Posts tagged ‘Executive Compensation’

June 11, 2019

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:

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July 6, 2013

WARNING: Do Not Stick Your Head in the Sand!

I’ve warned the nonprofit sector.

Over the years, I’ve warned the nonprofit sector many times.

Most recently, I provided a warning last month in my post “Special Report: America’s 50 Worst Charities Named”:

As a profession, we must do more to self-regulate. If we do not, we can expect others to fill the vacuum. The [“50 Worst Charities”] investigative report is one example of how those outside the nonprofit arena are filling that vacuum. It’s only a matter of time before government regulators become even more engaged.”

Well, sticking one’s head in the sand did not work. Declaring that most community benefit organizations efficiently do good did not work. Instead, just as Head in Sand by tropical.pete via FlickrI predicted, government has stepped into the void. Due to the nonprofit sector’s failure to self-regulate or to lead the way with government officials, politicians are taking action to further regulate charities.

Oregon has become the first state in the nation to “eliminate state and local tax subsidies for charities that spend more than 70 percent of donations on management and fundraising, rather than programs and services, over a three-year period,” according to a report in The Statesman Journal. This might be a model law that other states soon consider.

Recently, the good leaders at GuideStar, Charity Navigator, and the BBB Wise Giving Alliance penned a Letter to the Donors of America. In the open letter, the authors stated:

We write to correct a misconception about what matters when deciding which charity to support.

The percent of charity expenses that go to administrative and fundraising costs—commonly referred to as ‘overhead’—is a poor measure of a charity’s performance.”

Reading the opening paragraphs of the letter, one might be led to believe that overhead costs should not factor into our giving decisions. However, the authors are quick to point out:

That is not to say that overhead has no role in ensuring charity accountability. At the extremes the overhead ratio can offer insight: it can be a valid data point for rooting out fraud and poor financial management.”

In Oregon, state legislators were clearly motivated to act by the behavior of charities at the extreme.

The Statesman Journal reports:

The Oregon Department of Justice has already identified the top 20 ‘worst of the worst.’

They include charities such as Michigan-based Law Enforcement Education Program, which spent just 2.7 percent of its funds on programs over the past three years; California-based Shiloh International Ministries, which spent 3.2 percent on programs; and Florida-based American Medical Research Organization, which spent just 4.2 percent on programs.”

As a result of the Oregon law, donors to the disqualified charities will no longer be able to take a state tax deduction for their contributions. Also, the disqualified charities will no longer be exempt from property taxes.

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