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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.

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Thursday, June 16, 2016

Should the CEO's Compensation Influence Your Decision to Support a Charity?

As a donor, there are a plethora of factors that will impact your decision to donate to a specific charity. These factors range from how much money a charity uses on programs and services in comparison to administrative expenses, to where the charity is located, or how recognizable the charity name is, only to name a few. Through recent observations, we have seen a growing increase in the importance of one factor in particular regarding donor support. This being, CEO compensation. Many donors find skepticism in donating to charities led by CEOs who are making what they deem to be "excessive" incomes.

Charity Navigator’s most recent CEO Compensation Study, examined about 4,000 U.S based mid-large sized charities. The study revealed that although there are outliers in these statistics, charity CEOs receiving an insanely excessive amount of pay are in the minority. Also, salaries for CEOs often vary greatly based on location of the charity, with CEOs in the Northeast outearning CEOs in the Mountain West by an average of $47,000. The size of a charity plays a large role as well, showing that CEOs managing a larger charity make about $160,000 more than CEOs who run smaller charities. A charity’s mission plays a significant role in CEO compensation, with heads of education charities earning an average of $74,000 more than CEO’s of religious charities.

So now that this information is out to the public, what does this really mean? Well, for one, we do not feature CEO compensation as a facet of our Financial Health ratings, however, we still provide the information as a method of transparency. What we have done, is offered various tips below, which we hope will guide potential donors on how to gauge CEO compensation themselves.

Tip #1:

  • Obtain comparison data. Use the information provided in our study to compare a CEO's salary to other similarly sized charities, as well as those in the same category and region.
    • Our 2015 Metro Market Study provides median CEO salaries for 30 large cities.
    • Charity Navigator registered users can compare the CEO salaries of specific charities on their "My Charities" page and on each charity's rating page by clicking on the "Compare These Charities" link.
    • Registered users can also access Charity Navigator's Sector Analysis Tool to calculate the average CEO pay by cause and state.

Tip #2

  • Find out if the charity has a Compensation Committee
    • It is important for charities to conduct independent reviews of their CEO compensation through the use of comparative data. Check out our Accountability & Transparency Methodology so you can determine if a charity follows this best practice.
    • If the charity you are considering has not yet been rated by us, then we encourage you to review its Form 990 or contact it directly to inquire if it has a compensation committee in place and how it makes salary decisions.

Tip #3
  • Consider the performance of the charity in relation to the CEO's pay.
    • If you come across a charity whose CEO pay is higher than other similar charities, don't immediately dismiss that charity's request for funding. You're better off supporting a charity that is fiscally efficient, accountable and transparent, achieving its programmatic goals and paying its CEO well, than a charity that has substandard fiscal health, fails to live up to its mission, but under-pays its CEO.

So before you decide on supporting a particular charity, make sure that you thoroughly analyze the implications of the CEO’s compensation. Paying attention to these tips will help you make the most of the dollars in which you decide to give.

As a 501 (c) (3) organization itself, Charity Navigator depends on public support to help donors make informed choices. Please consider investing in the future of Charity Navigator by making a donation today.  Donate now >>


Anonymous said...

I must heartily disagree with this blog post.

I thank you very much for the thoughts...and, I am in Dan Pallotta's camp here where it comes to CEO pay. We who focus on the non-profit sector will never achieve the great success we're after until we treat our organizations as businesses making money. Yes, I realize we don't keep that money– we spend it forward in order to achieve our mission. That does not detract from the fact that we need lots and lots of money. Some of that money will be used to pay our employees who've sacrificed working for a big for-profit in order to perform work aligned with their heart; some of it will be spent forward on the cause; and some of it will be spent in order to make more money flow in. All three of these are equally important, because the mission fails if any of them also fail.

Thank you.
Parvez Khan

Unknown said...

Thank you for reading our post and for commenting.
We're certainly not in Dan Pallotta's camp. He goes too far in advocating that charity CEO's are entitled to extravagant pay.
But we do advocate that charity CEO's (and all staff) should be paid a reasonable amount. That's exactly the point of this blog post. Specific from Tip #3 above:
"You're better off supporting a charity that is fiscally efficient, accountable and transparent, achieving its programmatic goals and paying its CEO well, than a charity that has substandard fiscal health, fails to live up to its mission, but under-pays its CEO."

Bill Eckert said...

Comment #3 rings true to us at our agency. After years of difficulties we have long been on the path to greater transparency in financial matters and decision making. Traditionally,poor leaders hide behind a veil of secrecy in the hopes that their shortcomings will not be brought to light. This is very much to the detriment of the nonprofit they run. We believe that adequate, not extravagant, compensation should be the norm, coupled with clear-headed oversight by a well-managed Board of Trustees.

Bill Eckert

john said...

CEO pay does influence my choices, as does sending nickles and dimes with a mail solicitation, but mostly I'm influenced when sending money off to a middleman (address not related to the Charity's location) whose cut is unknown and evidently out of CN's purview, although a look at Washington State's info does a lot to fix that. There are a number of "respected" charities losing 20-30% to these guys and yet the charity's books show almost all of what they get is used for the stated purpose. Just saying.

Unknown said...

Well said Bill! I commend you and your organization.

Unknown said...

Avoiding the middleman is one of our primary tips for donors and I'm glad to see you are well aware of it! Sadly, the 20-30% is just the tip of the iceberg. Several AG's do annual reports on this topic and they've found cases where the professional fundraisers keep everything they raise + a fee from the charity. This is most often the case with telemarketers - so you should never give over the phone.

MelJanProduction@aol.com said...

The point that is too often overlooked by the general public (because they don't know how to access and/or read the information reported on Federal Forms 990) is the number of executives who are paid up to and exceeding one-half million dollars, including salaries plus perks. The excuse for these inflated figures are that the wages are "set by The Board;" "The Compensation Committee used industry standards (comparing other officers' pay in similar organizations); "We have to pay these figures or the individuals will jump ship & go to other charities," among others. Again, too often, these "boards" are made up of CEOs of industries not charity-related. Thus, the reasons are nonsensical & based on the same rubbish used in for-profit companies for over-paying executives. Yes - my charitable efforts are very much influenced by executive compensation AND the amount spent on fund-raising.

Melvin L. Janney, Former University CFO (Ret.)

Jane said...

I agree wholeheartedly with MelJanProduction's post. No CEO of a charity should be getting rich on contributions meant for the charity to use for good. And yes, it is rubbish put forth by the CEO's themselves that they would leave and are irreplaceable. Really ? Does anyone actually believe this crap ? There are hundreds of people out there who would be grateful to do the job for less, maybe even better. If I feel they are wasting my contribution on lining a CEO's pocket my cash will go elsewhere.

Jayne said...

All my dontations are influenced by executive compensation.

Jayne said...

All my contributions are 100% influenced by executive compensation