The Boys & Girls Clubs of America has come under fire for paying its CEO nearly $1-million in 2008.
According to The Chronicle, “Four Republican senators have asked Boys & Girls Clubs of America to provide details about what it spends on executive compensation, lobbying, perks, travel, and other items” and have said that “they wanted the answers so they could consider changes to Senate legislation that would provide $425-million to the youth organization over five years.”
The senators’ biggest beef with the Boys & Girls Clubs is that chief executive officer Roxanne Spillett earned more than $900,000 in compensation in 2008, amidst a backdrop of a tough economic climate in which “local Boys & Girls Clubs nationwide close their doors due to budget shortfalls.”
You would think that large nonprofit groups like the Boys & Girls Clubs would know by now that paying out near-million-dollar salaries would bring about public concern. Just two years ago, controversy broke out over the salary of Gloria Pace King, President of United Way of Central Carolinas. After a significant increase to her retirement plan, Ms. King’s total compensation topped out at $1.2-million, to the dismay of some in the nonprofit field.
Aaron Dorfman, executive director of the National Committee for Responsive Philanthropy, called Ms. King’s pay ”outrageous.” “Why do people believe that we can retain the trust of the public when we pay people at outrageous levels like this?”
Not surprisingly, Uncharitable author Dan Pallotta defends Ms. Spillett’s paycheck, which falls in line with the ideas he shares about nonprofit salaries and business models on his Harvard Business Review blog. While I disagree with him, it doesn’t surprise me that a man who comes from the for-profit world — where he earned six figures helping nonprofit groups raise money through AIDS rides — would defend high salaries. But Pallotta Teamworks was a for-profit business, and the Boys & Girls Clubs is not.
There are a number of reasons why we should view the Boys & Girls Clubs case as being problematic for the entire nonprofit sector.
Good Pay Does Not Mean Excessive Pay
I absolutely believe that nonprofit CEO’s should earn good pay. But there’s a big difference between good pay and excessive pay. While an organization can use any number of formulas to set compensation, it’s clear that many a reasonable person would deem Ms. Spillett’s salary excessive. I’m certainly not saying that nonprofit CEO’s should take a vow of poverty but that it may be problematic to have leaders in our sector who could be deemed “rich.”
Million-Dollar Salaries Are Not Sustainable for the Sector
I have heard many nonprofit folks say things along the lines of, “Oh wouldn’t it be great if all nonprofit CEO’s could earn salaries comparable to those in the for-profit world?” But just think about that for a moment. If all nonprofit organizations paid their CEO’s or executive directors extremely high salaries, little would be left over for programming. Just take a look at the Boys & Girls Clubs, which is actually closing down some of its programs around the country. My question to those folks is always, Where is all this extra money going to come from?
High Salaries Do Not Equal Effective Leaders
Mr. Pallotta often makes the argument that we need to pay people well to stay in the sector. On it’s face, that is true, but he and others take that premise a step further in implying that we can’t attract good leaders without giving them for-profit salaries. I disagree with the idea that we need to pay nonprofit CEO’s high six figures to do a good job. It’s just not true. There are great nonprofit CEO’s and bad ones at both ends of the salary spectrum, and many ineffective leaders have been paid well. So it’s not a given that we will “lose out” on talented leaders if we don’t pay them excessive salaries. It’s also not a given that we need to be able to attract talent from the business world or from outside of our organizations. We should really be developing the amazingly talented people we already have within our organizations, who are passionate about the work even if it doesn’t come with a million-dollar salary.
Excessive Salaries Turn Donors Away
For me, this is one of the main reasons not to pay nonprofit CEO’s so much money. Sen. Charles Grassley notwithstanding, public perception is incredibly important if you want to keep donations coming into the door. In a time when donors themselves are being laid off and struggling to contribute to nonprofit causes due to the recession, hearing that the head of the Boys & Girls Clubs earns nearly $1-million a year is just not going to sit well with them. I don’t care what the board says or what the executive-compensation consultant says. Nonprofit organizations have to pay attention to how donors feel about certain salary decisions.
