Wednesday, September 26, at 12 noon, U.S. Eastern time

Despite increased scrutiny from lawmakers and the news media, and a new wave of regulation from the Internal Revenue Service, nonprofit executives continue to reap generous pay packages, according to The Chronicle's latest survey of nonprofit compensation. Top leaders at the nation's biggest charities and foundations received a median pay increase of 4.6 percent in 2006, more than twice the rate of inflation.

What is the impact of the fierce competition for executive talent in the nonprofit world -- and the financial fallout from legions of younger leaders, many with business-world pedigrees and high salary expectations, replacing nonprofit veterans as they retire from the field? An online discussion will explore the effect of executive pay on the nonprofit field and offer up some of the most intriguing findings from The Chronicle's survey.

Related Articles

• Executive Pay Rises 4.6% (9/20/2007)
• Bonuses for Top Nonprofit Officials Are Growing Quickly in Size (9/20/2007)

The Guest

Lyn Brennan, an executive recruiter at Battalia Winston International, in New York, and Stephanie Geller, a researcher at the Johns Hopkins University's Center for Civil Society Studies.

A transcript of the chat follows.

Peter Panepento (Moderator):
    Thank you for joining us for our live discussion about compensation trends in the nonprofit sector. We already have heard from some readers who have offered some interesting questions, so we're expecting a lively discussion.

Joining us today are Lyn Brennan, an executive recruiter at Battalia Winston International, in New York, and Stephanie Geller, a researcher at the Johns Hopkins University's Center for Civil Society Studies.

We're also pleased to have Noelle Barton, The Chronicle's manager of special projects, on board to answer any questions about our annual compensation survey. Results of the 15th annual survey appear in our current edition. We'll get things underway shortly.

Question from Jean Butzen, Nonprofit Strategies:
    I am looking for a compensation model that is specifically designed for national nonprofits with small staffs and a large volunteer base. If we base the compensation on the budget size of the organization, it does not reflect the value that volunteers are providing and artificially lowers the compensation amount that the CEO should get. Can you direct me to on-line models for executive compensation for specifically this type of organization? Thanks.

Lyn Brennan:
    Dear Jean: Thanks for your question. I wish it were so simple as to have a computer model to figure out what compensation should be. I am not familiar with such a model, but that does not mean that one does not exist. Tell me a little more about the organization, revenues, operating budget, how the organization is funded and what the volunteers do for the organization. Lyn

Question from Sheri, grassroots nonprofit:
    Over the last two decades the for-profit executive compensation has kept pace with the growth of the sports and entertainment industries compensation. Why is it of scrutiny for non-profit executives who are of the same talent from a mirrored market place able to receive what CEOsí worldwide are enjoying?

Lyn Brennan:
    Dear Sheri: The scrutiny of non-profit executive compensation is a direct function of how non-profits are funded and what the funding is intended to accomplish. There has always been the acknowledgment that the percentage of revenue dedicated to the "cause" versus "overhead" should be as high as possible. Because non-profits receive their much of their funding from philanthropy, grants, government aid, etc. and typically not a "product" they are making and selling it is looked at differently than capital markets. Unfortunately there have been in the past examples of unscrupulous executives leaving little for the purpose of the organization. The scrutiny is simply to ensure that funds go to the people or cause they are meant to benefit. The scrutiny is not meant to deny a non-profit executive a decent salary, but to keep a check on excessive compensation.

Question from Steve Gilliland, Harrison County (Indiana) Community Foundation:
    While the "generous pay packages of non-profit executives" continue to make headlines, how do we shelter and advocate for the thousands of grass-roots charities that must pay very qualified, gifted and caring employees sub-par wages?

Stephanie Geller:
    Your question is an interesting one! One project that I work on at our Center is the Nonprofit Economic Data Project. Our research shows that while overall, nonprofit average weekly wages are less than for-profit ones, when industries in which both nonprofits and for-profits are active are compared, nonprofit average weekly wages are often higher.

Question from Dave Stockman, Stillwater Foundation:
    I am managing a small private foundation with assets of less than 10 million dollars. I am having trouble finding comparable data for compensation for CEO/Presidents of similar foundations. Please refer any resources that I may use to acquire this information. Stephanie Geller:
    You might want to consider a couple of potential sources. GuideStar annually publishes a survey in which it analyzes compensation levels of executives at organizations of varying sizes using the IRS Form 990. It breaks down median compensation levels by the annual budget of the organization.

