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The team from Charity Navigator, the nation's largest independent charity evaluator and leading donor advocate, shares their thoughts on emerging nonprofit-sector issues and offers tips to better inform your intelligent giving decisions.

Friday, May 4, 2018

A Case for Reasonable Compensation of Charity Employees

H. Art Taylor, our friend and President and CEO of Give.org, contributed this guest post based on his work and position on compensation and salaries in the charitable sector. The views and opinions expressed are his own. 

Many people prefer donating to charities that pay the least to compensate staff. While it is possible that a charity could engage in excessive compensation practices, this is far from the norm. In my experience, in more cases than not, charity employees earn far more for their work than they get paid. Yet in our culture, we expect that employees should be paid less for charity work.

It’s hard to know for sure where this expectation comes from or why it persists.  It could be that we see charities as places where people volunteer their time. The vast majority of charities are small. Roughly 2/3 of charities registered with the IRS raise less than $25,000 annually. Surely these organizations cannot afford paid staff to carry out their work.  Also many people volunteer their time to support charities and may feel that if they don’t get paid, then no one should get paid.

Even when people know that a charity is paying staff, there can be misunderstanding over what the salary covers. I’ve heard from many people that staff salaries are equivalent to administrative or non-program related expenses, robbing the charity of its ability to serve its mission. Of course, this could not be further from the truth. Charity salaries cover program and non-program expenses. Charity financial statements appropriately allocate salary expenses among three major expense categories: program services, fundraising and management and general expenses. These allocations are usually based on the actual or estimated portion of staff time spent in carrying out various activities. 

Moreover, most charities are not pass-through organizations where donations appear out of the sky and are magically distributed to people who need cash. Even small charities carry out programs that are designed to solve problems, many of which extend beyond simply handing out funds to needy people. They must spend money to raise money and they incur administrative expenses that must be paid. This has been written about and discussed extensively, yet many people still do not appreciate the importance of reasonable spending on administration and fundraising.

So what is important for donors to know about charities and staff compensation?
  • Salaries should be disclosed - Salaries of the highest compensated individuals working for a charity should be publically disclosed and can easily be found in IRS 990 returns. This sunlight helps to assure charities keep salaries in line with market.
  • Boards of Directors Approve Charity Salaries - The mostly volunteer board of the charity should be involved in establishing charity salaries after considering what is fair and reasonable, along with market conditions. Salaries will take into account the complexity of the work and the performance of the compensated individual to be sure the charity is getting value.
  • Evaluating a Charity – What a charity pays a staff person is not the most optimal way to evaluate the worth of a charity. There are many factors that go into whether a charity is worthy of your support.
  • Most people won’t know what the volunteer board knew when salaries were established. What feels like the right about of compensation can be out of line with reality.
  • Fairness – Charity employees have real expenses and are entitled to reasonable compensation for their work.

If we want to see problems solved, we have to be willing to assure people get paid to solve them. Asking charities to pay below market or no salaries limits what even the most motivated people are able to do to achieve important societal objectives.

Charities should never violate the public trust by paying excessive compensation but they abuse employees by not paying them reasonable salaries for their work. Many people chose to work in charities because they have a heart for public service. Service should not be a vow of poverty.


mary said...

For public school teachers service IS a vow of poverty, yet schools are staffed with teachers, even in Seattle where teachers cannot afford to live where they teach. I m not sure that "charity" CEO's should command an annual salary at least three times that of the average teacher. What are the qualifications of these highly paid people? Who hires them?

JFT said...

I do not support any charity that pays it's exec(s) more than the president of the United States. It is a blatant lie that the charities can't find people to work for that salary or below. Academia as mentioned above has thousands of competent people with varied management skills and experience.

Ken Schafer said...

I think you’re ignoring the elephant in the room. I imagine that most donors make far less than the CEOs of the larger charitable organizations. I do find it galling that the major reported salaries of an organization like the ACLU are all over 200K. I think it’s a vital organization, but when I make far less than half of what their executives do, it feels disingenuous for them to be coming to me asking for money. As donors, we are making sacrifices to support the organization, and when their executives have such high salaries it feels like they aren’t.

Howkriv said...

I agree that executives and managers deserve reasonable salaries. However, I stopped donating to a certain charity when I learned that its CEO and founder was paid $500,000 per year.

I look at the percentage of income that goes to the program. If it is above 75%, I consider the salaries to be in line. Smaller charities might be a little less and major charities should be greater, as a rule of thumb, in my opinion.

Nate garland said...

As a donor I'm focused on outcomes! If hiring the best and the brightest gets the best results, that's the organization I'm more interested in supporting.

Sean McCoy said...

How is running a $10, $20, $50 million a year organization or more require the same skill set as a teacher? That is not an apple to apple comparison and the kind of mindset that keeps both areas challenged academically.

Sean McCoy said...

The mindset of comparing jobs, skill sets and personal situations to the salaries of NPO staff without a true comparison is the reason this industry is not as effective as it could be. You can’t expext a multi-million or multi-billion a year org to have its fiduciary, leadership or other critical operational requirements run by “a friend” who is good at excel/power point. These are skilled positions and without the proper employee will not be as effective or efficient as it needs or could be. The expectation of piety of anyone and anything in the NPO world will always baffle me.

EME said...

Charity or not, no one should be entitled to excessive amounts of pay. With that, let me say I am an E.D. of a nonprofit. I took a 50% pay cut to take this job. Are you willing to do that for your charity? Comparing us to teachers is not fair to either job. I also do not support nonprofits that pay the upper management excessive amounts.
ALL donors make less than CEOs of major nonprofits. Just like we make less than the President in most cases, but they are also being paid to take on the responsibilities that most will not. There are related costs to everything. Storage, heat, lights and running the place. It doesn't just happen magically. If you want to take it on, I would be glad to step aside and you can run it. Oh, I won't be donating to your salary since you seem to think anyone is being paid to much. Luckily most donors do not think so negatively.

Jane said...

I am not against fair compensation for workers but I will not give my cash to any charity paying ridiculously high salaries. No one who works for a charity should be enriching themselves by greed. I want my money to go to the people the charity purports to help. Not in the pocket of some over paid CEO.I also have a problem with charities that waste what I can give by sending way too frequent requests for more. Therefore I try to donate anonymously whenever possible. I try to be generous but I have often thought when seeing what is paid , that they make more in a year than I made in a lifetime + they are asking for my money ?