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05/21/2009

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This is a very big topic fraught with contradictory aspects. We survey all nonprofits, publishing a literal census of management compensation at every tax-exempt entity who files a federal Form 990, EZ or PF where they are required to report total compensation in detail, plus doing other independent surveys and collating even more surveys that cover nonprofits. My outfit, ERI Economic Research Institute, even snagged Linda Lampkin, former head of the Urban Institute's Center for Charitable Statistics, to be Director of Research in our DC office. We know nonprofit pay practices.

Yes, most work at a pay discount due to intrinsic reward of the task, benevolence, lack of need, tight budgets, warped Boards and many other reasons. But some few make more than their peers at for-profits, for very good reasons: (a) their employers must remain fully competitive with all rivals in the Talent Wars, with health care as the prime example; (b) disproportionate value factors, such as the ExecDir of a symphony orchestra, for example, who heads a tiny staff and is THE source of 95% of all entity revenues when they are solely funded by the ExecDir's personal lobbying and constant 24/7 donation-seeking. The head of a small charity can be paid much more than the head of an equal-sized for-profit, partly because they tend to be the key rainmaker and doer of all important tasks at the amateur/volunteer-heavy nonprofit.

That said, I agree that nonprofits should give a lot more attention to the reality that their employees have to eat, too. http://www.erieri.com/index.cfm?FuseAction=NewsRoom.Dsp_Release&PressReleaseID=112 is an extensive article on "Public Sector Pay Compression" exploring and deploring the dynamics, causes and effects of public pay patterns. The issues can be much more serious at charities and foundations and educational institutions which operate with far less oversight and under fewer controls.

Even the IRS recognizes that non-profits have a right to competitive pay, because IRC 4958 (the Intermediate Sanctions law about unreasonable compensation or excess benefits transactions at charities and foundations) gives safe harbor protection to those who properly compare their pay to for-profit "competitors". Here is a detailed discussion about it: http://www.nonprofit-
compensation.com/index.cfm?FuseAction=Home.intermediatesanctions.

The Board Directors of tax-exempts are frequently key culprits of chaos who make everything dysfunctional from the start. Often elected because they're the big donors, they work for free (usually rich, occasionally have never worked at all), and expect all the employees to work for substantially nothing "as they do" and failure of others to accept the work as its own reward (in lieu of money) can be considered a betrayal of the "spirit of the charity" or whatever. Being volunteers themselves, they feel unconstrained by business protocols and mess with the organization in ways that would make hardened corporate directors blanch. Ironically, many of the most responsible corporate executives themselves seem to go nuts when they land on a tax-exempt's board and proceed to treat the entity like a personal playground. And that's just board behaviors I've observed at a few score non-profits. The bigger picture is worse.

We thought executive comp at closely held private firms was "the wild wild West," until we dug into tax-exempt entities. That's the real frontier. Having collected and analyzed pay data on over 500,000 now, we've seen stuff that makes you cry and stuff that makes you scream.

Key talent at a nonprofit is typically disproportionately more valuable and more critical for unit survival but inversely paid compared to their for-profit peer.

Enough already. Let others speak.

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