Shining a light on nonprofit CEO pay: Execs say report doesn't tell whole story
A recent report that revealed compensation for top-paid nonprofit executives in Massachusetts called attention to the fact that a “nonprofit” designation doesn’t mean top officials at those organizations scrape by. Most of those reviewed in the report, released in December, actually make millions of dollars.
The report, from the office of Atty. Gen. Martha Coakley, said executive compensation, particularly for CEOs at both for-profit and nonprofit organizations, has “increased rapidly in recent decades,” and that high executive compensation at public charities “frequently leads to greater levels of concern” because of a perception that it detracts from an organization’s mission.
Coakley’s office said it surveyed the 25 largest public charities in Massachusetts on to increase transparency on the issue. The Division of Non-Profit Organizations has also proposed a new form that would require public charities to report executive compensation before it files it with the federal Internal Revenue Service (IRS), and in greater detail.
But is greater scrutiny of executive pay in that sector really necessary?
Those who work for nonprofits in Central Massachusetts and beyond said it’s important to note that Coakley’s report measured the salaries of the wealthiest nonprofits, so results aren’t typical. For instance, the $1.75-million compensation package in 2011 for Peter Slavin, CEO at Massachusetts General Hospital, is not an accurate representation of nonprofit executive pay in Massachusetts. Slavin’s pay falls somewhere in the middle of the nonprofits surveyed. Those organizations offer packages ranging from $487,397 to $8.82 million, the report said.
Ann T. Lisi, president of Greater Worcester Community Foundation, said most community-based nonprofits aren’t in danger of offering excessive salaries. But those surveyed by Coakley, a candidate for governor, “have the kind of money where board members can, in fact, offer compensation levels that may be considered ‘in excess’, ” Lisi said.
It’s an important distinction, and Lisi said a report like Coakley’s has the potential to send the wrong message: that smaller nonprofits in the business of charity are offering inappropriate salaries to their executives.
In a statement, Coakley said the report was undertaken “to obtain a fuller picture” of executive compensation practices at the state’s public charities. “Our state is in a unique position because many of our largest employers are not-for-profit organizations that must compete with national for-profit companies for CEO talent while also staying true to their charitable missions,” the statement read. “In order to continue to make sure this balance is met, we believe there must be greater transparency in fully reporting the amount of total compensation and the way that it is set.”
Lisi believes Coakley’s primary concern is over the large institutions surveyed, which included hospitals, insurance companies and universities. And Rick Jakious, CEO of the Massachusetts Nonprofit Network, offered a similar view. He said that while he applauds the report’s intent, it creates a potential public relations problem for all nonprofits.
The Massachusetts Nonprofit Network has submitted Coakley’s proposed compensation reporting form to its members for feedback, Jakious said.
He noted that Coakley’s office admitted that boards of directors should have the discretion to set appropriate compensation. “I certainly never speculate on specific compensation levels,” Jakious said. “These are independent corporations with independent boards of directors … and they need to make a decision that’s in the best interests of (the) organization.”
Jakious added that the industry, which must report financial information to the state and federal governments, is already “incredibly transparent.”
But how do board members arrive at compensation figures? The IRS recommends they obtain data from organizations that are similar in size and mission. There are also industry reports available, though those can cost a few hundred dollars, a considerable price for smaller nonprofits with tight budgets, said Jennifer Chandler, vice president and director of network support the National Council of Nonprofits in Washington.
“In general, of course, everybody would agree that paying excessive compensation is not a good thing. But how do you decide what’s excessive?” Chandler said.
Excessive salaries and large salaries aren’t necessarily synonymous. Indeed, many nonprofits generate millions of dollars in revenue, and executives must raise millions to support the mission. Salaries, Chandler said, simply must align with budgets and the top executives’ performance. They must also be adequate to attract key talent. Chandler said there’s more crossover between for-profits and nonprofits than there was a few years ago. With more executives interested in working at nonprofits, the pay can’t be too starkly different.
Robert Antonucci, president of Fitchburg State University, has a well-rounded perspective. He said his salary, while adequate, doesn’t measure up to those offered by private institutions, and that’s to be expected. He applies the same philosophy when he helps set executive salaries in his board-member roles at the United Way of North Central Massachusetts and the North Central Massachusetts Chamber of Commerce.
“I don’t think we will ever be able to compete with the for-profit sector and I don’t think we should try to,” he said.
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