July 26, 2019; Tampa Bay Times
Officials from the Florida Department of Children and Families are seeking answers from a government-funded nonprofit after its tax documents reported a $761,000 salary for its CEO, Tiffany Carr. The Tampa Bay Times reports that the Florida Coalition Against Domestic Violence has ignored ongoing inquiries from government officials into their finances after the story first broke last summer.
Executive compensation for nonprofit executives has continued to raise eyebrows across the country over the years, and this case is particularly egregious because a majority of the organization’s funds come from the state and federal government. The Florida Coalition Against Domestic Violence is unique because Florida is “directed by statute to contract with the coalition.” The coalition acts as a pass-through entity as it distributes funds to certified domestic violence centers across Florida. The Tampa Bay Times reports that the Coalition continues to ignore requests by the government for further documentation related to their finances and board decisions.
As NPQ previously reported, this is not the first time the Coalition has faced scrutiny for its executive compensation. Former governor Rick Scott flagged concerns over the salary of Tiffany Carr in 2012 and called for a review of the relationship between the state and the coalition. At that time, Carr’s salary was around $316,000. Since that time, her salary has increased by over $400,000, according to IRS documents.
An NPQ article by Peter Frumkin and Elizabeth Keating called “What Drives Executive Compensation?” details how the sector continues to face scrutiny over nonprofit executive compensation. The report explains how a variety of different factors have shifted how nonprofits think about executive compensation, including the professionalization of the sector, but in the end they conclude that salaries are affected most by organizational size and “free cash flows.” The variable this study explicitly did not take up is the strength or weakness of the board. In this case, the “size” of the organization should be understood in the context of the fact that most of its money is pass-through, thereby leaving less to manage.
A GuideStar report details how nonprofits can ensure that they are paying fair compensation without facing penalties from the IRS. The Federal Private Inurement Prohibition bars nonprofit leaders “from receiving unreasonable benefits,” which applies to both board members and employees. Nonprofits are allowed to pay executives a “fair and reasonable” compensation. One important factor to examine is the market rate for the position which is “determined by researching what someone in a similar position would earn at an organization that is of the same size and has a similar mission or field of activity.”
Though high-end executive compensation is still an outlier in the sector, this past year has seen the IRS implement an excise tax on compensation greater than $1 million. Those compensation packages tend to occur in the “eds and meds,” where the budgets, organizational sizes, and complexity are far greater than here. Dean Baker, in an article in Stanford Social Innovation Review, argues that CEO pay in the nonprofit sector should be capped at $400,000. This amount is equal to the salary of the President of the United States. There are a variety of arguments for and against some sort of cap for executive pay in the nonprofit sector.
Baker rests his argument in the context of the extreme inequality that continues to grow in the United States. He argues that many factors have led to the rise in inequality, but that part of the reason is the bloated pay of CEOs and executives. The corporate sector is primarily to blame for these concerns, as Baker notes that the average pay of CEOs is now around $20 million per year. Baker asserts that because nonprofits are funded through tax-deductible donations—and that the rationale for such deductions is to serve a general public purpose—paying salaries that increase inequality are not amenable to serving a public purpose.
One example Baker cites is the CEO of the Bill & Melinda Gates Foundation, Susan Desmond-Hellmann, who was earning over $1.3 million at the time of the article. Baker notes that this annual salary is “way above the cutoff for the top one percent of US wage earners…far above the cutoff for the top 0.1 percent of wage earners.”
Concerns over fairness concerns ought to be seen in relationship to organizational pay ratios as well. Eds and meds have been brought to task for these kinds of organizational inequality tableaus, and some have even made attempts to address them.
While it is unfair to blindly criticize salary levels without examining further context and details, it is important to recognize and own that part of the public’s attitude about nonprofit executive compensation comes from a place that demands integrity. This Florida case has drawn a lot of attention because the organization is receiving a majority of its funds from government sources. It has also drawn a lot of attention because the salary level appears extremely bloated compared to similarly situated positions. A different article notes that other similarly situated pass-through organizations in Florida paid their executives closer to a median of $150,000, six times less than what Carr is paid. The GuideStar report cited earlier notes that penalties for excessive compensation can range from fines to revocation of tax-exempt status.
Over recent years, the nonprofit sector has been taking a deep, hard look at how it can sometimes act to perpetuate the very inequalities it seeks to combat. From analyzing where wealth in the philanthropic sector originates, to addressing nonprofits paying below living wages, to examining how the nonprofit sector can serve to maintain the status quo, we are at an inflection point in the sector. It is exciting to witness these conversations emerge across the country and all of these conversations must continue if we want to create a more equitable society. Executive compensation must always be taken in context, but it is important to continue to monitor if we want the sector to gain more public trust.
Organizations that are interested in learning more about this issue can also look at this article on seven ways to avoid mirroring practices that perpetuate inequality.—Benjamin Martinez