Executive Compensation: What’s Our Basis of Comparison?

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September 27, 2012; Source: Crain’s Detroit Business

Crain’s Detroit Business, which conducts an annual study of nonprofit executive compensation in Detroit, recently reported that incentive pay bonuses for executives are seeing a resurgence among nonprofits. This is in addition to its finding that the median total compensation for nonprofit execs in the area rose by 2.44 percent from 2009 to 2010. These findings echo the Chronicle of Philanthropy’s 2011 Executive Compensation Survey, which found a median executive compensation total of $429,512 (a rise of 3.8 percent in 2011) based on its examination of 132 of the largest charities and foundations.

Such compensation reports are just one area to look at in determining executive compensation. GuideStar explains that there are a variety of factors that go into determining “fair and reasonable compensation,” as required by the IRS. The factors include your organization’s “size, revenues, organizational structure, and mission” and comparable salaries. The IRS also wants to see that individuals involved in setting executive compensation have no conflicts of interest.

The Chronicle also reported that executive compensation is much lower among nonprofit executives than the Standard and Poor’s top 500 corporate executives. However, one wonders about the relevance of the Standard and Poor’s comparison. Do the corporations have a similar size, mission or service demographics in comparison to the 132 largest nonprofits? Probably not. In fact, other than pinpointing the top paid nonprofit executives and those that make over $1 million, it is unclear how relevant this data is to the majority of nonprofit organizations, which have budgets of less than one million dollars.

The 2012 GuideStar Nonprofit Compensation Report (which was released September 13th) reports executive nonprofit compensation by budget size. Although GuideStar also reported increases in executive compensation, those increases were lower among nonprofits with budgets of less than one million dollars. GuideStar also reported on the ongoing discrepancies between female and male executive compensation, with females lagging behind males in similar positions (by 10.4 percent at nonprofits with a budget from $250,000-$500,000 to 24.8 percent at nonprofits with budgets of more than $50 million). If smaller nonprofits can manage the $349 fee to access the GuideStar executive compensation report, they may be better able to find comparison data based on budget size.

Compensation is a question that NPQ has tackled regularly over the years (see here, here, and here, for information that may be useful). –Heather Carpenter