Nonprofit Salary Differentials: The Ethicist Weighs In


 Dear Nonprofit Ethicist,

Our agency has a board committee that reviews personnel evaluations and makes salary recommendations to the executive director, although he is not bound to follow them. Nevertheless, when the committee developed a policy referencing a statewide, reputable salary survey of nonprofits, our staff expected salaries to be brought into line with the market. Now, four years later, our director is near the top of the executive scale while everyone else is stuck in the 25 percent to 50 percent range, although our evaluations typically exceed expectations. Our director says, “No one actually is in the 75 percent to 100 percent range, and 50 percent is the most anyone should expect.” Our agency’s finances are good and not a barrier to increasing wages. How do we increase our salaries and deflect admonitions to “just be grateful that you have a job”?


Dear Frustrated,

Organize! If you are not ready to form a union, try embarrassing your executive director into raising the agency’s pay scale. Research indicates that while low pay demoralizes staff, unfair pay structures are why good staff leave—or disengage so that you wish they would leave. Write a report comparing your agency with other nonprofits with respect to the gap between executive pay and the lowest-ranked employees. My guess is that your gap will be greater. Simply submitting this information to the personnel committee will focus the board’s attention. Even if the executive is unenlightened enough to put his own remuneration first, the board should be more attentive.



Dear Nonprofit Ethicist,

I am the chair of a committee assigned to shut down a nonprofit organization—call it “XYZ.” One member of our committee is a loose cannon who is running a Friends of XYZ campaign to help a former project coordinator by—get this—raising money for him to help pay his legal bills after he was found guilty of assaulting a secretary. The project coordinator is a charismatic volunteer who managed all of our grant money and left things in a giant mess.

The loose cannon has solicited funds from donors without telling them the whole story, and some probably think they are giving to the organization we are trying to shut down. Meanwhile, we are returning grants to some donors due to unmet outcomes and misspending. We want to restore what integrity we can as we wind things down.

I am involved in several community organizations, so I cannot do anything that would create negative publicity. Committee members are scared to vote to unseat the loose cannon. She would carry on as usual, anyway.

In a Quandary

Dear In a Quandary,

What a mess! Fortunately, you are closing down this organization. Check to see if Friends of XYZ is a separate 501(c)(3) organization with a board of directors. If it is, that board should be controlling the activity to ensure that it conforms to regulations; for instance, helping a specific individual is not a charitable purpose, and if donors are unaware that they are giving toward that end, the appeals are unethical, if not fraudulent. Can you get the board of XYZ (without naming names) to close down all solicitations that have the organization’s name associated with it by sending out a letter to the community and through the media stating loudly, clearly, and repetitively that XYZ is closing and no donations should be made in its name? Your letter should not mention this charismatic volunteer. The real issues are that XYZ is closing and Friends of XYZ is operating without XYZ’s encouragement or approval.






Dear Nonprofit Ethicist,

My nonprofit recently had a very expensive gala. Sponsorships were $15,000 per couple, with a fair market value of $1,500. Many attendees paid through their charitable foundations; one paid for it from an IRA; still others paid $1,500 from personal funds and $13,500 from donor-advised funds (DAFs). Checks from DAFs carry the inscription, “By cashing this check the recipient organization confirms that the donor received no goods or services for this donation.” One couple had a DAF send a check for $1,500, then said, “We meant $15,000. We’ll send the balance.” The DAF sent another check for $13,500. The director of development did not feel that it was ethical or appropriate to receive funds in this way, but many of the donors were officers of the organization. The president of the board also insisted that all attendees be given, for no additional charge, one-year sponsor-level memberships worth $10,000 per couple. Needless to say, writing acknowledgments was problematic.


Dear Troubled,

That must have been some party! But do not worry about donors who pay from their foundation and IRAs: it is up to them to account for the transaction correctly. You are off the hook—assuming you correctly acknowledged the market value of goods and services.

Sponsorships are honorific and have no market value per se. However, if sponsoring members receive benefits for which others must pay, the gala’s acknowledgment letter should report the sum of the market values of the gala and the benefits associated with sponsor-level membership. You can follow up with a simple corrected acknowledgment.

The intentionally careless DAF donors are a bigger problem. An amended acknowledgment will not work, because they received a tax benefit when they put money into their DAF, not when they withdrew it. The cleanest fix would be for them to write a personal check for the market value of all benefits—$1,500 plus annual sponsor benefits—but not deduct it on their tax return. If they give the money and deduct it anyway, the IRS will have a problem with them, not you.

The first check, for $1,500, should have made somebody suspicious. They should have called to verify the donors’ intentions and returned the check when they said it was for tickets. Next year, keep a close eye on all checks from DAFs and, more importantly, you should anticipate these problems and publish guidelines for donors.




Dear Nonprofit Ethicist,

I work for a small nonprofit charter school that employs unlicensed teachers, which is against state law. We have not informed families of this practice, and my colleagues have been asked to do various things to hide this fact, including falsifying documents and reports connected to government and other funding. We classify the unlicensed teachers as teaching assistants, but they are actually teaching. They were hired before licensure was required, and when we became a charter school they were required to become licensed, but they felt it was unfair to require it of them and we decided to do this work-around instead of protesting the “unfair” requirements. The board is in support of finding a legal way to remedy the situation, but it is stymied. If I call the state department of education they may shut us down, but we are breaking the law trying to keep this a secret. What is your recommendation?


Dear Conflicted,

Falsifying documents is a crime, and concealing material facts from parents is nothing short of shameful. It makes no difference whether the licensing requirements are fair or not. If your school had objected to the requirements it should not have sought a charter, and your board’s dithering is not helpful now. Try to get everyone to face facts, because: (1) the state won’t change its policies just for your school’s benefit; (2) it will surely discover the deception sooner or later; and (3) when it does, do not expect mercy from it or parents, because you do not deserve it.

Before you blow the whistle, try to convince your CEO to begin a conversation with the state department of education about what to do with unlicensed teachers and how to inform parents. Charter schools are popular these days, and states do not want to close any if they can avoid it; neither do they want public scandals, which you are certainly headed for if you do not get in front of this problem—stat. Your state may give you a grace period to get the “teachers” licensed. Your board should authorize tuition reimbursement and time off for personnel who seek licensure. Some colleges in your area may give credit for experience, which will also help. Your school should reassign uncooperative personnel to be actual teaching assistants and replace them with fully credentialed teachers. By the way, does your curriculum include ethics? Your teachers might learn something.


Woods Bowman is professor emeritus of public service management at DePaul University, in Chicago, Illinois.

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