Executive Compensation in the Nonprofit Sector

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Running head: EXECUTIVE COMPENSATION IN THE NONPROFIT SECTOR

                    Executive Compensation in the Nonprofit Sector:
                    Balancing Missions, Compliance and Competition
                                     Bob Gilstrap
                                St. Ambrose University

This paper provides an overview of the current contribution of the nonprofit sector to the
U.S. economy and the state of executive compensation in nonprofit organizations. As the
influence of the nonprofit sector grows, organizations that want to sustain their missions
and expand their services need to address many of the same issues that are faced by
companies in the for-profit sector. Talented executives in such areas as management,
finance, marketing and human resources will be recruited by nonprofits willing to offer
competitive compensation and benefits packages. At the same time, nonprofit boards are
under increasing pressure to comply with donor expectations and government
regulations. Balancing these factors in a competitive labor market creates unique issues
and challenges regarding nonprofit executive compensation.

        Nonprofit organizations are a growing sector of the United States economy.
Between 1993 and 2003 the number of nonprofit organizations grew by 68%, revenue
generated increased from $866 billion to $1.76 trillion and in 2003, expenditures made by
the nonprofit sector accounted for around 9% of the gross domestic product of the United
States (Alvardo, 2006). According to the U.S. Census Bureau 2002 Economic Census,
between 1997 and 2002, employment in social service agencies grew by 22.9%.
Furthermore, nine percent of the work force in the United States is employed by the
nonprofit sector (Oster, 1998).
        With this increase in the influence of the nonprofit sector, there has been one area
that has caught the attention of the public, the government and the media: executive
compensation. There has been a great deal of information published regarding the need
for nonprofits to attract talented executives, about recent regulations that now govern
executive wage and benefits packages, as well as how nonprofit compensation is
determined. However, research tying all of these separate issues regarding nonprofit
executive compensation together is lacking. The goal of this paper is to show the logical
progression that has occurred in the nonprofit sector regarding executive compensation;
how the growth in the nonprofit sector has resulted in nonprofit organizations that need
the same types of executive talent as their for-profit counterparts; and how nonprofits are
coping with government regulations and other issues to provide competitive
compensation packages to attract executives with the skills necessary to promote the
organization’s mission and objectives. This paper will conclude with a review of
nonprofit executive wages from 2005 as compared to 2007.

The Need for Executive Talent in the Nonprofit Sector

        While for-profit executive compensation has recently started coming under more
scrutiny (Krell, 2006; Green, 2005), historically customers in the for-profit sector have
                                      Executive Compensation in the Nonprofit Sector       2

been more-or-less indifferent about top executives’ compensation packages; however, “in
the nonprofit sector “customers” both clients and donors, often very much care about the
level of compensation of the top executive” (Oster, 1998, p. 208). A leading accounting
researcher found that in the public’s opinion, executives of nonprofit organizations
should not earn the equivalent of their for-profit counterparts (Herzlinger, 1994).
        At the same time that questions are raised regarding the level of executive
compensation in the nonprofit sector, the nonprofit sector continues growing with
nonprofit organizations that are becoming larger and more complex, resulting in
organizations that face many of the same issues as large, complex for-profit companies.
In nonprofits there is a need for leadership and direction; defining the nonprofit’s mission
and creating a strategy to achieve the mission is a key function for nonprofit executives
(Imberman, 2000). When applying for nonprofit status with the Internal Revenue
Service, an organization must provide its articles of incorporation, which after stating the
name and location of the proposed nonprofit requires a statement of the organization’s
mission (Internal Revenue Service, 2007). The mission is the driving force behind the
nonprofits existence. Nonprofit missions cover such areas as promoting literacy,
providing health care, supporting the arts and assisting the poor in ways that cannot be
matched by the government or the business community (Herzlinger, 1994).
        In addition to overall direction and leadership, marketing is required to attract and
retain “customers” (such as clients, members, donors, etc.) while providing a worthwhile
“product” (the service defined in the organization’s mission) (Imberman, 2000).
Operational and financial issues are as prevalent in nonprofit organizations as they are in
for-profit companies. Rob Jones, senior vice president and national director of
compensation consulting for Aon Consulting, states “years ago, some [nonprofits]
admitted that they needed to [be] run more like businesses. And now we actually see
increased professionalism and more effective leadership as a result of educational efforts,
market pressures, [and] the ongoing war [for] talent” (Schweitzer, 2004, p. 48).
        A demographic factor that is effecting executive compensation is that many top
executives at nonprofit organizations are reaching retirement age and as young leaders
are hired, they will put pressure on organizations to increase compensation and benefits
packages (Barton, Di Mento, & Sanoff, 2006). The growing demand for executives
capable of filling top positions will result in higher salaries, performance bonuses and
more deferred-compensation plans (Barton et al., 2006). Trent Stamp, who is the
executive director of the nonprofit watchdog organization Charity Navigator, states, “We
can no longer treat [nonprofit positions] as do-gooder jobs anybody can do. You need
people with business backgrounds who can do the jobs responsibly” (Barton et al., 2006,
p. 15). “And that, he adds, translates into higher pay” (Barton et al., 2006, p. 15). In this
environment, “organizations are willing to pay to retain good people – and to take good
people away from others” (Barton et al., 2006, p. 15).
        While the mission is at the heart of all nonprofit organizations, nonprofit
organizations still need to be run using business principles. This concept requires staffing
nonprofit organizations with talented individuals that can assure that the organization will
be sustained and the mission continued and expanded.
        Proposition 1: Economic trends, such as the growth in the nonprofit sector, and
recognition that nonprofit organizations must operate using proven business concepts,
will increase the demand for executive talent in nonprofit organizations.
                                     Executive Compensation in the Nonprofit Sector       3



Intermediate Sanctions

        In a recent study, findings showed “that the nonprofit sector, in setting executive
compensation, behaves like a somewhat constrained version of the for-profit sector”
(Oster, 1998, p. 207). Recently imposed constraints put upon nonprofit executive
compensation are the intermediate sanctions. For several years, the Internal Revenue
Service had only one form of recourse to enforce rules and regulations governing the tax-
exempt nonprofit sector, which was to revoke the tax-exempt status (Bright, 2003).
However, it was also acknowledged that revocation of tax exempt status was considered
too severe a penalty for minor infractions (Bright, 2003). The result of this discrepancy
was the creation of the intermediate sanctions, which were part of the 1996 Taxpayer Bill
of Rights 2, and went into effect in January of 2002 (Bright, 2003).
        The Internal Revenue Service has the option of imposing intermediate sanctions
when they determine that any officer, director or executive employee having a substantial
influence over the affairs of the organization has received an excessive benefit from the
organization (Bright, 2003). If the Internal Revenue Service should charge that a
nonprofit organization is under suspicion of providing an excessive benefit to an officer,
director or executive employee, there is a defensible position that can be argued if the
conditions provided in the regulations are satisfied (Knoepfle & Froelich, 2006). These
conditions are: 1) an authorized decision-making body of the organization [usually the
board of directors or a compensation committee], which is composed entirely of
individuals who have no conflict of interest with respect to the arrangement, has
approved the compensation agreement, 2) before making its decision, the authorized
body obtained and relied on appropriate data regarding comparability, and 3) the
authorized body adequately documented the basis for its determination concurrently with
making the decision (Knoepfle & Froelich, 2006).
        An important point regarding the data used to determine what is considered
“comparable benefit” is that the Internal Revenue Service would consider an executive
with a salary and benefits package that is greater than other executives performing
comparable work at comparable organizations, to be receiving an excessive benefit
(Kuhn, 2001). When nonprofit boards are evaluating compensation, either nonprofit or
for-profit comparables can be used (Kuhn, 2001). In a footnote to the committee report
accompanying the 1996 legislation, the House of Representatives stated that “an
individual need not necessarily accept reduced compensation merely because he or she
renders services to a tax exempt organization” (Kuhn, 2001, p. 82). This footnote paves
the way for nonprofit boards to offer compensation packages to nonprofit executives that
will be competitive with for-profit companies.
        Several sources mention that something boards can do to avoid penalties is to
base compensation on the recommendations from an independent consultant (Schweitzer,
2004; Siebenhaar, 2007; Zingheim, Schuster, & Thomsen, 2005). Boards should ask
consultants to determine executive compensation packages and follow these
recommendations (Zingheim et al., 2005). The compensation consultant will need to
compare each aspect of the executive’s compensation to the competitive market; this
includes total compensation, cash compensation, deferred compensation, benefits,
perquisites, allowances and all other cash and non-cash compensation paid now or in the
                                      Executive Compensation in the Nonprofit Sector        4

future (Zingheim et al., 2005). Boards should require the consultant to provide
documentation showing compensation levels paid by organizations [either for-profit
and/or nonprofit] of similar size, the availability of similar services in the geographic area
and current compensation surveys compiled by independent firms (Zingheim et al.,
2005).
        The individuals that will be held responsible for violating the compensation
requirements set forth in the intermediate sanctions regulations, in virtually all cases, will
involve the nonprofit’s board of directors. It is up to an organization’s board to set
executive compensation that is reasonable, competitive and based on actual performance
(Zingheim et al., 2005). States are also passing regulations similar to the intermediate
sanctions, with California and New York both requiring that nonprofit boards take
executive compensation seriously (Zingheim et al., 2005). The intermediate sanctions
law provides for personal board member liability for nonprofit organizations that set
executive compensation that is not considered to be reasonable (Zingheim et al., 2005).
A member of a nonprofit board in violation faces a fine of up to $10,000. Plus, the
person receiving the excess benefit and any other organizational executive(s) involved all
face potential personal liability (Zingheim et al., 2005).
        The intermediate sanctions were designed to provide a remedy to nonprofit
compensation abuse other than revocation of the nonprofit’s tax-exempt status. As a
result of the intermediate sanctions, conservative nonprofit boards that have not been
comfortable providing executive compensation packages that will compete with the for-
profit sector now have clear guidelines on how to set executive compensation.
        Proposition 2: As a result of guidelines provided in the intermediate sanctions
imposed in 2002, nonprofit boards will move towards providing executive compensation
that will be competitive with for-profit counterparts.

Disclosure Requirements for Nonprofit Organizations

        Nonprofit organizations are required to disclose the compensation provided to
their officers, directors and five highest paid employees. Internal Revenue Code section
6033 requires all tax-exempt organizations generating revenue in excess of $25,000
annually to file a Form 990 (Smith, 2004). Tax-exempt organizations are required to
disclose gross income, receipts, disbursements and such other information as required by
the form regulations (Smith, 2004). In addition to the information about the operational
activities, tax-exempt organizations have to include the compensation of the officers,
directors and trustees of the organization (Smith, 2004).
        Compensation disclosed on Form 990 for the executives and directors of the
organization includes compensation and other payments that are considered gross income
for the organization’s fiscal year (Smith, 2004). The types of payments that require
disclosure include salary, bonus and severance pay, employer contributions to pension
and welfare benefit plans, all forms of deferred compensation; plus taxable and
nontaxable fringe benefits (Smith, 2004). In addition, benefits such as the value of
spousal travel expenses paid by the organization and the personal use of housing,
automobiles and any other assets that were provided by the organization and used by the
executive free of charge must also be reported (Smith, 2004). Form 990 is open to public
inspection and is most commonly the first source that the media, donors, grant applicants,
                                      Executive Compensation in the Nonprofit Sector        5

members, etc. go to when seeking information about an organization’s activities,
including and most often exclusively, to research executive compensation (Smith, 2004).
        For years, in order to review a nonprofit organization’s Form 990 the individual
wanting to look at the form would have to go to the organization’s physical location and
request to see the form. Around ten years ago a change was made where anyone that
wanted to view a nonprofit organization’s Form 990 could either visit the organization or
send the organization a request in writing. If a written request was received, the
nonprofit had to make a copy of all pages of the Form 990 that were open to public
inspection and send the information to the interested party. Around this same time, an
Internet website was developed called GuideStar.org which has the Forms 990 for all
nonprofit organizations that have annual revenue in excess of $25,000 (tax exempt
organizations with revenue of $25,000 or less are not required to file a Form 990).
        The ability to conduct research about nonprofit organizations through the
GuideStar.org website has been a major development in the world of nonprofit
organizations. Information on GuideStar.org provides two primary benefits: 1) for
nonprofit organizations, there is no longer the need to provide physical copies of Form
990, interested parties can simply be directed to the GuideStar.org website where
background information as well as several years of the organization’s Forms 990 can be
found, and 2) for donors, potential donors, clients, potential clients – anyone interested in
nonprofits, GuideStar.org provides the information, including facts on employee
compensation and grant activity, very quickly and accurately.
        Information that is provided to GuideStar.org by the nonprofit organizations
includes a brief general information section, a section on the organization’s mission and
programs and goals and results, which includes accomplishments for the most recently
completed fiscal year and objectives for the fiscal year ahead. This is followed by
financial information available through the Forms 990 for several years (organizations
with revenue of $25,000 or less and faith-based organizations are not required to file a
Form 990). According to the GuideStar.org website, the financial information available
through GuideStar.org comes from the Internal Revenue Service Business Master File of
exempt organizations and Internal Revenue Service Forms 990, 990-EZ and 990-PF.
Once the Form 990 has been accessed, the user simply scrolls through the form and can
find executive compensation information as previously described. While disclosure of
nonprofit executive compensation has been available for several years, access to this
information has never been easier and is but a few mouse clicks away for anyone that is
interested.
        A recent change in compensation reporting requirements for publicly traded
companies will allow for better comparisons between nonprofit executive compensation
packages with their for-profit counterparts. In July 2006, the Securities and Exchange
Commission adopted changes to its disclosure requirements for executive and director
compensation (Wood & Ellis, 2007). The rules, which went into effect December 15,
2006, provide that all elements of compensation for executives at publicly traded
companies must be disclosed, with the two major components being: 1) the company is
to describe in narrative form the material factors underlying the company’s compensation
policies and decisions, and 2) in a tabular form, the company must identify compensation
for the past fiscal year and two preceding fiscal years, holdings of equity-related interests
                                     Executive Compensation in the Nonprofit Sector       6

that relate to compensation or are potential sources of future gains and retirement and
other post-employment compensation (Wood & Ellis, 2007).
        Similar to the rules covering disclosure on Form 990, individuals that must be
included in the narrative and tabular disclosure are: 1) all individuals who served at any
time during the last completed fiscal year as the company’s principal executive officer or
principal financial officer, 2) the three individuals who were executive officers of the
company as of the last day of the most recent fiscal year and whose total compensation
for the fiscal year was the highest, and 3) up to two other persons who served as
executive officers of the company during the fiscal year and whose total compensation
would have placed them among the three other highest paid executive officers but for the
fact that they were not executive officers of the company as of the last day of the fiscal
year (Wood & Ellis, 2007). The only executives that are required to be included are
those that had total compensation in excess of $100,000 (Wood & Ellis, 2007). As with
nonprofit executive compensation, the executive compensation at publicly traded
companies that will be disclosed is comprehensive and includes salary, bonuses, stock
awards, option awards, non-equity incentive plan compensation, changes in pension
value and nonqualified deferred compensation earnings and other perquisites (Wood &
Ellis, 2007).
        Proposition 3: Executive compensation disclosure in the for-profit sector will
provide information that can be used when determining executive compensation in the
nonprofit sector; resulting in nonprofit executive compensation that will become
comparable with for-profit executive compensation levels.

Determining Nonprofit Executive Compensation

        The nonprofit organization’s board of directors plays a major role in setting
executive compensation. Many board members feel that nonprofits must compete for
managerial talent on a level playing field with for-profit companies, and in order to be
competitive executives in nonprofit organizations should be compensated equal to what
the executive could earn in the private sector (Herzlinger, 1994) and based on the
guidelines of the intermediate sanctions, this is acceptable. As pointed out in the section
regarding the intermediate sanctions, board members can be held personally liable for
compensation that is considered to be excessive.
        Many times nonprofit boards will select a compensation committee. As scrutiny
by the public continues regarding nonprofit executive compensation, the members of the
compensation committee have a critical role; the committee members need to “evaluate
openly and honestly whether the organization’s public constituency may find the
compensation of its executives excessive” (Herzlinger, 1994, p. 52). Members of
nonprofit compensation committees should be comfortable in explaining publicly why
the organization’s executives are compensated at the amount that has been determined by
the committee (Herzlinger, 1994). “A good way to check on their [the compensation
committees] comfort with compensation levels is to ask how they would feel if their
names appeared in a front-page story in the local newspaper about nonprofit executive
compensation” (Herzlinger, 1994, p. 52).
        There are several issues in nonprofit organizations that differ from for-profit
companies, such as, there are no stockholders, there are no residual profits to be
                                      Executive Compensation in the Nonprofit Sector       7

distributed and often maximization and/or revenue generation are not necessarily even a
goal of the nonprofit organization (Oster, 1998). In many for-profit companies agency
theory can be applied, where the stockholders, or principals, are removed from the day-
to-day operations of the firm and agents, or the top executives, perform the ongoing
management of the firm (Gerhart, 2001). Agent relations often result in merit pay
programs where the behaviors of the top executives are rewarded as they become
congruent with the goals of the principals (Gerhart, 2001). Having no stockholders,
agency theory does not apply to nonprofit organizations. Also, nonprofit executives do
not have the ability to own any part of the organization, which creates another unique
situation in that executives do not have the same level of association as can be found in
for-profit companies where executives often own a part of the company (Oster, 1998).
        While many traditional, for-profit criteria for setting executive compensation are
not applicable to nonprofit organizations, there are still factors that are important in
determining nonprofit compensation. Only one study was found that specifically
addressed issues with setting nonprofit executive compensation. Sharon M. Oster, a
professor of economics at Yale University, found that nonprofit executive compensation
is highly dependent on the size of the organization, with an elasticity of .10 (Oster, 1998).
For the study, elasticity was defined as the percentage change in executive salary divided
by the percentage change in the organizational revenues; for every ten percent increase in
the amount of revenue, executive salaries increased one percent (Oster, 1998).
        The conclusion of the study was that organizational size is a relatively strong
predictor of nonprofit executive compensation; with the larger the organization in terms
of assets and revenue generated the higher the executive compensation (Oster, 1998).
Also, the type of organization form matters. Religious organizations appear to provide
lower levels of compensation, whereas nonprofit organizations such as hospitals, large
social service organizations, and educational sectors provide compensation packages that
more closely resemble those of for-profit companies (Oster, 1998). The study also
concluded that gender is not significantly related to nonprofit executive compensation
(Oster, 1998). Another conclusion of the study was that many managerial techniques and
systems that are used in the for-profit sector are being used in nonprofit organizations,
specifically noted were techniques used for budgeting and operations (Oster, 1998). This
provides further evidence that nonprofit organizations are applying many of the same
techniques as the for-profit sector and require the requisite talent to perform these
functions.
        Another issue in nonprofit executive compensation is the concept of pay for
performance in the nonprofit sector. While there are limitations, the evidence on pay for
performance resulting in improved performance is positive (Rynes, Gerhart, & Parks,
2005). The concept of individual pay for performance measures include such programs
as merit pay, profit sharing, stock plans, gain sharing, piece rate pay, standard hours plans
and suggestion systems (Rynes et al., 2005; Heneman & Gresham, 1998). Another type
of plan to motivate performance is a bonus program; with 90% of companies giving some
form of bonuses to their executives (Milkovich & Newman, 2005).
        Profit sharing, stock plans and bonus programs are the most logical types of pay
for performance plans that can be incorporated into executive compensation packages.
However in nonprofit organizations, profit sharing and stock plans are not options as by
definition there is no profit and also there is no individual ownership in nonprofit
                                     Executive Compensation in the Nonprofit Sector       8

organizations -- this leaves bonuses. According to The Nonprofit Times 2007 salary
survey, only one in five nonprofit organizations provide a pay for performance related
bonus to their executives (Hrywna, 2007). Performance based bonuses are most
commonly given to the chief executive officer, the chief financial officer and the
development and program directors (Hrywna, 2007). A 2006 Chronicle of Philanthropy
survey concurred finding that only a small number of nonprofit organizations are paying
bonuses to their top executives (Barton et al., 2006). Of the respondents to the survey,
14% reported providing bonuses as part of their top executive’s compensation packages
(Barton et al., 2006).
         While the type of compensation that the nonprofit executive will receive in a pay
for performance setting is still evolving, the idea of using pay for performance in
nonprofit organizations is gaining wide support. In the past, many nonprofit executives
were compensated based on their length of service with the organization (Zingheim et al.,
2005). Again, referencing the intermediate sanctions and the role of the board of
directors, it is the nonprofit board’s job to set executive compensation that is reasonable,
competitive and based on actual performance (Zingheim et al., 2005). Basing executive
compensation on performance assures that as the nonprofit organization achieves goals
the executive team, the driving force behind the accomplishments, is rewarded (Zingheim
et al., 2005). When the executives that are working to meet or exceed the organizational
goals are compensated accordingly, credibility is given to the goal-setting process
resulting in an executive team that believes that their individual success depends on the
success of the organization (Zingheim et al., 2005).
         Another benefit of a pay for performance system is that nonprofit boards willing
to reward performance will attract executives that are willing to have their performance
evaluated; such executives are role models of paying for performance and will establish
performance related criteria throughout the organization – resulting in the concept that
the organization’s goals are the job of everyone in the organization (Zingheim et al.,
2005). In a pay for performance system, performance management becomes an
important factor. By reviewing the executive team’s performance on a regular basis, the
board establishes a communication feedback system that coaches the executives via
performance reviews (Zingheim et al., 2005). And one of the most important byproducts
of applying a pay for performance program in the nonprofit environment is the
reinforcement of the organization’s mission. In order to establish performance goals and
objectives, the board must have a clear understanding of the organization’s mission and
set performance goals that accentuate the furtherance of the mission (Zingheim et al.,
2005).
         While survey results indicate nonprofit boards are reluctant in adopting for-profit
practices, such as bonuses, in addressing nonprofit organization performance, there is
considerable support in the literature that encourages incorporating pay for performance
measures in nonprofit executive packages (Schweitzer, 2004; Zingheim et al., 2005). The
concept of pay for performance being applied to the nonprofit sector not only provides
executive teams with the opportunity to set and achieve goals, but also focuses the entire
organization on the reason for the nonprofit’s existence – the furtherance of the mission.
         Proposition 4: As for-profit measures, such as pay for performance, become more
accepted in the nonprofit sector, nonprofit boards will incorporate such programs as part
of nonprofit executive compensation packages.
                                     Executive Compensation in the Nonprofit Sector          9