You might also want to check with organizations such as the Council on Foundations to see if they have any data available to their members.
-- Peter Panepento

Question from Retired United Way CEO:
    The top two salaries at United Way of America (UWA)are obviously excessive and unreasonable when linked to the controlled revenue size of that independent non-profit trade organization. This inbalance is likely aggravated by the Chronicle's annual listing of UWA's revenue as a compilation of results by all independent United Ways across the nation, totaling $4 billion. Why is UWA's revenue performance listed in such a manner (a change the Chron made only a few years ago) ?? The pooling of national results under UWA seems to greatly distort its actual size, which is correctly listed in the compensation review at only $54 million for 2006.

Noelle Barton:
    Thanks for your question, which relates to two of our annual surveys (the current executive compensation report and the Philanthropy 400, due later this fall). We like to report consolidated revenue figures, when available, for organizations that include many affiliates, such as the United Way of America, with our salary project. When not available, as seems to have been the case with United Way of America's data on the salary survey, we used the national office's figures for total revenue.

We'd be interested in hearing what other readers think about this issue though. Is it of use to examine executive pay in relation to national office revenue, rather than in relation to total system revenue, in the case of entities like the United Way?

Question from Donna, small nonprofit:
    Would you address compensation for smaller non profit executives? What is the average annual salary of EDs CEOs etc...among smaller non-profits particularly in the South - Baton Rouge New Orleans, Mobile etc...Many smaller non-profits do not offer any packages - just salaries......

Stephanie Geller:
    Hi Donna, I can't answer your question specifically about the average annual salary of EDs among small nonprofits in the South, as that's not my area of expertise. However, I do want to point to a study of health benefits our Center conducted, which showed that significant proportions of nonprofits of all sizes offered these benefits. We're currently examining other benefits and packages offered by nonprofits, and will likely release a report later this year examining these and how (if at all) they vary by organizational size.

Peter Panepento (Moderator):
    We're approaching the halfway point in our chat and we've had some great questions.

I'd like to invite participants to submit their questions for our experts.

Question from Peter Panepento:
    Stephanie:

I'm sure our readers would be interesting in finding out more about the benefits study. Is there a way for them to access it online?

Stephanie Geller:
    Sure. Reports featuring the key findings from all of our studies are posted on our website: http://www.jhu.edu/listeningpost/news/. The report I referenced focusing on health benefits is Communique #3. The reports are all part of our Listening Post Project, which is attempting generate timely information about the significant challenges facing American nonprofit organizations at the present time and about the coping strategies that innovative nonprofit managers are applying in response to them.

Question from James Prince, Democracy Council:
    What is the typical range of compensation for a president of a small nonprofit organization with a annual revenue of $400,000 to $500,000?

Lyn Brennan:
    Dear James: Thanks for your question. That size organization is much smaller than I typically work with. I would need to understand how the organization is funded and what the organization is trying to accomplish and how many other people are employed by the organization. With revenues in that range, I would expect that the President would make less than $100,000, possibly in the $60,000-$75,000 range. Please understand that this estimate is based on very limited information. Lyn

Question from Harriet, medium nonprofit:
    There is a GAP between the CEO and the first line professionals. A LARGE GAP. Doesn't the Board realize that the CEO can't get the job done without the professionals surrounding him/her?

Stephanie Geller:
    That's a great observation. The recent survey that our Center did on the recruitment and retention of nonprofit professional and support workers did find that nonprofits recognize the importance of paying good salaries to these workers. For example, 87% of the respondents noted that their "inability to offer competitive salaries" was a major reason for difficulties in recruiting and retaining staff.

Question from Dave Magnani, Massachusetts Nonprofit Network:
    To what extent has the news of these very large executive salaries affected fundraising among the smaller non-profits, and if negative, what is being done to reduce the negative impact?

Stephanie Geller:
    We recently conducted a survey to identify the top challenges facing nonprofits. While 68 percent of respondents indicated that charitable fundraising was a "very significant" challenge (ranking it the highest among all challenges studied), the percentage identifying this as a challenge has decreased dramatically from 2003, when 81 percent noted that this was a "very significant" challenge. We're going to follow-up on this survey in 2008, so we will be able to examine how nonprofits are doing in light of this news and other recent developments.

Question from Peter Panepento:
    Lyn --

We noticed an interesting trend in our survey. Many larger nonprofits are starting to include incentive bonuses as part of their compensation packages. Is this a trend that is likely to continue? If so, what types of performance should these packages measure?

Lyn Brennan:
    Yes, I think it will continue. Performance bonuses, structured appropriately are great for both the organization and the individual. In their simplest form, performance bonuses need to define how a bonus will be determined...what are the performance metrics and how does each metric/performance criteria impact how much of a bonus will be awarded. Typically the metrics are based on individual and organizational goals (which much be defined and agreed upon for a bonus structure to work well). Goals could include number/type/effectiveness of programs and the measures of success for those programs, development of staff competencies, cost reduction, responsiveness times, fundraising, etc. It all depends on the situation the organization is in. The key is definition and measurability...when bonuses are subjective, they lose their impact.

Question from Peter Panepento:
    What types of concerns do nonprofits have when it comes to providing health benefits to employees? With insurance premiums rising, is it getting harder for organizations to offer the level of benefits that they have in the past?

Stephanie Geller:
    Our survey found that nonprofits organizations have been especially hard hit by increases in health insurance costs, experiencing higher than average health benefit cost increases and finding it necessary to shift a disproportionate share of the resulting burden to their staff in order to reduce the impacts on the populations they serve. However, perhaps indicating that the situation has slightly improved more recently, our 2006 Trends and Challenges survey found that 58 percent of organizations identified health benefit costs as a "very significant challenge," down somewhat from 61 percent in 2003.

Question from Peter Panepento:
    Does the effort that the IRS is undertaking to more closely study and audit compensation packages for top executives change the way nonprofit boards are approaching the hiring of their high-level leaders?

Lyn Brennan:
    Most Boards take the IRS scrutiny very seriously and they do question themselves and their legal counsel to be sure that everything they offer an executive will pass the IRS tests. Some may tend to be a bit more conservative than others, but all in all it is something all Boards are thinking about. Boards are more sophisticated than in the past and they understand the regulations. So I would say that what we are seeing it is greater attention to the details and intricacies of a compensation package than we've ever seen in the past. If a candidate requests a certain benefit, it will be checked out carefully to be certain that benefit does not/will not raise any red flags.

Question from Peter Panepento:
    Noelle: Can you talk a bit about the methodology of the Chronicle's salary survey? The focus is on the nation's largest charities, though the reality is that most people in the nonprofit field are working for smaller organizations. What lessons can be derived for workers who are not working for the biggest of the big?

Noelle Barton:
    This is usually the most common question or critique of this annual project. More details on methodology can be found in our story describing how the survey was compiled, http://philanthropy.com/premium/articles/v19/i23/23004801.htm

But in short, we examine executive pay at organizations that tend to set the agenda in a lot of different ways -- from fund raising, to programs, to grant making -- for the broader nonprofit sector. Thankfully, scholars and consultants like our two guests today can provide more resources for similar data at smaller organizations.

We hope our readers can make use of information on how the pay of an organization's key personnel compares to its income. For example, the percentage of income or assets paid to the top two earners for each organization is found on the big table in our print edition, as well as within our online database available to subscribers.

Still, we are interested in how readers from smaller organizations make use of this survey's results. Are there other ways we could examine information at the large organizations in our survey that would help out observers from smaller groups?

Question from Sally, growing npo:
    If top leaders @ non profits are receiving approx. almost 5% each year, how is it ethical for lower leveled staff to not receive the same?

Stephanie Geller:
    That's a great question, and definitely would make an interesting opinion question on one of our upcoming surveys! While we're still analyzing the data from our recent workforce survey, our preliminary findings indicate that nonprofit organizations do care about their professional and support staff. For instance, over the past 2 years alone, about 40-45% of nonprofits we surveyed conducted a formal compensation study, and out of those that did, a sizable majority ended up raising salaries for these entry and low level workers.

Question from Peter Panepento:
    Stephanie:

Are there any other parts of the benefits equation that are changing for nonprofits? We've had some readers ask about retirement plans and other benefits. What trends are you seeing in these areas?

Stephanie Geller:
    These are all issues we're currently analyzing. Our next Communique on workforce issues will examine what types of benefits are being offered. We'll also be looking at how (or if) these benefits affect recruitment and retention.

Question from Peter Panepento:
    What type of trends do you think we'll be seeing moving forward? When we talk about executive compensation in the nonprofit arena five or 10 years from now, will we be talking about the same issues? Or do you see some issues looming that will change the dynamics?

Lyn Brennan:
    I think we will see more executives seeking retirement security whether it be through deferred compensation or health insurance and I think we will see executives working longer than they have in the past. This will create a couple of issues including the total financial impact on the organization and retaining talent at the next level who may have to wait longer for a top position. As we've discussed I also think the pressure for performance based compensation with continue to escalate.

Peter Panepento (Moderator):
    As we approach 1 p.m., we have a few outstanding questions that our panel is answering. We'll keep the discussion open for a few extra minutes to accommodate those questions.

In the meantime, our editors and the survey staff are considering other questions for inclusion on the salary survey next year, and we are interested in feedback from survey participants and readers. What topics or trends within the scope of the executive compensation issue are of interest to you and your organizations? We invite you to send your thoughts to survey@philanthropy.com.

Question from Mary S. Jaffee, small nonprofit:
    Will you include information on Legal Service Corporations? My question is about compensation for lawyers and executive directors of these nonprofit groups that provide free legal services to low-income people.

Noelle Barton:
    Mary, thanks for writing in. Typically these types of organizations don't rise to the size level, in terms of assets or income, that fit the methodology with this project. However, if there is a way we can get to this issue by posing a question of groups we already survey, we are open to suggestions, so feel free to send an e-mail to us at survey@philanthropy.com.

Stephanie Geller:
    It's been great to be able to share so many findings from our Center's Nonprofit Listening Post Project. I would welcome everyone to visit our Project's website to learn more http://www.jhu.edu/listeningpost/ and to feel free to contact me directly with any questions about this initiative.

Question from :
    Why is there such a huge discrepancy in the pay scale between executive members and lower level staff who support the organization? Am I under the illusion that the non-profit world should be any different than the corporate world? If not-why is the corporate world increasingly offering more incentive for their employees and the non-profit world often abusing theirs?

Lyn Brennan:
    Almost all organizations have wide spreads between its highest and lowest paid people. In fact the IRS tries to protect lower paid people when it comes to 401Ks and profit sharing when the balance of higher and lower paid people is unfairly benefiting the higher paid employees. Just as not for profits are beginning to offer performance based compensation for executives, they may also begin doing the same for the rest of their staff. It will take a while for not-for-profits to catch up. The corporate world also has a lot of rank and file workers feeling that their efforts are not appreciated. Its part of the nature if the working world, but hopefully you can make some suggestions to your executive about how you and your colleagues may be interested in performance incentives. Good luck.

Question from Christina, Greater St. Louis small nonprofit:
    Is it the norm with smaller nonprofits (local reach, budget $250K, 5 or less staff) to proffer contracts for their ED's? Also, in the contracts that are offered, how common are items such as: severance pay/buy-out clauses, car and/or housing allowances, bonuses, and so-on (again, for small org's)?

Lyn Brennan:
    I'm not sure this issue is one that has been studied by those on our panel. That said, my reporting has found that organizations of this size tend to have very small budgets and very little room for offering perks such as housing allowances and bonuses.

Question from Zachary Smith, Dir. of Talent Management, UC Irvine:
    I have a question that I'm not sure anyone can answer, but given the current demand for non-profit professionals, specifically fundraisers, why do you think there is such a concern over high salaries? Market demand dictates salaries, and with a limited pool of qualified and experienced fundraisers, employees are demanding high salaries. How do we manage the negative public perception when high salaries are merely the result of market forces?

Lyn Brennan:
    Excellent question Zachary. Fundraising and/or Development professionals tend to move around quite a bit, each time getting a bump in salary, so there is movement inflation to their salaries. Negative public perception is difficult to manage, but I think what an organization needs to be able to show is what that person accomplished to justify compensation. When hiring development professionals, I think the organization must also do some really tough due diligence to determine what accomplishments were truly the result of the individual's efforts and not the result of a predecessor's efforts that can to fruition under the next person's tenure.

Peter Panepento (Moderator):
    Thank you to our panelists and to all of you for joining us today for this chat. It's been an interesting discussion -- so interesting, in fact, that we couldn't get to every question that came in. We thank all of you for joining us.