We Need to Be More Concerned With Paying All Nonprofit Staff Better, Not Just CEO’s
Have you noticed how so many people in the sector always come to the defense of the highly paid nonprofit CEO? Part of it is self-motivation. They rush to defend partly out of fear that their earning potential will be affected by arbitrary salary caps, but the truth of the matter is that most of us will never be put into a position of even coming close to earning a salary that would need to be capped.
Now if we defended increasing the salaries of other nonprofit staff members as much as we do for CEO’s, the sector would be in much better shape. I know that while many CEO’s get paid extremely well, their staff members still make pennies on the dollar. No matter how great they are, no successful nonprofit CEO raises millions singlehandedly. It takes great staff members to do this, and they deserve decent pay, too. And common sense tells us that if you pay nonprofit CEO’s a little less, you can pay the nonprofit staff a little more.
While the kids that the Boys & Girls Clubs serves are worth a million dollars, I can’t say the same for its CEO.
17 Responses to Nonprofit CEOs Who Want For-Profit Salaries Should Work at For-Profit Companies
lindsayn - March 17, 2010 at 2:32 pm
I see your perspective and I see Mr. Pallotta’s. Neither mentions the roll of the board… I assume that Ms. Spillett’s compensation and benefits were most likely determined by the board or a committee of the board. Clearly, a group of people who have an intimate knowledge of the inner workings of the B&GC, a huge nonprofit organization that serves millions of children, felt that this was a reasonable package based on the work Ms. Spillett does and the money she raises for the organization. We, as outsiders, have no idea how hard she works or how much money she raises individually, therefore no way to determine if this compensation package is justifiable. Why aren’t you attacking the board for this? Someone(s) at that organization felt their leader was worth a million bucks and they have that inside knowledge that would be needed to make such a determination.Who knows what the future holds. As organizations become larger and bring in more money, and the responsibilities and demands on their leaders increase, we may see a need for higher salaries. I wouldn’t rule anything out.
rparker - March 17, 2010 at 3:06 pm
What a well written article. Totally anecdotal, but the BEST nonprofit CEOs I have worked for were the least concerned about their own salaries and more concerned about their staff earning a living wage. They also had spiffy Ivy degrees, lots of important contacts and could have worked anyplace. The worst CEOs made much more money, did not really buy into the mission and were not at all inspiring. The Boards are responsible for this.
bsaunders - March 17, 2010 at 3:50 pm
Speaking as a cash-strapped donor, I do not mind high pay for non-profit CEOs. Yes, right on up to $1M. I envy higher-paid people, too. Being aware of that envy keeps me from the exercise in denial that transforms it in my mind to moral outrage. I am not angry that movie stars get paid more than teachers, that sports figures get paid more than nurses, or that union members get paid more than more educated people who don’t have unions.From my perspective, this ugly emotion poisons the whole conversation. The issue should be whether these organizations are viable and doing their work, not that we make sure that CEOs don’t make more money that some arbitrary number we decide they shouldn’t have – out of the BASEST of our emotions and little of our reason.
