will only take a minute or two out of your day, and doing so will enrich the discussion tomorrow and Friday. Besides, as I always say, we can all learn from each other.

Here is to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847|

About DonorDreams

Erik got his start working in the non-profit field immediately upon graduation with his masters degree in 1994. His non-profit management and fundraising experience numbers nearly 20 years. His teachable point of view around resource development is influenced by the work of Penelope Burk and those professionals subscribing to a "donor centered" paradigm. Donors have dreams and it is our responsibility to be dream-makers because donors are not ATMs.

Posted on November 9, 2011, in Board development, Fundraising, nonprofit, resource development and tagged , , , , , , , , , . Bookmark the permalink. 2 Comments.

  1. Morning Erik –

    This is a great topic (should I say multiple topics…) – one that has resulted in heated debate in many communities including my own. I would say my umbrella opinion – for-profit or non-profit – is that you establish a compensation structure that is relative to the overall financial status of the organization AND puts the organization in a position to be competitive (keeping retention and rewards in mind).

    The world of non-profit management is more competitive than ever (IMHO) and there are more and more highly educated and talented professionals in the field. The bottom line is that you have to provide a competitive compensation package to retain talented executives. There is always another job around the corner with better pay, etc. This is no different from the for-profit world.

    So…the thought of there being caps on non-profit CEO salaries makes me VERY uneasy. And I feel the same about the for-profit world.


    • Jamie . . . thanks for getting things started. I always appreciate people who weigh-in on tough topics like this one!

      I, too, have always been “uneasy” about giving government the authority to cap compensation and limit bonuses, etc etc etc. By God, we live in a capitalist society and a democratic system. It feels kind of wrong to me on some level.

      HOWEVER . . . what if we look at it some a different angle? What if your lead gift capital campaign donor came to you and said we’re pulling our support because your NFP’s board is overcompensating the CEO and key senior staff? Do you let that donor walk away? How does the board react?

      In this example, what is the difference between an individual donor or corporate donor and a government agency donor? Hmmmm … when I think of it in those terms things get fuzzy because I believe in donors having as much info as possible to make good charitable giving investment decisions. I am not talking about boards losing their “indepenence” but I am looking at it from a vantage point of donors putting a “check” on NFP boards and staffs.

      Confusing topic with many different angles to look at. Thanks for weighing in.


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