Without setting out to do so, I ended up writing a lot about nonprofit executive compensation last week. Even less intentionally, I wound up with three posts sewn together by a common thread.
- My first post of the week, “Are Your Executive Compensation Bases Covered?“, on the Mission Connected blog, encouraged organizations to take a look at their executive pay policies and practices, with an eye towards IRS compliance.
- Then my curiosity was aroused when I learned of proposed Canadian legislation that would require reporting of and place a cap on the compensation of charity executives in that country, and so out popped “USA vs. Canada…No Hockey Involved!“
- In the meantime, the story of Senator Grassley’s inquiry into an organization’s executive compensation and other financial practices led to a fairly impassioned debate in the nonprofit community, and my analytic bent led me to “Executive Compensation at Boys & Girls Clubs of America: A Closer Look “.
I have every intention of moving on to other topics in nonprofit human resources and organization management — and of writing posts with shorter titles. But before I do, I wanted to ask you — my nonprofit sector colleagues in the US, Canada, and beyond — for your opinion about the common thread in these posts:
What role, if any, do you feel governments should have in monitoring, regulating, or otherwise being involved in the compensation paid to executives and employees of nonprofits and charities?
Please share your thoughts in the comments.
Photo credit: takomabibelot 
Rather than scrutinizing executive compensation, we should pay more attention to the low-wages paid to frontline non-profit employees. Case managers, for example, play a critical role in helping individuals secure permanant housing, transition to a job, complete education, etc. Government contracts set these pay rates very low, but non-profits should not be able to use those low rates of pay as an excuse to underpay their most critical staff. How can we expect participants seeking services from nonprofits to achieve the outcomes we seek, when the frontline staff is near poverty themselves? If government wants to set caps on executive compensation, it should do so in conjunction with policies that raise wages for staff.
Hi Susan. Thanks very much for your comment. I am glad that you chose to pick up on the importance of compensation for non-executive nonprofit workers, and the role that government contracts sometimes play.
There are certainly cases where the treatment of employees by an organization can be seen as inconsistent with the organization’s mission. Unfortunately, while this is sorely felt by those employees, I think the phenomenon usually escapes notice by the public, government, or other funders.
Rather than focus on contract funding of individual positions, I encourage organizations to take a more holistic approach, seeking to provide equitable compensation opportunity at all levels of the organization. In fact, a sound compensation program can even serve to influence higher levels of funding in contracts.
Thanks again for the comment, Susan, and for reading.
This is tough! As long as these organizations are not committing fraud (meaning they are open to their customers and supporters about their financials and following the law) then the government should not regulate or restrict in any way.
If someone wants to shine a light on something, I agree with Susan that the incredibly low wages paid to many if not most frontline staff should be in the spotlight.
Hi Alyssa, I appreciate your comment about the government not being involved as long as compensation is transparent to stakeholders and complies with applicable laws. It does raise another question, though…does that change at all when a government (federal, state, or local) is one of the organization’s funding sources, or perhaps is the major funder? Does the government then have the prerogative to go beyond demanding transparency and compliance, and having a more direct say as to appropriate compensation levels? That is certainly the case being made by Senator Grassley et al. in the Boys & Girls Clubs of America case, which I wrote about last week.
Another question…when you mention your agreement with Susan that a spotlight should be shone on low wages for frontline staff, do you think this should be in the form of policies and regulations associated with government contracts or funding, or are you referring more to the media/public spotlight?
You are much more analytical and less emotionally reactive than I am, Joe. I’m trying to keep my head from exploding after reading all those links.
My personal political thought is that the gov’t's role is to protect us from fraud and danger. Everything else is left up to us. And as someone aptly said, let donors (individual, foundation or government funders included) vote with their pocket books the way consumers do. And I do agree to some extent that if a funder wants certain information, that is their prerogative. And it is an NPO’s prerogative not to subject themselves to the unduly heavy burdens the funder puts on them by not accepting those monies.
Re: the larger conversation and some of the responses, I am frustrated that the goal seems to be to tear down ALL third sector employees. It is the mentality that the cool kids use to judge successful musicians. If you want to be able to make a living, even an extravagant living by someone’s standards, then you are a sell-out. If you were really an artist you’d be starving in a garret somewhere. And if we REALLY cared about children, the environment, clean water, the homeless, etc., then we’d put up with whatever abusive behavior the 1st and 2nd sectors would like to dish out to us.