danielpallotta - March 17, 2010 at 3:50 pm
Rosetta,I am not comparing salaries. I am comparing reactions to salaries. Let me repeat that – I am comparing reactions to salaries. I am not trying to say that the head of the Boys and Girls Clubs should earn as much as the head of Disney. What I am saying is that presumably, the salaries for both executives is right-sized to the organization, and yet one salary causes outrage and the other doesn’t. Presumably both salaries are acceptable to each organization’s boards, and yet one salary is second-guessed by Grassley and the media, and the other is not. Disney had 2008 revenues of $38 billion – about 25 times the 2008 revenues of the Boys and Girls Clubs. Robert Iger is paid 51 times what Roxanne Spillet was paid – a greater factor of difference than the difference in their revenues, which only adds to my point, but no matter. Both were paid relatively the same amounts relative to their revenues. Iger is celebrated and Spillet is demonized. See what I mean? In the case of Disney, it is a further irony that both are in the business of catering to kids.In the case of Microsoft, Microsoft’s annual revenues are $60 billion – 40 times that of the Boys and Girls Clubs. I asked, “What kind of net worth do we suppose the CEO of Boys and Girls Clubs could amass over a twenty-year period even if she had been earning a million dollars a year for all that time? $10 million?” Steve Ballmer’s net worth is not 40 times that amount. It’s 5,000 times that amount. So in that case, the compensation is already grossly over-corrected for the size of the organization. And, ironically, part of Microsoft’s business arguably contributes to violence among children. And here’s the double standard – no one complains about Ballmer’s net worth, yet people are outraged by Roxanne Spillett’s compensation.In the case of Pepsi, the same argument applies, and it is a further irony that, arguably, harm may be done to kids through the sale of sugar water. And, in the case of a for-profit company that is much larger than a nonprofit and in which the for-profit is doing harm to society at some level, it could actually be argued that their larger size relative to the nonprofit, means they are doing a great deal more harm than the nonprofit is doing good, and so maybe the for-profit CEO should actually be earning less, if we look at the issue of “profitability” to society. But this latter argument is extreme. My real point in comparing was to look at the double-standard in the way we judge for-profit vs. non-profit organizations.So again, I am not comparing salaries, I am comparing reactions to salaries, and in that analysis, the compensation I quoted is already essentially corrected for the differences in the sizes of the organizations.
lmmartin08 - March 17, 2010 at 4:27 pm
Rosetta – While I appreciate this post, I have to agree with Dan. Your making a blanket statement about non-profit CEO salaries and essentially indicating that they can be evaluated within a vacuum is really lacking. Dan is right to bring up issues of revenue when comparing salaries (or rather, “reactions to salaries”). I think part of the reason people are frustrated about Roxanne Spillett’s salary because it seems she is perhaps falling short in her job performance because so many B&G Club branches have had to close. Regardless, to state that no CEO should earn more than $1M based not on the quantity or quality of work he/she does but simply based on the category of that work is a falsehood.My 2 cents, for what it’s worth.
joe5991 - March 17, 2010 at 5:10 pm
I understand the sentiment and think this is as much a board problem as it is a CEO problem – but that said $1MM is now pretty much the norm for university and college presidents and don’t get me started on Division 1 or even Division 2 football and basketball coaches. But surely the worst of the lot are the administrators who oversee the non-profit health sector. Compensation is out of control across the spectrum of American commerce and public service for the most senior of staff. To narrowly focus on the non-profit sector is misleading and self-serving. I wouldn’t be surprised if those outraged members of Congress were the same ones who howled when the Administration said that compensation needed to be reigned in on corporations getting bailed out by the taxpayers. After all, the “Free Market” works within a micron of efficiency right?Let’s ask whether the board of the Boys & Girls Clubs have policies to ensure that all staff are paid a living wage and are able to get full health coverage for their families. Let’s insist that employees receive opportunities to save and that the organization will match retirement savings plans. Let’s insist that there is paid maternity leave and family sick leave. Then let’s take another look at the executive compensation plan.
