In an overly detailed and researched story, the Detroit Free Press discussed the increases in area nonprofit CEO pay. I generally have a "so-what" perspective about these type of investigations. I don't totally see their point but perhaps to ire donors (which I am sure in some cases that's precisely the outcome of these articles). But really folks, nonprofit CEO's shouldn't earn as much as their counterparts in the for-profit and public sectors? And why not? Aren't they too addressing a need plus? I think the work of a nonprofit CEO often demands a way-wider set of skills than in many other sectors? Absolutely.
That said, the article did at last, about 1/2 way through remember that the "people" who authorize these compensation packages are the boards who often enough include donors - one would think they know what they are getting into and if not, as noted in the article, they hire folks who do.
Operating under the IRS's watchful eyes
The IRS makes official determinations as to whether nonprofit organizations are paying excessive compensation to executives. The agency's principal test is looking at what similar nonprofits pay top staff.
The agency's penalties for excessive compensation can range from fines to forced repayment of salaries to revocation of an organization's tax-exempt status.
An IRS representative wouldn't comment to the Free Press on whether any fines, revocations or other enforcement actions for excessive compensation have ever happened to Michigan nonprofits, saying it is against the law for the agency to publicly discuss such matters.
How much a nonprofit pays its CEO is typically set by its board of directors or trustees. Some boards have a subcommittee that specifically handles executive pay.
In contrast, salaries for a nonprofit's rank-and-file workers are ordinarily set by the organization's executives, and not the board, said Dembs of the Non-Profit Personnel Network.
A 2010 article on nonprofit executive pay in the journal Policy and Society suggested that nonprofit board members may be accustomed to seeing high salaries in the for-profit world, and are unlikely to object to similarly big pay packages for leaders of the nonprofits they oversee.
"Boards of large institutions are typically made up of leaders from the business community whose judgement is less likely to be subject to questioning and critical scrutiny," the article said. "These executives may consider average nonprofit salaries to be modest in comparison to their own and be willing to compensate the nonprofit CEOs of large institutions more generously."
Local groups that have hired compensation consultants include the Detroit Zoo, Leader Dogs for the Blind, the Kresge Foundation, the Skillman Foundation, the Community Foundation for Southeast Michigan, the Detroit Area Agency on Aging and the Grosse Pointe War Memorial Association, among others.
"Usually, we are hired because there’s concerns about pay," said Rahmberg, the Birmingham-based compensation consultant. "And they normally are more on the side of 'we’re not sure we’re competitive enough,' as opposed to 'we think we’re overpaying.'
“There have certainly been occasions where our analysis and the market data will say, 'you’re paying them really well. I don’t think you need to do more,' " he added. "It would be highly unlikely, in fact I can’t recall any project, where we would come and say you need to cut someone’s pay.”
Mishel, the former Economic Policy Institute president, said that compensation consultants can contribute to rising CEO pay because the consultants' comparisons may compel boards to hand out raises. Yet he doesn't consider them as a root cause.
“The consultants definitely oversee a system that is responsible for escalating pay," Mishel said. "But you have to hold (responsible) the people who are supposed to be governing these firms — the CEOs themselves and the boards — for going along.”
So come-on folks - let's move on and talk about results 'cause if compensation is the only subject that makes nonprofit work relevant then the sector is seriously doing something wrong.