Wednesday, August 13, 2014

How Much Should We Pay Charity CEOs?

Originally published on Linkedin on June 3, 2014. 


Last week it was reported by the
 Associated Press that median CEO pay among the Standard & Poor's 500 companies had crossed the $10 million mark. The justification given by many board members and large investors for this uptick (in addition to a surging stock market which is a big part of most of their pay packages) was that big pay packages are need to “attract talented men and women who can run multi-billion dollar businesses”.
How does this translate into the nonprofit sector? Some have argued that we need to offer salaries that are competitive with our for profit counterparts to recruit the best talent too. In addition, others have been worried for some time now that we are going to experience a “leadership gap” as nonprofit CEOs retire and there are not enough people with comparable skills to fill the void.
I say poppycock! As my colleagues and I have noted for some time now, there are other motivators that draw talent into the nonprofit sector. In other words, money isn’t everything and most who do the work of helping others do not expect to become millionaires along the way. This reality is bolstered by the ongoing migration of many for-profit workers and CEOs into the nonprofit sector. Surely most of them are not doing it for higher pay!
I believe that much of the focus in the world of social entrepreneurship also supports the fact that it isn’t all about the money. For example, the rising popularity of L3C organizations reflects this trend of doing good over big salaries. This is a relatively new form of for-profit organization that is committed to limiting profits so as to drive more social good. My colleagues in academia have observed that courses in social entrepreneurship at business schools often get closed out within minutes because they are so popular. Sure, some want to get rich while doing good, but many are not concerned with it. Rather, these students and young social entrepreneurs have a deep passion and drive to do good and find creative new ways to get new service models to scale quickly. So I think all of the above and more explains why the long anticipated “brain drain” has not happened and we have more philanthropic efforts going on than ever before in history.
However, I DO think there is one area where it appears for profits and nonprofits have a similar challenge. In the same AP article, one observer noted that, “there’s this unbalanced approach where there‘s all this energy put into how to reward executives, but little energy being put into ensuring the rest of the workforce is … paid appropriately”. THAT IS a big problem in the nonprofit sector, too! In my 30 years of direct service work as well as helping to run these types of nonprofits this problem was a constant challenge for us. My colleagues tell me it has only gotten worse in the 6 years since I left the trenches to come and work at Charity Navigator.
In other words, it is a tremendous challenge to find the resources to assure that front line staff get the pay and benefits they so much deserve. These are the people who have dedicated their heart and souls to providing vitally needed care to many underserved populations. They are not seeking notoriety or big pay packages, just a living wage and some assurance of a relatively decent retirement some day. Most of them are unlikely to get either in the current state of affairs.
Why isn’t there more of an outcry and attention given to this problem by some nonprofit leaders? Because they are not listening to the front line staff who are working in direct service in the sector. If they did, it is much more likely that they would develop solutions that include and flow from the “bottom up” so that their actions and ideas are grounded in the reality of day-to-day nonprofit work.
Nonprofit CEO salaries becoming comparable to for profits is not only a foolhardy solution to a much different problem, it is also just plain ridiculous. The 50% of the US population that pays taxes is, to one degree or another, subsidizing the work of charities. If you told the vast majority of them that many more of our nonprofit CEOs are now going to get million dollar and up pay packages, there would be out and out revolution and abandonment of those institutions that choose such a path. Sure we have some nonprofit hospitals and football coaches at nonprofit universities that appear to be an exception to the rule, but even there we are seeing serious questions being raised along with calls for changes in how we define a charity.
So I hope my brothers and sisters in the nonprofit leadership will wake up and smell the coffee. Let’s get serious about the real problems we face. Let’s stop trying to model everything along the lines of what for-profits do and tailor our efforts to our own unique strengths and opportunities. To begin with, here are a few suggestions to support front line staff that are informed by my own experience running nonprofits:
1. A nonprofit CEO should never agree to a pay or perk increase if the rest of the staff is told they will not be getting these things in a given year.
2. A nonprofit CEO should make every effort to minimize the technique of taking full time workers jobs and breaking them into part-time positions so they do not need to pay their employees benefits.
3. A nonprofit CEO should engage in ongoing conversations with staff regarding what can be done to “sweeten” the pot so that, if salaries and benefits are stalled, we consider other ways to enhance job satisfaction (such as vacation time, flex time, work from home when possible, etc.).
4. A nonprofit CEO should be doing whatever they can to educate their board and funders to this problem and work with them to maximize the flexibility to improve conditions for front line staff.
These ideas are just a start for the conversation. I would be interested in hearing your comments and suggestions for what we can do to help solve this ongoing problem. Our collective wisdom and creativity (as staff, volunteers, donors, beneficiaries, funders and Board members) has done amazing things to help the world. Let’s do our best to do more to help those who help others, too!
Photo: Alex Ionas/Shutterstock

6 comments:

Toni Goldfarb said...

One way to encourage attention to, and reward for, correlating non-profit executive pay with that of lower level employees would be for Charity Navigator to institute a new charity rating measure based on this principle.

Ken Berger said...

Toni,

We actually have a group of experts we are planning to work with to explore if there is an appropriate way to have CEO salaries as a part of what we consider for a charity rating. However, I suspect that the particular design of the metric will be more focused on extreme outliers, rather than the correlation formula you suggest. We, and the experts we have spoken with, believe that such a formula runs the risk of being far too simplistic to accurately reflect where the greatest problems may lie.

Best,
Ken

lavelle.art@gmail.com said...

Ken,

My first visit to your site/organization as I complete DD (albeit post contribution) to National Suicide Prevention Line (aka Link2Health). What a great operation you have - thank you!

Specific to your BLOG on CEO Salary, I am conflicted. I have held your position in the past (possibly still do). I did see another lens via a 'for profit' entrepreneur speaking of his Marketing Company and its operation within the Charitable Sector (One of the TED Talks). I will appreciate your thoughts/review on this speaker.

I will visit your site again. Thank you for the service provided.

Art

Ken Berger said...

Art,

I am not certain of the "for profit" speaker who you are referencing, but suspect that it might be Dan Pallotta (or someone like him). I have made numerous responses to his claims about CEO salaries and other matters. One that summarizes them and links to the others can be found here - http://www.kenscommentary.org/2013/09/a-lot-pallotta-but-very-little-to.html

Best,
Ken

Anonymous said...

Salary for CEO'S should not be linked
to the income of the organization. Some salaries are insane.I would be ashamed to ask or accept the amounts paid to some non profits. Money which should be used for the charities purpose. It would be interesting to know if the salary of the CEO of Charity Navigator is linked to income. Who investigates Charity Navigator?

Ken Berger said...

Anonymous,

My salary is linked to a compensation survey conducted periodically by an outside consulting firm and overseen by the Charity Navigator Board (I am recused from the process). The survey considers the four best practice metrics that are typically used - cost of living in geographic location, typical salary range in cause area, budget size and unique experience (including years of experience) of the individual.

Therefore I agree with you that budget alone should not be the determining factor for CEO salaries, but disagree that it should not be part of what is considered.

Best,
Ken