wildwomanfundraising - March 17, 2010 at 5:31 pm
Dear Rosetta,the comments here bring up good points. We don’t need to hold nonprofit leaders to an arbitrary salary cap, but we do need to understand that if the nonprofit works for the good of the people, then no nonprofit leader should be paid more than 10 times what the lowest paid person is making. I don’t see any one talking about how much they raise, personally, through their networks, or how well the board structures their reviews. The fact is, we are paying ineffective leaders thousands and hundreds of thousands more than workers, and for what? We need to commit to a living wage for all nonprofit workers, including interns. That means paying executives less. The best nonprofit leaders I have met do not focus on their salaries, but on the good of the organization, taking pay cuts in tough times to keep programs going. We need a rebirth of nonprofit unions, to ensure that all nonprofit workers are getting paid a living wage, which is $40,000 or more per year. This will help reduce turnover, which will in turn help nonprofits become more efficient and effective.I’ve written a whole blog post about where to find nonprofit unions and how to start the ball rolling.http://www.wildwomanfundraising.com/fundraisers-union/
colleendilen - March 17, 2010 at 7:54 pm
In the early 1900s a lot of people probably said to farmers who were sick of hand-picking corn that “farmers who want office-environment physical demands should work in an office.”…but out of farmer discomfort, the two-row corn-picker was invented and farmers solved the problem. The industry evolved and the economy moved forward– as it often does– because people challenged the industry’s conceptual constraints. This is similar. Challenging sector constraints instigates large-scale change so it’s important that nonprofit leaders do it. Excessive salaries might not be turning donors away if it were commonplace for nonprofit CEOs to earn wages comparable to the nonprofit sector. The frame of mind surrounding the idea that nonprofit salaries are not sustainable to the sector is poisonous because it assumes that people should be changing their needs (and ignoring the needs of their organizations) in order to fit into conceptual constraints, rather than allowing organizations to collectively mold sector practices based on what is most efficient and effective.While I agree that good leaders do not always necessitate high salaries, NOT having competitive wages drives competition OUT OF the sector. A higher salary (because of increased competition for that salary) allows organizations to be more selective and hire better leaders. I think the sector is going to need higher salaries in order to be competitive and remain relevant in the future. If we do not attract the most innovative leaders, the private sector will find a way to compete more directly with organizations (serving social missions while at the same time turning a profit). The nonprofit will risk becoming obsolete if it doesn’t evolve. I’m at colleendilen.com (I couldn’t resist)
awsmithjr - March 17, 2010 at 11:37 pm
Rosetta,Many good thoughts in your post, but what bothers me here is that no one yet knows whether Ms. Spillet’s compensation is reasonable. We don’t know what peer groups she should be compared to; we don’t know the full composition of her compensation; we don’t know the board’s rationale for paying a large bonus in a year of a significant operating loss; and it’s unclear whether her deferred compensation relates to one or many years of her service. Before either condemning or praising Ms. Spillet’s compensation, we should get the facts. And reading all the blogs on this, I haven’t found one yet that contains any sensible analysis of what this job is really worth in the nonprofit sector.Pete Smith (www.petesmithconsulting.com)
maria555 - March 18, 2010 at 2:08 am
Rosetta, Your headline is right on target. Non-profits should be operating as non-profits, not for-profits. Provision of services to clients is the intention of people who donate to non-profits. People aren’t giving to provide extreme executive pay and compensation. For-profits and non-profits operate according to different philosophies, values, and missions. The large non-profit may have a well connected board and established funders base, but the opinions and views of the general public can destroy the credbility of the entire non-profit’s operations. Is it really possible for a person educated and experienced in a for profit business model to shift to the non-profit sector without eucation and experience? I have never seen a successful shift. It’s difficult to shift from profit focus to people focus.
dcspacone - March 18, 2010 at 8:15 am
Let’s not lose sight of the term ‘Non Profit’. Doesn’t that almost seem logical that these busineses have some sort of difference from a ‘For Profit’?They are indeed a business but set up in many different ways from a For Profit. Salary should be no exception.If they want to model a For Profit organization when it suits them, then they should forfiet all the perks of being a Non Profit.Salaries should be disclosed to current and potential donors to help make up their minds about giving.I could lose sight of the cause if I deemed that salaries were out of line. These organizations have been fat, dumb and happy for far too long and need to be exposed and or regulated.
jvukusich - March 18, 2010 at 9:02 am
“While I agree that good leaders do not always necessitate high salaries, NOT having competitive wages drives competition OUT OF the sector.” Agreed…hence the many consultants that serve the nonprofit sector in a for-profit capacity. Rosetta, in no way am I meaning to direct this towards you certainly without any knowledge of your fee structure, but there are definitely consultants who charge WAY more than it would cost to hire a full-time person to do the same job year round. I’m surprised there aren’t more discussions about compensation for nonprofit consultants.
