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Are Nonprofit Executives Paid Fairly? IRS Actions and September Question of the Month Results

Long a lightning rod for public and media attention, nonprofit compensation is back in the news. On the heels of June's Senate Finance Committee hearing, the IRS has kicked off its Tax Exempt Compensation Enforcement Project.

The IRS began contacting individual exempt organizations in July. During the course of this effort, which is projected to continue into 2005, the service expects to communicate with nearly 2,000 nonprofits about their compensation practices.

Although individual compensation is on the agenda, the IRS is interested in more than just what an organization's CEO makes. Agents will also examine insider transactions, such as loans to officers; gather information on how exempt organizations set compensation levels; assess how nonprofits report compensation on their 990s; and educate organizations about tax issues related to compensation.

For more information, see the IRS news release.

September Question of the Month

So, what are the revenuers going to find? To get a handle on one aspect of this complicated topic, September's Question of the Month asked, "Do you think nonprofit executives are compensated fairly?"

Reader Response

september-2004-question.gifIn a word, no. More than half (54 percent) of the respondents answered in the negative. Another 28 percent said yes, and 18 percent reported they weren't sure. Interestingly, there was little unanimity within these groups; participants who answered the question the same way often disagreed on the details. In fact, the same themes emerged in the comments from all three camps.

One Answer Does Not Fit All

By far, the most common narrative response was a variation of "it depends"; more than a quarter of the comments fell into this category. "The real answer is 'Yes & No,'" wrote David Enniss of Clayton Family Care and a representative of the "yes" group. "Some certainly are and some probably are not. ... The longer an organization has been around and the more stable its funding, the more likely that staff are fairly compensated."

An anonymous participant who answered "not sure" agreed: "There is great disparity from one non-profit to another. Larger groups appear to pay salaries equal to or greater than the private for profit sector while smaller groups appear to pay pathetic salaries with few or no benefits."

Judy Powell of the Parent Guidance Center in Montgomery County, Texas, and a member of the "no" camp, echoed these sentiments: "Just like the for profit world, some executives are compensated outrageously TOO HIGH while others are not compensated nearly enough. It only proves that the nonprofit world is subject to the same competitive principles of capitalism as the profit world."

Nonprofit Executives Are Underpaid

Almost an equal number of participants maintained that nonprofit executives are undercompensated. "We manage large budgets, large staffs, and need to get by on sometimes meager support. We should be recognized for our skills, talents, and work more equitably," said an anonymous participant from the "no" camp.

Although Jeff Schaffer of the Conrad N. Hilton Foundation fell into the "yes" group, he added this caveat: "However, non-profit executives may not earn salaries comparable to their private sector or even public sector counterparts, while at the same time they put in long hours and play multiple roles."

"It is apparent that most non-profit employees are paid lower than the for-profit and government sectors, so it seems to reason that maybe non-profit executive compensation would fare the same," speculated Chris Truelove of Special Kids, Inc., who answered "not sure."

Nonprofit Executives Are Overpaid

The next-most-common-sentiment was that nonprofit executives earn too much. "Some executives are overly compensated," observed a member of the "no" group. "I know that the position is regarded as a CEO of a business; however, the excessively high compensated individuals give philanthropy and development a bad image. There is already a distorted perspective which some development organizations must overcome."

Elizabeth Gibbs, a consultant who fell into the "yes" category, sees nonprofit compensation as part of a larger issue: "One of the problems society faces today is a race by corporate executives to see who can get the highest salary. Corporate salaries are over the top and way out of line with performance. It seems as though non-profit salaries are taking the same path."

A member of the "not sure" camp stated, "I believe that many non-profit executives are overcompensated. Further the ratio of the salaries of CEOs to people providing direct service is appalling."

Disparity in the Sector

This last comment points to another common theme: unequal pay scales. "There is an especially large gap between women's and men's non-profit salaries," said an anonymous member of the "no" group. "Often the top staff officer is compensated well, but there is a significant drop between #1 and #2," another unidentified "no" respondent wrote.

"I think the executives are probably fairly well paid; it's those that work below them who are stuck at sub-standard salaries," stated an anonymous representative of the "not sure" camp. "It appears the executives are fairly paid but the staffers do not appear to be adequately paid," concurred an unidentified member of the "yes" group.

Intangible Rewards

Several people pointed out that working in the nonprofit sector offers other benefits. "Benefits offered & mission provide the reason for people to stay on in stressful & undercompensated positions," stated an anonymous member of the "not sure" camp.

Mike Harris of Bethlehem Center of Charlotte and a representative of the "yes" category agreed: "There is a lot more to compensation than just money. We have an intangible that should be worth thousands to us every year. That intangible is reward and personal satisfaction."

"I am involved in this non-profit because I saw a need and wanted to help," wrote Joanne Williams of Oklahoma Life Skills Association (Special Kids), who fell into the "no" group. "If I wanted to be compensated fairly, then I would work for a for-profit corporation. Sure, money is nice to have. I like it as much as the next guy. Yet I chose this career path for a valid reason. And my personal and spiritual rewards go beyond cash compensation. Maybe someday the money fairy will endow our good works with enough to pay me fairly for the hours of commitment that I have invested in my community. Until then, I will continue to be satisfied with non-monetary rewards."

Suzanne E. Coffman, October 2004
© 2004, Philanthropic Research, Inc. (GuideStar)

Suzanne Coffman is GuideStar's director of communications and editor of the Newsletter.
Topics: Nonprofit Leadership and Practice