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Pay at Nonprofits

Misconceptions and Opportunities

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Executive Pay at Nonprofits: Many highly qualified people are dissuaded from pursuing careers in nonprofit organizations by the mistaken perception that compensation is uniformly poor among them, and certainly in comparison to the financial services industry. This is not necessarily true, as indicated by a subsequent New York Times article ("Pulling the Reins a Bit on Hefty Salaries for Cultural Executives," April 26, 2010). This article presents a table detailing CEO compensation at 32 cultural institutions, mainly museums, but also opera companies, symphonies and ballet companies. At least 21 are paid over $500,000 per annum, and 9 of these are over $1 million.

Understandably, executive pay is a highly sensitive topic with nonprofit organizations. They are rightly concerned that, widespread public knowledge thereof will dampen the enthusiasm of private donors and government grant makers, in addition to that of unpaid volunteers. The article indicates that approximately 25% of the institutions surveyed did not respond to the authors' request for information.

The table accompanying the article compares CEO pay to total expenses. CEO pay tends to be around 1% of total expenses, but in several organizations it exceeds 3%, going as high as 6.5%. Because total payroll is a subset of total expenses, it is obvious that a number of these nonprofits must have ratios of CEO pay to average employee pay that are as large as those in for-profit corporations that come under fire for excessive CEO compensation. Moreover, after accounting for the use of unpaid volunteers, the average pay of rank and file employees would be even lower.

The article notes that, to protect executive pay, leading cultural institutions balance their budgets through staff layoffs. For example, the Metropolitan Museum of Art cut 200 from low level employees to avoid reducing executive compensation. In 2006, the Met paid then-director (CEO) Philippe de Montebello a $3.25 million bonus in recognition of his 30-year stint with the museum. The Wall Street Journal ran a similar story about New York's Guggenheim Museum ("Guggenheim Hit by Payout," April 27, 2010, in the Greater New York section), whose now-retired director (CEO) Thomas Krens recently got a $2 million retirement bonus. Meanwhile, the museum eliminated 25 staff positions (about 8% of its full time workforce) and cut its annual budget by roughly $6 million (about 9%). Meanwhile, the most recent annual pay package for each was in excess of $900,000.

A more recent Wall Street Journal article ("Charity Probe Questions," September 9, 2011, also in the Greater New York section) concerns an investigation launched by Governor Andrew Cuomo of New York into excessive executive pay at nonprofits. HELP USA, involved with getting housing for the homeless, has a $71 million budget, of which over $500,000 goes to pay for its CEO. An organization of Medicaid-dependent hospitals pays its CEO $2 million. The head of the Metropolitan Council on Jewish Poverty earns $435,000 and is the husband of the chief of staff of longtime New York State Assembly speaker Sheldon Silver. In this vein, HELP USA was founded by Andrew Cuomo, is chaired by his sister, has close advisers of his on its board, and is not being probed. A follow-up article in the WSJ (September 16, 2011) reports that at least 10 other HELP USA employees earn over $125,000 each.

Managing Personal Finances: A noteworthy subtext in another article ("So You Want to Work for a Nonprofit?" in the "Education Life" supplement to the Sunday, April 19, 2009 New York Times) is that the subject of the profile had earned about $700,000 annually at Bear Stearns, yet had insufficient savings to draw upon when he after he was laid off. This is yet another example of a Wall Street figure who failed to heed the lessons of The Millionaire Next Door about the vital importance of building financial independence.

A Word of Caution: What that the top few executives are paid is not necessarily indicative of pay levels across a nonprofit or charitable organization. They may be receiving an excessive proportion of total employee compensation, in a manner that is even more skewed than in the for-profit sector. Also note that the lessons of the CEO pay slice are likely to apply in the nonprofit sector as well.

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