Why Excessive Nonprofit CEO Salaries Are Unethical and Just Plain Wrong

November 29, 2007 | Nonprofit Management

Dan Prives of Where Most Needed recently blogged about Independent Sector’s Principles for Good Governance and Ethical Practice, lamenting the fact that the IS Principles do not adequately address issues of excessive executive compensation in the nonprofit sector. Contrary to popular belief, there are many nonprofits that are large enough to allow for CEOs to make a six-figure salary. Take Mark Everson for instance, whose $500,000 gig at the Red Cross couldn’t even motivate him to keep it in his pants. But I digress. The problem that Dan points out is that in many organizations, the CEO generally makes a hell of a lot more dough than the other senior staff. Well, you say, that’s only fair, right? The big boss should be making the most moola. Okay, but let’s talk ratio. Consider that in many nonprofits, the next highest paid staff can make as little as less than half the salary of the CEO, even though most senior staff share responsibility and an undoubtedly large workload very similar in comparison to the CEO. I’m talking about the finance directors who keep the organization from going into the red, the program heads that keep the kids coming and the parents involved, the fundraising staff that plan for sustainability and run the galas and campaigns while the CEO just comes to smile for the camera and pick up the check. I’m exaggerating a little bit here, but my point is that without these key skilled workers (who usually possess advanced education), nonprofits could not survive. Yet somehow these kinds of senior staff still get the short stick when it comes time for payday. I know from working at several nonprofits how frustrated overworked staff feel when their boss is enjoying the fruits of the American dream, even just the basics: a house and a car, while they can barely pay the rent and have to take public transportation. So honestly, I think it’s unethical and just plain wrong to have such disparities in compensation in a sector that fights for things like justice and fairness and I commend Dan for bringing this issue to light. Dan’s post was featured on the Chronicle of Philanthropy’s Give and Take, prompting “Bif” to make this comment that had me steaming:

It’s not exactly agreed by everyone (or perhaps even agreed by most) that earning significantly more than the next highest paid person on staff is some sort of ethical violation. In fact, I would say that it’s absurd to suggest that this is unethical. Just because we work for nonprofits and want to do some good in the world doesn’t mean that we need to sign on to the levellers’ agenda.

Really, Bif? That’s how you feel? Why don’t you go ask the next highest paid person (who is likely being grossly underpaid) how they feel about your ethics. Now please don’t go getting your panties in a bunch thinking I’m saying that nonprofit CEOs should be paid less, because I’m surely not on THAT bandwagon. I want one of those gigs when I grow up. But. What I am saying is that if you’re gonna pay the CEO well, pay everyone else well, too. Senior staff should be getting paid much fairer salaries in relation to what the CEO makes. Let me make it simple:

UNFAIR: CEO makes $150,000/year while Deputy Director makes $50,000.
FAIRER: CEO makes $150,000/year while Deputy Director makes $100,000.

What’s the problem, right? Can’t we behave with common sense in the nonprofit sector and value our senior staff enough to pay them fairly? I’m not too good at math, so you tell me.

Of course this issue is very close to my heart as a young nonprofit professional looking for job satisfaction and a decent quality of life working for a cause I love. I could hop on over to the government side of things and make way more than what I’m getting now, but unfortunately it is not in my personal mission to do that. However when the bills start piling up faster than you can pay them, the nonprofit field can seem like a really nasty place to be, and life as a government worker starts to look pretty sweet. In fact, for most young people working in the nonprofit sector, their main issue is the ridiculously low salaries they earn for the positions they hold in their organizations, no matter how senior their responsibility. Even though many younger nonprofit workers are coming out of universities with advanced education in social work, arts, public administration, management, finance, business, and other applicable fields, nonprofits are paying way less than the market rate for their talent. What other sector (true story, I’ve seen it happen) would recruit a candidate with two Master’s degrees and offer them $40,000 a year to live off of?

Perspectives reader John Wasinski asks a practical question about the lack of competitive nonprofit salaries:

I wonder if the current state of affairs due to lack of awareness, ignoring a problem they know exists, or just due to funding woes and an inability to solve them?

What do you all think? Why do nonprofits continue to pay pennies for the important work of social change? Do you see excessive CEO salaries as an issue?

I don’t know, maybe it’s a combination of reasons, but what I do know is that as the war for talent gets tougher, nonprofits will definitely have to step it up as young people start pushing the envelope on this issue.

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Tags: Nonprofit Management

Akira

Disparity issues in nonprofit salaries are due to a complex set of reasons. A fundamental lack of understanding and respect for the work nonprofit executives and staffers do, is probably the most problematic of them. Like all prejudice, the perceptions are often unspoken in polite company and are difficult to fix because it would require a shift in closely held beliefs.
Akira

Nonprofit boards, who approve an organization's operating budget which includes staff salaries are oftentimes made up of corporate executives with no real grasp on the intense tasks that nonprofit staff people take on from day to day. Having spent their entire careers working in a corporate environment, their perception of nonprofit work is shaped mostly by stereotypes and what they read in mainstream media (not the best guidebook). With so many Boards made up of individuals who hold the belief that nonprofit work is a stroll in the park, it’s not surprising that they would balk at paying an executive director candidate with degrees from Dartmouth and Harvard $50,000 a year (true story).

In a decade of working in the nonprofit sector, I have yet to meet someone brave enough to openly admit the troublesome dynamic that is in play. It’s just a big elephant sitting in the middle of our nonprofit living room.

I agree with Rosetta, the salary of the CEO should not be grossly disproportionate to that of the rest of the executive team. However, I think what’s more important than proportion to the next highest ranking staffer are salaries (CEO included) that make sense in the organization’s overall budget picture…

…which will undoubtedly open up another can of worms about the difficulty nonprofits have raising funds for general operating expenses and staff salaries.
Rosetta Thurman

Thanks for the insight, Rebecca! I think it's interesting that the board decides what to pay the CEO, and though it may be a nice salary, the CEO then gets to decide what to pay their senior staff, and it is often in my experience, much much less. But since you've seen better models (and you are the boss!), I wonder if that has helped you see the fairer side of things? One of John W.'s questions was whether it's a lack of knowledge that causes the disparities that are out there.

Tom - You're right, I think it's totally unfair, and fairness is probably an easier discussion than ethics. I'd also like to see a study of the pay trends among CEO vs. senior staff. Dan Prives highlighted larger or national orgs, but from where I sit in DC, there's alot of disparity goin' on here as well.
Tom Durso | www.501cfiles.com

I hear what you're saying, Rosetta, and while it can be unfair, I wouldn't call it unethical. If there are different skill sets, requirements, and job duties for the CEO than for other staff, the s/he should be paid more. Also consider that if the nonprofit is underperforming, it's the CEO who's most often on the hook, not the staff. And as Rebecca notes above, the Red Cross example could be an anomaly; it would be interesting to see some data on the rest of the sector.

Interesting post. Keep up the great work!
Maya Norton

Dear Rosetta,

Thanks for your participation in November’s Carnival of Giving.

If you would like to learn more about what other participants have said, their submissions can be found here.

Best wishes,

Maya Norton

The New Jew: Blogging Jewish Philanthropy
Rebecca

I certainly think that nonprofits can and should pay senior staff more, but in most nonprofits, the Board decides what to pay the CEO, right? That's how it has been with the nonprofits I've worked for. So, in these cases, they might think the CEO deserves it. Although, in the nonprofits I've worked for the disparities are never as large as what you illustrate. If they were, I might consider it more of a problem.

I will also say that being the boss is a lot different than being even a senior staff employee. It's difficult to judge a position if you haven't been there.

Great post!