Comparing Changes in Nonprofit Executive Compensation Levels

        Each year The Nonprofit Times conducts a salary survey of executive
compensation at nonprofit organizations. The survey is sent to a random sample of
nonprofits from across the United States. The respondents include social/welfare
organizations, educational, health, religious, civic and cultural organizations, foundations
plus organizations working in other miscellaneous areas (Jones, 2005). The Nonprofit
Times salary survey provides information on nine different positions found at most
nonprofit organizations: executive director/CEO/president, chief financial officer,
program director, planned giving/major gifts officer, development director, chief of direct
marketing, director of volunteers, webmaster and director of technology (Jones, 2005).
To determine if there has been a change in nonprofit executive compensation in recent
years, the results of The Nonprofit Times 2005 salary survey will be compared to the
results from the 2007 survey (see appendix).
        When looking at the changes in average wages for eight of the nine titles from the
2005 survey (chief of technology was not included in the 2007 survey), most positions
have seen substantial increases in wages (Hrywna, 2007). Overall wages in the titles
have increased by 24%, with the largest gains being in the titles that are commonly found
in both the nonprofit and for-profit sectors. Average wages for the title executive
director/CEO/president increased 22% between the 2005 and 2007 surveys, chief
financial officer increased 24% and the average wages for development officers increased
25% (Jones, 2005; Hrywna, 2007). In addition, compensation for chief of direct
marketing increased 45% between the 2005 and 2007 surveys and the title web master
increased 58% (Jones, 2005; Hrywna, 2007). The increases in nonprofit executive
salaries, as seen when comparing The Nonprofit Times surveys, supports the idea that the
market factors previously described in this paper are at work.
         Proposition 5: The gap between executive compensation in the nonprofit sector
and executive compensation in the for-profit sector will continue to decline due to
specific steps for determining nonprofit executive salaries outlined in the intermediate
sanctions regulations and the willingness and ability of nonprofit boards to attract,
compensate, and retain talented executives employed in positions similar to their for-
profit counterparts.

Conclusion

         Executive compensation in the nonprofit sector is a complicated issue. As the
nonprofit sector continues to grow, the need to secure talented individuals to manage
nonprofit organizations will become more and more competitive. Recent literature
acknowledges that nonprofit organizations need to focus on the same types of business
activities as their for-profit counterparts in order to sustain and expand their missions
(Barton et al., 2006; Imberman, 2000; Schweitzer, 2004). An issue that nonprofit
organization boards face is the need to provide compensation and benefit packages that
will attract individuals to executive positions but will not be considered excessive. With
nonprofit executive compensation disclosure requirements, information on how specific
nonprofit executives are being compensated is but minutes away for anyone with access
                                      Executive Compensation in the Nonprofit Sector 10


to the Internet. Boards must carefully consider such factors as the size and type of
nonprofit organization, plus nonprofit and for-profit comparables when setting executive
compensation. While pay for performance is seen as a growing trend for nonprofit
executive compensation, many traditional pay for performance options associated with
executive compensation are not applicable. Nonprofit executive compensation is on the
rise, especially for nonprofit positions that have very similar for-profit counterparts. The
idea of nonprofit organizations being run by individuals that are “do-gooders” willing to
sacrifice compensation for philanthropy is quickly becoming a thing of the past.

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                                       Appendix

Comparing Nonprofit Executive Compensation 2005 to 2007
                                                            %
                                            2005          2007          Change

Executive Director/CEO/President            92,411        112,899       22% *
Chief Financial Officer                     66,482        82,739        24% *

Program Director                            55,869        62,727        12%
Planned Giving/Major Gifts Officer          64,730        69,536         7%
Development Officer                         57,511        71,825        25% *

Chief of Direct Marketing                   63,621        92,173        45% *
Director of Volunteers                      38,428        42,180        10%
Web Master                                  35,360        55,922        58% *

Overall Averages                            67,773        84,286        24%

* Greatest increase

Note: Salary information from The Nonprofit Times (see Jones, 2005; Hrywna, 2007).

				
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