Non-Profit Overhead: The Issue of CEO Compensation

The National Center for Charitable Statistics (NCCS) defines non-profit overhead as fundraising and administrative costs for programs run by a non-profit organization. Awareness of non-profit overhead makes many charitable donors worry about how their donations are managed. One specific area of concern is the compensation of the executives leading these organizations.

Increased scrutiny of non-profit CEO compensation should be expected after the public outrage over the taxpayer-funded bail out of the financial sector in 2008 which resulted in CEOs leaving failed companies with severance packages in the multi-million dollar range. While non-profit CEOs may be working for what many would consider more admirable causes than profit-seeking private sector corporations, their accountability is equally important because their pay is derived from the goodwill of others.

Charity Navigator, an independent evaluator of over 5,500 of America's largest charities, does an annual CEO Compensation Study. Their 2009 report found that the average salary of non-profit CEOs was $158,075. The study considered the charity’s location, size and mission. CEOs of charities located in the Northeast and Mid-Atlantic States received higher than average compensation due to the higher cost of living. Larger, more complex non-profits awarded higher compensation to the individual leading it. In terms of charitable mission, CEOs of educational charities received the highest compensation while leaders of religious and environmental charities received the lowest.

It’s evident that, for the most part, non-profit CEO compensation is logical. Of course, some may believe that a $160,000 salary for the leader of a charitable organization is still too much. Critics must remember that these are multi-million dollar operations that require a considerable breadth of intelligence, education, understanding and business expertise to run successfully. Individuals that have invested years to develop these extremely valuable traits deserve to be compensated fairly. The question is: What is fair compensation?

A 2008 report published by United for a Fair Economy (UFE) in conjunction with the Institute for Policy Studies entitled “Executive Excess” found that average CEO pay was $10,544,470 according to an Associated Press survey of S&P 500 firms. This amounts to 866 times the pay of minimum wage employees, 344 times the pay of the average American worker and 67 times the pay of the average non-profit CEO. Considering that the top five private sector CEOs made $54 million or more, even the most highly paid non-profit CEO is making a small fraction of his peers’ earnings.

The word ‘charity’ is commonly used in reference to giving money to those in need. The principle of charity in argument interpretation dictates that an argument should be interpreted as reasonably as possible so as not to make it less credible. In the Bible, charity refers to love for each other. All of these definitions are relevant when it comes to the issue of non-profit CEO compensation. Our love for other human beings compels us to donate our money. This same love should inspire a charitable interpretation of CEO compensation. The majority of non-profit CEOs are compensated fairly for their work. Recognition of this should serve as encouragement to continue donating to worthy causes.

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