[Note: Fourth in a series of a community discussion from the 2013 Partnership for Excellence Conference. Click here for a related article from Tina Frontado, Belen Vargas and Emilie Neuman. Click here for a related article from Jon Clark, Erik Talkin and Kim Davis. Click here for a related article from Dean Zatkowsky, Jessica Tade, Sigrid Wright and Allison Bailey. Click here to learn more about this community conversation at the Nonprofit Resource Network.]
Why is it acceptable to pay for-profit CEO (and related staff) so much more than nonprofit CEOs (and related staff)? How does this affect the nonprofits’ ability to recruit and keep the best and brightest to take on society’s most challenging issues? How does this affect the nonprofits’ ability to meet the challenges of the communities they serve?
What types/forms of compensation best promote dedicated leadership in our sector? Are executive employment contracts important? What are the impacts on succession planning?
This week, three authors weigh in with a wide variety of viewpoints on this issue. Our guest authors are Colette Hadley, executive director of the Scholarship Foundation of Santa Barbara, Dave Clark, president of Impulse Advanced Communication, and Ernesto Paredes, executive director of Easy Lift.
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Colette Hadley on Nonprofit Compensation
Comparing nonprofit CEO compensation to for-profit CEO compensation illustrates that the vast majority of nonprofit CEOs are underpaid for the work they do. I think that compensation for any leadership position, regardless of the sector it happens to fall in, should be based on the experience and expertise that leader needs to have for the position, what that leader is expected to accomplish and achieve in his or her job, and the size and complexity of the organization.
In addition to these items, the other influential factor on the level of compensation would be the competitiveness of the employment market.
How much is too much? Although there is some talk about national-level nonprofit CEO salaries that seem excessive, the propriety of this practice rests on whether they are indeed reasonable under the circumstances. Reasonableness is a fact-specific determination based on all of the specific facts and circumstances.
Looking at the latest state data, compensation for nonprofit CEOs has been slowly increasing, and CEOs are improving at advocating for themselves. Nonprofit boards are starting to recognize the importance of competitive compensation to hire and retain skilled CEOs. I’m fortunate to work at an agency with a Board of Directors that knows this, and they have made a significant effort to offer appropriate and competitive pay to all of our employees.
However, wages for the rest of the nonprofit staff members in our area have barely budged in decades. Choosing to pursue a career in the nonprofit sector should not mean that employees have to accept poverty-level wages. In some instances, nonprofit case managers are making less money than the low-income clients they are trying to assist and counsel.
Thousands of bright young people starting their careers never advance to nonprofit management because they leave the sector; they can’t afford to stay in their nonprofit job and also save for a house or family. This leads to higher turnover in the nonprofit sector and less efficiency and consistency in service delivery.
Raising the level of compensation for all nonprofit employees, not just CEOs, is imperative to help make the necessary impact on changing and solving society’s problems.
— Colette Hadley is executive director of the Scholarship Foundation of Santa Barbara.
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Dave Clark on Nonprofit Compensation
Dan Pallotta began his presentation at the 2013 Partnership for Excellence Conference by tying the roots of charity to the early Puritans in America, and ascribed their motivations toward it as something like penance, positioning it as an outdated concept that is still inexplicably applied today, shackling our nonprofits.
A distinction I think Dan misses is that the Puritans started with a concept of “Christian charity” that, over the course of American history, influenced by the separation of church and state, has morphed into a civic duty shared by all citizens rather than just those choosing to participate for religious reasons. The original concept originated with the church and Old Testament tithing, and the mechanism for funding and compensating church “employees” has been around for thousands of years.
Those choosing to serve would be provided for, but as general rule they were giving up the pursuit of material wealth for a life of service, while the rest of the “for-profit” world would provide for them and their mission. The distinction is important because it is a very logical extension to where we are today, rather than an unfounded relic as Dan presented it.
The question then becomes, should we steer away from the existing model that relies on staff being motivated by their cause and instead start using extrinsic motivators? Will this really draw the “best and brightest” and get a better product?
I have a hard time believing that cash incentives will produce better results than intrinsic motivations in the quality of the end product provided to a nonprofit’s clients. In fact, the movement in the for-profit world is toward finding ways to intrinsically motivate employees to get better results than with monetary incentives alone. I’ve encountered many brilliant and highly capable people pursuing their passions in art, sports, ministry and the outdoors, forgoing the promise of a lucrative financial career, so I think the assumption that income limitations screen out the best and brightest is flawed.
Customers (donors) and clients (recipients of services) are separate constituencies in the nonprofit world, and unless we can find ways to make them the same it isn’t useful to compare the nonprofit and for-profit model of compensation. The discussion does lead to questions that we should be addressing in our nonprofits, such as:
How do you enable nonprofit leaders to grow their income as they grow to prevent stagnancy? What level of compensation does it take to adequately “provide for” the staff dedicating their life toward helping others? Shouldn’t they be able to buy a house, drive a decent car and send their kids to a university that gives their kids the same career path opportunities that the for-profit neighbor’s kids will get? Retire and maintain the lifestyle they had when they were working through their old age? What about in Santa Barbara with a median home price that requires a six- figure income to even consider a condo?
Finding creative ways to fulfill these needs for our nonprofit leaders should be on the minds of our region’s donors.
— Dave Clark is president of Impulse Advanced Communications.
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Ernesto Paredes on Nonprofit Compensation
All too often, our communities pay too high a price for ineffective, underdeveloped leadership. Societal consequences include only partial commitment to our area’s unmet needs and perpetuation of marginal programs and services. We need to explore creative, sustainable models that not only adequately compensate top nonprofit management, but also provide quality of life structure that does not reward or expect the 60-70 hour a week “martyr.”
In the for-profit world, there is a free market for the top brass of each company. Consumers generally do not care how much CEOs and their cronies are compensated, as long as the price for their triple latte is not too high. If it is, consumers may choose to take their business elsewhere. It’s up to the CEO and top management to figure out the proper price point.
In the nonprofit sector, the constituents are not always given the luxury to frequent another business. As a young professional, I didn’t even know or really understand what “nonprofit” meant. It was a job out of college. I was happy to have one and, as for benefits, who cares? I don’t get sick. Over my 25 years in the nonprofit world, I’ve been conditioned not to care, and honestly, asking for more seems selfish.
This model has to evolve. No longer can we depend on “glorified paid volunteers” to lead our nonprofit agencies. We need to expect higher standards from our sector, but that will require properly compensating top-level management in the nonprofits.
I frequently see recruitment ads for executive director positions that read: competitive salary or DOE, (depends on experience). This description usually means: we will pay you in the range we already are prepared to offer, regardless of your experience. On the flip side, we must also hold accountable the executive directors being well compensated. These leaders must be highly effective in prioritization and address of specific societal concerns.
Traditionally, in the for-profit world, the goal is to make money, bottom line. It does not matter if the community thinks their “widget” is relevant; a market is created or dissipates. And that’s OK. In the nonprofit world, however, we are afraid to let organizations and programs die. We need more highly skilled leadership recruited into our sector to provide programs and services that are needed in our community, and put to bed those that are no longer a priority or sustainable.
— Ernesto Paredes is executive director of Easy Lift Transportation.
Related Stories in This Series
» Tina Frontado, Belen Vargas and Emilie Neuman: Nonprofit Overhead and Infrastructure
» Jon Clark, Erik Talkin and Kim Davis: Taking Risks in Pursuit of New Ideas
» Dean Zatkowsky, Jessica Tade, Sigrid Wright and Allison Bailey: Investing in Advertising, Marketing