4 Major Problems with Nonprofit Compensation

Salaries are a big problem for nonprofit organizations. However, the problem, or rather problems, might not be what you think they are.

Let’s look at just four major issues:

1. Nonprofit staff earns too much money. The mainstream media regularly trumpet the high salaries that some nonprofit executives receive. Through their selective reporting, many in the media advance a narrative that suggests nonprofit professionals earn too much money. As a result, donors focus frequently on charity overhead, including salaries, rather than program and service outcomes when evaluating charitable organizations.

2. Nonprofit staff earns too little money. Simply put, many people working for nonprofit organizations are grotesquely underpaid. For example, I recently came across an advertisement for a nonprofit Administrative Manager and Marketing Associate in Washington, DC. The charity requires candidates to have a college degree and an automobile. The organization offers an annual salary of just $35,000. Take a moment and think about that. The job pays $35,000 a year in Washington, DC! In case you don’t know, Washington, DC is the fifth most expensive city in the US, according to Kiplinger.

Yes, some charity executives are overpaid. However, many high-paid nonprofit employees are worth every dollar because of their skills and proven results. Geographical cost of living is another reason some nonprofit professionals earn higher salaries. On the other hand, the story that the media seldom cover is that of underpaid nonprofit staff. The failure to provide a competitive salary, or even a salary someone can live on reasonably, makes it difficult for charities to attract and retain talented staff.

Maclean’s examined nearly 600 charities in Canada with gross revenue of over $2 million (Canadian $). The publication found charities that significantly overpaid or underpaid chief executives, relative to peer organizations, were less likely to be transparent or efficient. “Analysis of charity data suggests extremely high compensation is linked to poor results for charities. But intriguingly, so is extremely low compensation,” according to the report. “High salaries receive the most attention, but Maclean’s found a stronger correlation with poor performance at charities that underpay their staff or have no staff at all.”

Ideally, nonprofit organization would provide employees with competitive compensation packages taking into account the type and size of organization, the job position, and geographic area. Compensation does not have to be precisely average; it can be high or low though it should be within the average range. Compensation that is excessively high or low can be directly problematic and could be a symptom of other problems at the organization.

This brings me to a third compensation problem:

3. Some organizations hide compensation. Maclean’s also reported, for example, that the Chief Executive Officer of a Canadian charity earned the majority of his compensation as “consulting fees.” Only his salary was provided in official financial filings. The consulting payments were only disclosed in the organization’s audited financial statements as a note that did not specifically name the CEO as the recipient of the fees. Furthermore, the financial statements were not made available to the general public on the organization’s website.

One reason the organization might have chosen to hide the CEO’s full compensation package is that it totaled approximately one-quarter of the charity’s gross revenue. At smaller organizations (with revenue of up to $1 million or so), CEO compensation is more typically about 10 percent or less of gross revenue. At large organizations, it could be one to two percent.

Misleading the public about employee compensation reveals a lack of transparency that can be unethical and even unlawful. It’s a problem in and of itself, but it could also be a symptom of additional problems at an organization. Charity lawyer Mark Blumberg says, “When your most expensive person is not listed, boy oh boy, does it make your numbers look better. This is not what I would suggest to charities as a model of how you run things.”

Unfortunately, a fourth compensation problem also raises issues of fairness, ethics, and lawfulness:

4. Women continue to be underpaid relative to their male counterparts. A study conducted by the Association of Fundraising Professionals reveals that women earn 89.5 cents for every dollar that their male fundraising colleagues make in the US. The analysis is based on data collected from 2014-18, and controls for other factors. The last time the gender analysis was done, 2000-05, women earned 89 cents compared with every dollar earned by male colleagues. In other words, little has changed in nearly two decades.

For the sake of comparison, the Pew Research Center found last year that women earn 84 cents on the dollar earned by men in the broader labor market. So, the good news is that the fundraising profession is doing somewhat better than the labor market in general. The bad news is that there’s been little movement for years, and we still have a good distance to go to achieve compensation equality.

To attract and retain the best talent, nonprofit organizations must pay staff well without being wildly extravagant, and must pay staff equitably. To earn and maintain the public trust, charities must compensate staff transparently.

Failing to provide appropriate compensation can prove costly in terms of recruitment and training expenses as well as lost donation opportunities.

As a sector, we can do better. We must do better for our employees, our organizations, those our organizations benefit, donors, and the general public.

That’s what Michael Rosen says… What do you say?

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