Why are nonprofit executives making so much money?
It’s a question that always gets asked at this time of year, as salaries, holiday bonuses and charitable donations come to the forefront of workplace conversations. Last year, following executive orders from New York Gov. Andrew Cuomo that limited some charities from using state funds to pay salaries over $199,000, the Fiscal Times published a gallery of the 10 most overpaid nonprofit executives. In response, many commenters, donors and watchdog groups asked how nonprofits could possibly justify such huge salaries when they’re supposed to be using our donations to serve those in need.
I think that is a misguided question.
Why do we question how much nonprofit executives are earning without giving a second thought to the paychecks that corporate executives in similar positions take home? I’m going to ruffle some feathers here, but why should nonprofit professionals have to choose between their passions and their paychecks? More importantly, why should nonprofit employees make any less than their corporate counterparts? The short answer is that they shouldn’t.
Nonprofits are working to tackle some of our biggest social and environmental challenges, and to do that work well, they need to attract and retain the best and the brightest. Nonprofits need top talent to move the needle on critical issues like poverty, education, economic justice, and reproductive rights. Without offering competitive, reality-based salaries (yes, nonprofit professionals have mortgages too), especially for those in top leadership roles, most can instead hope to attract average employees and expect average results.
And yet, leaders at nonprofit organizations often make less than those working in corporate roles at similar sized organizations, with similar backgrounds and similar (although many would argue greater) levels of responsibility. This is true even of the highest earners in the nonprofit sector. Take, for example, American Cancer Society CEO John Seffrin. Seffrin is one of the “insanely overpaid” nonprofit executives featured in the Fiscal Times’ gallery, with a total compensation package of $2.1 million 2010. Yes, that’s a fat paycheck, but keep in mind that Seffrin is running one of the largest, most impactful nonprofits in the country. In 2010, the same year that Seffrin’s salary was called into question, the ACS earned $944.9 million according to their annual report.
Compare Seffrin’s 2010 compensation package to the reported $5.8 million 2012 total.
Compensation earned by Angelo C. Brisimitzakis, the then-CEO of Compass Minerals International, Inc., a company with a reported 2012 revenue of just over $942 million. It’s clear to see that even the most generously compensated nonprofit executives aren’t making anything near what their corporate counterparts earn.
Seffrin’s $2.1 million total compensation package may still be hard to swallow, but keep in mind that he’s a most extreme example, and doesn’t represent the critical mass of nonprofit executive compensation. The earning gap between nonprofit and corporate execs is even wider when comparing “average” organizations.
According to a study of 3,929 nonprofit executives conducted by Charity Navigator, the median salary for a nonprofit CEO was $125,942.00 in 2011. A similar study of 1,101 private, for-profit companies conducted by Chief Executive found that the median total compensation package for a private company’s CEO was $362,900 in 2011. From this data, we can estimate that nonprofit CEOs, on average, make about one-third of what their corporate counterparts earn.
This gap is indicative of a larger problem in the nonprofit sector; lack of ability to pay competitively is commonplace not just among nonprofit executives, but across the vast majority of nonprofit roles. In fact, it’s often even worse at entry and junior levels. Many nonprofit employees are being paid far less than they would make to do similar work in the corporate world, but we justify their compensation as acceptable because they work “for charity.” In reality, it’s anything but.
Entry-level staff in nonprofits do some of the hardest, most undervalued work in America. Think about the person who receives the clothes that you donate, the person who drives disabled children to school every day, or the person who answers the other end of a suicide or rape crisis center hotline. You get the picture.
By failing to realize the value of nonprofit talent and the importance of paying them competitively, we’re missing opportunities to attract and often, retain, top-tier talent. As donors and supporters of nonprofit organizations, we need to think differently about how our dollars are used.
Don’t get me wrong. Having $0.90 or every dollar go to “overhead,” which includes salaries, is not a model for efficiency. However, we should expect that the people who are at the forefront of creating safe, livable communities, creating opportunities for the unemployed and engaging youth in community activities are doing work worthy of competitive pay. When we focus disproportionately on nonprofit compensation being too high without putting that compensation into the proper context, we’re limiting the potential and power of the entire sector.
If we want nonprofits to be truly effective, we must drop the notion that working in the nonprofit sector equates to taking a vow of poverty. We must support nonprofits in offering competitive compensation packages that are worthy of the work being done and capable of attracting and retaining top talent. How else can we expect nonprofits to achieve their worthwhile missions?