joebrown - March 18, 2010 at 1:42 pm
I’m following the comments about this story here and on the HBR blog with great interest. I’m impressed by the thoughtfulness and insight that some folks have brought all sides to the conversation. Realizing that there are so many perspectives on this case and the broader issues of nonprofit compensation As a consultant with a background in nonprofit compensation I found myself compelled to look past the emotional and moral arguments about the B&GCA situation and try to tease out for myself some of the facts. I just posted what I came up with here: http://bit.ly/cnlVwj
shybear309 - March 18, 2010 at 3:23 pm
Given the nature of many nonprofit boards–people from the world of commerce and other professionals who work mostly in that realm–and the lack of understanding about the nature and history of nonprofit organizations, it’s no wonder we get into discussions like this. In addition, most nonprofits do a terrible job of developing leadership internally that can take over when the top person leaves. The top people are too threatened to do develop that kind of internal leadership and the board just doesn’t get it.
submitarticle - March 19, 2010 at 3:17 am
What a well written articles. Totally anecdotal, but the BEST nonprofit CEOs I have worked for were the least concerned about their own salaries and more concerned about their staff earning a living wage
karendoveconsulting - March 19, 2010 at 11:10 am
I have worked with Boys & Girls Clubs and consulted with many nationwide for the past 17 years. My prospective is this – Roxanne Spillett started out in the organization working with kids in the Clubs. When she took on the challenge to lead the BGCA in the mid 1990s, the Clubs did not have a strong central strategy for expansion. Few boards of diretors were organized utilizing best practices.Under her leadership the organization has trained thousands of board members with BoardSource materials, teaching them to be leaders and govern appropriately in their clubs. (Perhaps some of the Clubs that are closing are those with boards who did not take the time to go to those training opportunities.)I served as and Executive Director in a Club for about a year and a half. While I tried to encourage my board to follow the BoardSource methodology and participate in fund development as encouraged by BGCA, they were of the mindset that the Club should be run on grants (a common misunderstanding among boards I have worked with as a consultant). For 3 years before my hire and for the 2 years since I left, that organization has operated at least $50,000 in the RED. Those kind of operations are why Clubs close their doors!My resource development and nonprofit management training came under the leadership of Roxanne Spillett. She taught me how to raise funds and run an organization that is self-sustaining through those conferences and workshops that were mentioned in the article. As far as I am concerned, the job she does is no different than that of a CEO of a major corporation. Not a word would be said if an executive of Coca-Cola or Gateway earned MILLIONS of dollars a year, but because the BGCA is a nonprofit, we believe the leadership, who is equally as capable as any other major executive, should be scrutinized for earning …less than a million dollars??? (Remember it is total compensation that is bringing the salary up in this article…conferences she HAS to attend, travel she HAS to do, and about half the amount mentioned is actual salary.)I am not a supporter of all things BGCA, and all my experiences with them have not be rosey. Still, as someone who has worked with dozens of Clubs (and I don’t make a 6 figure salary), who was there before Ms. Spillett came to leadership and after, and is still working with Clubs today, I take offense at this viewpoint from the outside looking in.Every Boys & Girls Club is an individual organization. The tie to the BGCA is that they pay affordable, annual dues to the national organization, and in return get the benefit of group insurance (hooray for healthcare!), training for their boards of directors, and the presence of a fine national and regional staff who visit on-site with every club, providing support and training. Yes, some Clubs are closing. In this economy, many small organizations are closing down. But taking $500,000 from Roxanne Spilett’s salary isn’t going to change that! How far can $500,000 go? And how would taking that money to sustain clubs teach them to be self-sustaining, which is best?
rescomfin - March 22, 2010 at 4:41 pm
“We should really be developing the amazingly talented people we already have within our organizations, who are passionate about the work even if it doesn’t come with a million-dollar salary.”