The case for transparency and non-profit salaries


The President of the United States makes $400,000 per year not including benefits. A member of the Illinois House of Representatives earns $67,836 per year in addition to receiving a $132 per diem for every day they are in session. The CEO of Fifth-Third Bancorp earns $3,144,823 per year and has another $1,572,411 in restricted stock awards and $40,779 in other compensation.

Dale Lonis is the Executive Director of the Elgin Symphony Orchestra (ESO) in my hometown of Elgin, Illinois.  According to his agency’s 2009 990 tax return, his 2009 salary was $122,850 and his benefits package was valued at $8,594.

OK . . . I can hear many of you wondering why is it necessary to post this kind of information. After all, many of us learned at a very early age that talking about money-related topics is taboo in polite society. Well, the reason why a segment of our society has fought so hard for transparency in government, publicly traded corporations, and non-profits is as simple as this:

Those who make a living with ‘other people’s money’ should be held to a higher standard.

Still not sure you agree? Please consider the following:

  • Public servants are paid by “We The People” and we’re entitled to know what they are paying themselves to do “the people’s business”.
  • Publicly traded corporations owe “the market” accurate information about how they transact business because without that information we end up with situations like ENRON, MCI WorldCom, and Tyco. When companies ask for public investment and act in less-than-transparent ways, people can’t make smart investment decisions . . . the free market fails to work efficiently . . . people unfairly lose money.

Can’t the same be said for non-profit organizations? Aren’t donors trying to make wise investment decisions with their charitable dollars? How many donors are happy when they learn their charitable contributions were misused by a nonprofit organization? I suspect that no one is every happy when that happens, which begs the question about the need for increased transparency in this sector. Doesn’t it?

Let’s circle back to the Elgin Symphony Orchestra and look at the facts (which I simply gathered from the organization’s 990 tax return):

  • The board made a decision to pay their executive director $122,850 in 2009
  • This agency brought in $2.5 million in revenue in 2009
    • $696,179 in membership dues
    • $162,269 in government grants
    • $642,528 in direct contributions from donors
    • $1,026,023 in ticket sales
    • $22,000 in program book advertising
    • $19,848 in performance fees
  • This organization didn’t “balance its books” and ended 2008 with a deficit of $471,214 and ended 2009 with a deficit of $322,616

Thanks to laws that require non-profit tax forms to be public information and websites like guidestar.org that publish 990 tax forms, donors are able to easily secure this information and make wise investment decisions. Even though the aforementioned information is just a small slice of what you can pull from an organization’s 990 form, a donor can make a number of judgement calls from it. For example, a donor can weigh how they feel about:

  • this agency’s revenue model (fees vs. fundraising)
  • this agency’s fiscal health
  • this board’s track record with key management decisions around budgeting, executive compensation, business model, etc

Disclaimer . . . I am not suggesting that Dale Lonis is being overpaid (in fact, I would guess it is in line with similar sized organizations in similar communities). I am also not suggesting that the board has made any poor decisions. I will leave all those judgements for each individual reader of this blog. All I am trying to do is make the case for the value of transparency in the non-profit sector.

Do you still think I am off-base? You may want to check-out what is happening in New York’s non-profit community. You might also want to look at what frogloop blog says about a Guidestar study that illustrates how little transparency exists in the non-profit sector.

I started this discussion with yesterday’s blog post by invited you to weigh-in with your thoughts and start a dialog about non-profit executive compensation and transparency.

Do donors deserve this kind of information? If not, then how can they make informed charitable giving decisions and how can they hold agency’s accountable for they promised during the solicitation call? What is your organization doing to become more transparent? Where are yours thoughts on transparency with executive compensation? Do you think a non-profit organization should be required to put its annual 990 tax form on file at your local library or on their website? Is the 990 form too obtuse? Does a non-profit need to be required to publish a small handful of key organization metrics on their website?

Here is to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC
www.thehealthynonprofit.com
erik@thehealthynonprofit.com
http://twitter.com/#!/eanderson847
http://www.facebook.com/eanderson847|
http://www.linkedin.com/in/erikanderson847

Advertisements

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 10, 2011, in nonprofit and tagged , , , , , , . Bookmark the permalink. 4 Comments.

  1. Erik,

    I am fascinated by this topic and I think you are spot on. I think transparency equals accountability. Additionally, donors deserve to know where there money is going. In turn, I think it only helps the non-profit because its donors are engaged. If all my money is going straight to salary, I want to know. Thanks for the good work.

    • Thanks for the shout out, Andrew! I think I am agreeing that in the “philanthropy marketplace” donors need to play the role of accountability agent. If I don’t want to invest in a poorly run NFP, then I need an environment with near-perfect information. I am wondering what “key metrics” NFPs should be required to share in an ultra open environment. I am also wondering who and where that open environment is located . . . is it their own website? is it their printed annual report? is it guidestar? is it the public library?

      I am just thinking out loud and hope others can share their thoughts.

      Great hearing from you!

  2. Slightly off topic of transparency but I worked for a nonprofit that paid average salaries but offered up bonuses biannually. There were two criteria: budget and “customer satisfaction surveys by an outside source. Each department obviously had budgets but there was also one more obstacle. The organization had to end the year on or under budget or nobody received bonuses. We were one team that we all had a stake in the prize. Our responsibility was to create a worthy service and program while remaining fiscally responsible.

    • Thanks for jumping in, Billy!

      As for the idea of “bonuses,” I’ve never really been a big fan. I understand what you are saying about incorporating customer satisfaction surveys (which I kinda like the idea of), but I’ve found the idea of financial bonuses to be kind of taboo in non-profit circles. They are especially a no-no when it comes to compensation for fundraising professionals because the Association of Fundraising Professionals (AFP) have deemed them an unethical way of compensating people who raise money. They’ve said this because it creates an unhealthy incentive for fundraisers to act in their best interest and not necessarily in a mission-focused manner.

      I hope your new non-profit is coming along well. Cheers!

      ~Erik

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: