May 21, 2017; Crain’s Detroit Business
It is a rare news cycle when NPQ does not have plenty of stories about nonprofit executive pay to consider. Most of them are redundant and ill-informed, but this story actually seeks to lay a base of information for the public, so we thought we’d pass it along.
According to a recent survey by Crain’s Detroit Business, the CEOs of the area’s largest nonprofit organizations who remained in their positions from 2014 to 2015 received average pay increases of about three percent, largely tied to inflation. However, for executives who retired or were newly hired during 2015, the story is far more complex, largely due to incentive and retirement pay but sometimes due to compensation being spread across a number of interrelated groups.
Ever since the Meyer Foundation and CompassPoint published their “Daring to Lead 2006” survey on nonprofit executive turnover, observers have been watching the pace of leadership change. So it’s no surprise that Crain’s study found many CEOs ready to retire or take on new challenges. Retiring CEOs often receive farewell bonuses and supplemental payments into their retirement accounts, increasing reported compensation significantly in the year of their departure. New CEOs may start with a higher initial base salary than that of the departing executive, but it takes time to become vested in incentive pay and bonus opportunities, so new executives’ total compensation figures may actually be lower than those of continuing or retiring executives.
Incentive pay was a big contributor to the total compensation of Detroit Regional Chamber (GuideStar profile) President Sandy Baruah, whose base pay was increased by eight percent, to about $165,000, in 2015. He received bonuses from the 501(c)(6) Detroit Regional Chamber totaling $285,000, including $165,000 in a five-year incentive package he elected to accept in 2015. Baruah is also president of the 501(c)(3) Detroit Regional Chamber Foundation, Inc. (GuideStar profile), from which he receives $190,000 in base pay, for total 2015 compensation from the two organizations of about $520,000.
Some of the difficulties in relying on IRS Form 990 returns to assess compensation are also illustrated in the case of Ron Kagan, CEO of the Detroit Zoo. He received base pay of $368,000 in 2015 and total compensation of more than $925,000. His reported 2015 compensation was boosted by a $460,000 deferred compensation payment. However, IRS regulations require that deferred compensation be reported in both the year it is accrued and the year it is vested, which means that the same payment is reported twice if the accrual and vesting happen in different years.
Many of the top nonprofit earners work in the healthcare and health insurance fields, where incentive pay also plays a large part in total compensation. For example, retired Henry Ford Health System CEO Nancy Schlichting received $4.77 million in 2015, including $2.4 million in incentive pay—double the incentive pay she received the year before.
Crain’s reports that some boards are looking at the market and trying to increase executive salaries to remain competitive and forestall expensive executive departures, while others are responding to stakeholder concerns about excessive executive salaries and “intentionally limiting annual increases to a level they consider reasonable,” according to Paul Creasy, partner with Avon, Ohio-based Organizational Consulting Group LLC.
In the end, it is important to address the ways top executives are paid as much as how much they get in order to really make sense of executive compensation in the sector. And let’s not get started on pay ratios.—Michael Wyland