Should there should be a cap on the salary of CEO’s of non-profit organizations?

Today, people seem to be especially concerned as to where and how their contributions are being disbursed. With greater access to information through the internet, people are becoming more and more conscious of how charities operate, and the direction donations are being distributed. This information allows people to obtain information from the overhead cost, salaries, and amount actually reaching those in need. Of these, the one thing that has come to attention and initiated the greatest concern and debate is how much the CEO’s of these nonprofit organizations are receiving in compensation.

A CEO of a nonprofit organization receives compensation based on the size and performance of the organization. If the organization is large such as St. Jude or Habitat for Humanity, the salary in the level of compensation will be larger compared to a smaller organization like Patriot Paws. Some of the information used to determine the performance of an organization is if the organization is receiving a large number of donations, the number of volunteers is high, and a paid staff is minimal. With all of this in motion, you would probably find the organization to be very profitable.

Though some believe that it is problematic to ascertain how a nonprofit is performing as it is based strictly on donations. The motive for this dilemma is because the volume of the donations is conditional upon many factors such as time of year, economy, and individuals interest in the organization. However, a good CEO will take all these factors into account when addressing how and when advertising and drives are run in order to optimize donations and proper use of staff and voluntaries.

To attract high-level CEO’s an organization it is necessary to be able to offer comparable salary and compensation within reason. The IRS allows for the organization to offer market rate for the position to allow nonprofit organizations to excel. Today, nonprofit organizations are competitive with for-pay CEO’s, pulling in strong leadership which is critical to the organization’s operations. Many brilliant CEO’s have shied away from nonprofit organizations due to negative public opinion causing it to be more imperative to be competitive. Public opinion is a powerful thing and can impact a great deal.

With people have a negative opinion about nonprofit CEO’s earning a large salary mostly caused by bad publicity, has created an uphill battle to find strong talented executives to lead nonprofit organizations to be profitable and help those in need. Sadly, this negative feedback causes a hardship on much needed talented CEO’s causing some organizations like the Federation Employment and Guidance Services or FEGS to close while others have seen a reduction in the number of donations.

Some people assume that if the nonprofit organization surpasses the amount originally calculated to obtain for the year, that the overage will be rewarded to the CEO. To the contrary, according to the IRS, nonprofit organizations are prohibited from excess income to the CEO and the salary and compensation must be fair and reasonable. If the organization exceeds this by distributing additional income to their CEO, they stand the chance of losing their nonprofit tax status as well as facing fines. The IRS monitors non-profit organizations to ensure compliance.

Many people believe that if you go to work at a nonprofit organization, your principal inspiration is for the betterment of humanity. By focusing on this, it would mean that more money gets into the hands of those who need it worst. By reducing their salaries and benefits this would allow for this to occur and ensure that the donations would not go directly to the CEO. Even with lower compensation, people continue to what to reduce their pay.

Many nonprofit CEO’s already receive less than they would if they worked for a profit corporation. The very reason for taking a position in a nonprofit organization is for the betterment of humanity and desire to change the conditions of those most in need of help. It would be wonderful to solely act based on these desires to help your fellow human, however, CEO’s like everyone can and do not work for free. Just like you and me, they have bills to pay, children to raise, and a desire to improve the lives of their families and themselves. It is wrong to put unjust restraints on these individuals solely based on where they work. That would be to a degree a form of discrimination.

Like every great and profitable company such as Apple, Microsoft, and Johnson & Johnson, it takes a strong and innovative leader to steer the company in the direction it needs to go. Making decisions on product, sales, pricing, advertising, employee compensation, and profit margins. This is the driving force of CEO’s in all types of industries today as well as that of nonprofit organizations. In order to get the talent needed to drive companies to be robust and competitive, it requires equally strong aggressive salaries to influence them to motivate the company. Without a strong talented leader, both for-profit and nonprofit companies would fail. The difference is, with a for-profit company the only ones hurt are the investors, stockholders, and employees. With a nonprofit far greater amount is at stake. When a nonprofit fails it touches more than just the employees. It impacts the hearts and feelings of those people who donate and injures the people in society that are in need it the most. Therefore, we should be more concerned with gaining the most talented and driven CEO’s for nonprofit companies than those of for-profit, by offering them proper compensation to drive nonprofit organizations to success. After all, every life matters.

References

Saitgalina, M., Bennett, A. A., Reina, C. S., & Coombs, J. E. (2018). Serving others at the expense of self: The relationship between nonprofit CEO compensation and performance in trade and professional associations. Journal of Public and Nonprofit Affairs, 4(2), 155-180. Retrieved September 11, 2018, from https://www.jpna.org/index.php/jpna/article/download/135/175

Murphy, M. C. (2014, August 01). CEO Incentives-It’s Not How Much You Pay, But How. Retrieved September 12, 2018, from https://hbr.org/1990/05/ceo-incentives-its-not-how-much-you-pay-but-how

Carter, Duane A., “What Skills and Competencies Do Executives of Nonprofits Need to Succeed: An Interpretive Multiple Case Study” (2016). Education Doctoral Dissertations in Organization Development. 50. Retrieved September 16, 2018, from https://ir.stthomas.edu/caps_ed_orgdev_docdiss/50 or https://ir.stthomas.edu/cgi/viewcontent.cgi?article=1050&context=caps_ed_orgdev_docdiss

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Internal Revenue Service (Director). (1998). Internal Revenue Service, Treasury Section 53.4958[Video file]. Retrieved October 10, 2018, from https://www.gpo.gov/fdsys/pkg/CFR-2012-title26-vol17/pdf/CFR-2012-title26-vol17-sec53-4958-6.pdf

Keating, E. K., & Frumkin, P. (2017, October 16). What Drives Nonprofit Executive Compensation?, Nonprofit Quarterly, Retrieved October 12, 2018, from https://nonprofitquarterly.org/2017/10/06/what-drives-nonprofit-executive-compensation/

GuideStar USA, Inc. (2011). What You Need to Know about Nonprofit Executive Compensation. Retrieved October 20, 2018, from https://www.guidestar.org/ViewCmsFile.aspx?ContentID=3890

Investopedia. (2013, January 23). Is A One Million Dollar Nonprofit CEO Salary As Bad As It Sounds? Retrieved November 2, 2018, from https://www.forbes.com/sites/investopedia/2013/01/23/is-a-one-million-dollar-nonprofit-ceo-salary-as-bad-as-it-sounds/#5e6b2f6342c7

The Center For Nonprofit Management. (2018, June 05). Are for-profit salaries always higher than nonprofit salaries? Retrieved November 2, 2018, from https://cnmsocal.org/featured/are-for-profit-salaries-always-higher-than-nonprofit-salaries/

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Agovino, T. (2015, January 30). Major social-service nonprofit to shut down. Retrieved November 3, 2018, from https://www.crainsnewyork.com/article/20150130/NONPROFITS/150139985/major-social-service-nonprofit-to-shut-down

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