Reading all these posts on the Boys and Girls Club, I had a vivid image of going to one of these kids served by a club and saying, “Well Johnny, you can be anything you want to be when you grow up! You can have any kind of lifestyle you want and be successful and go as far as your brains and guts will take you. Unless you want to help make the world a better place… then you can only go as far as other people feel is decent. So good luck with that, kid!” What an awful vision of the American Dream.
As long as different standards are used for different sectors, we in the third sector will be treated as beggars who better know our place and be grateful for the scraps we do get.
However, a boon may come out of this. The new frontier of social enterprise is drawing many talented young people with vision, tenacity and ambition. Perhaps this is the next evolution for our culture.
Hi Alyssa. I love your comment on so many levels.
First, perhaps you’re right about me being more analytical and less emotionally reactive, but I’m firmly convinced that it takes both types.
I also have to agree with you that it is the funder’s prerogative to request information, whether that funder is public or private, and to vote with their pocketbook. Perhaps in a perfect world, it would also be the organization’s prerogative to provide the information or not, but obviously a good deal of information has to be provided to the federal government through the 990, whether they are a funder or not.
I wish that more of the information being requested — by the government, private funders, the media, and the public at large — had to do with the organizations’ outcomes and effectiveness, rather than less meaningful measures such as compensation and overhead.
I think your analogy about the cool kids and musicians is a good one, but I think your imagery of the message delivered to Johnny is simply brilliant, and probably the strongest argument I’ve heard against external constraints on nonprofit pay at all levels.
Finally, I too am watching the rise of social enterprise with a watchful eye. It will be interesting to see whether it congeals into something that is truly distinct from the nonprofit sector that exists now, rather than just an evolutionary stage. I am also interested in the question of what types of people and management processes will arise to meet these new organizational forms.
Thanks again for your comments, for reading, and for engaging.
Allysa, I like your perpective on social enterprise – indeed it provides hope for the third sector!
In terms of executive compensation, here is another issue to add to the mix. Several of my colleagues are Executive Directors for local non-profits, and in their case, are grossly *underpaid* relative to their scope of responsibilities, experience, and performance. So as we look to reform compensation for the third sector, I think this issue deserves as much attention – and perhaps more – as the perceived overpayment of non-profit executives.
Joe, how common is variable pay for non-profit executives? Have some non-profit boards tied bonuses to performance?
While I believe that consumer awareness and tranparency are important, I think government regulation (especially for government contracts) is the most impactful solution for raising wages.
Sadly, the low-wages for many occupations outside of the non-profit sector (e.g., direct care and childcare employees) is actually driven by government contracts. Advocacy efforts have achieved some success in raising wages for these jobs, but the work is ongoing.
Thanks for your comment, Susan. You are so right to raise the question of “underpaid” EDs. Those at the other end of the scale receive all of the attention, but they are definitely in the minority when you look at the entirety of the nonprofit sector. I do believe that, sector-wide, at the executive and frontline levels, a certain baseline level of compensation is necessary to ensure that organizations can attract and retain the leadership and talent necessary to achieve results.
To your question about variable pay, it is hard to give a solid answer. When asked the question, the majority of nonprofits indicate that they use some form of variable pay, both for executives and some or all staff. But when you dig further into the data, you tend to find that in many cases, a) the amounts involved, as a percentage of total compensation, are very small, and/or b) the practices are simply “bonuses”, given in a discretionary manner or on some vague basis of organizational performance. I distinguish “bonuses” from “incentives”, with the latter being compensation that is tied to individual, team, and organizational performance in a planful way.
With regard to variable pay at executive levels, 990 forms do let us know how much compensation is paid as bonuses, etc. But unfortunately, even with the 2008 revisions, we are left without any information as to the basis for the compensation. In my experience working with organizations and boards, bonus payouts to nonprofit presidents/CEOs/EDs tend to be fairly arbitrary, post facto determinations made, again, based on vague notions of the organization’s performance.
Your point about the role of government contracts both within and beyond the nonprofit sectors is a good one. In many cases, the low wages associated with certain types of work are reflective of that work being devalued in our society. I am sure that not everyone would agree, but I do think the government can and should seek to influence and fairly value such work through its contracting, rather than seeking to pay as little as possible and perpetuate that devaluation.
Thanks again, Susan, for your comments and engagement.