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Pay Gap

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Contribute • November/December 2007

Helping the homeless has never been considered a luxurious calling, but for Ralph Nunez, it’s been surprisingly remunerative. As head of Homes for the Homeless, a Manhattan-based social services nonprofit, Nunez brings home $352,381 a year, one-third of it for part-time work for the organization’s policy arm and an additional $53,598 in benefits. There’s also ready access to a company vehicle and an apartment atop one of the group’s homeless shelters in the gentrifying neighborhood of Hell’s Kitchen.

These perks may sound a bit off-kilter for the head of an anti-poverty nonprofit. But they’re not illegal. And they’re hardly unusual in today’s charity world, say nonprofit pay experts. Just as in the private sector, executive pay is soaring at many nonprofits, with more and more donor money going to fund higher and higher executive salaries at charities large and small across America. And the trend shows no sign of slowing down. Says Pablo Eisenberg, a senior fellow at Georgetown University’s Public Policy Institute: “The trend is clearly for bigger and bigger salaries for nonprofit CEOs.”

According to surveys of executive pay at the country’s largest nonprofits, Nunez gets only a bit more than average. The Chronicle of Philanthropy found that in 2006, leaders of 250 of the nation’s largest nonprofits earned a median compensation of $315,969; a more inclusive survey conducted by Charity Navigator found the average pay for a charity CEO to be a more modest $145,000. Still, fatcat pay for sector leaders can run far higher: consider the $4 million in compensation being given to Lloyd H. Dean, the chief executive of Catholic Healthcare West, a San Francisco-based nonprofit that runs 42 hospitals for the sick, poor, and disadvantaged in California, Arizona, and Nevada. That compensation includes roughly $1.4 million in fringe benefits and expenses.

And don’t forget the $1.28 million in salary, benefits, and bonuses that Glenn D. Lowry, the director of the Museum of Modern Art, was getting in 2005. In his case, donors set up a private trust fund to be able to pay him top dollar. “It seemed unlikely that we could attract him and his family with the normal MoMA compensation package,” board member David Rockefeller told the New York Times when the trust fund was revealed. “Aggie [MoMA President Emerita Agnes Gund] and I were both determined to help, since we both wanted to make this happen, and we were guided by our own advisers to establish the trust as the most expeditious way of doing it.”

Eisenberg acknowledges the barriers to reining in compensation that’s become excessive. “We’re getting United Way directors, particularly at the national level, hitting slightly more than a million dollars,” he says. “You have the Boys & Girls Clubs making now over a million dollars. You have university presidents now bucking a million, going on to two. And where does that stop?” The problem, says Eisenberg: “There is no definition for it.” Just how much is too much? “There are no standards,” he says.

But for all the headlines generated around fat-cat pay—it’s the low-end wages in the field that management experts suggest indicate a far more worrisome trend: a dissatisfied, underpaid workforce that is leaving the sector in droves—and just at a time when demand for new talent in the lower and middle ranks is rising. According to a recent study by the Young Nonprofit Professionals Network, a networking group of young advocates in their 20s and 30s, nearly one of two entry-level workers—some 45 percent—expect to leave not only their nonprofit jobs but the sector entirely. Most blame low pay, marginal benefits, and “burnout.”

Yet if it seems like more and more donor dollars are being diverted into ever-higher executive salaries, they are. Compensation for the leaders of the nation’s largest nonprofits rose by 4.6 percent last year, more than twice the rate of inflation. There’s no data charting salaries for mid- and entry-level workers at nonprofits over time, but the divide, says Paul Dorf, an executive compensation consultant, “does mimic the private sector.” Meanwhile, bonus payments made to top brass by the nation’s largest nonprofits more than doubled in 2006, according to the Chronicle survey—a sign that nonprofit compensation is now often being tied to performance. Indeed, 39 of the 298 charities surveyed paid bonuses totaling $5.6 million to their executives last year, with an average bonus of $142,700.

Under tax law, charities are permitted to pay their chief executives “reasonable compensation”—defined as the amount that would ordinarily be paid for like services by like enterprises (nonprofit or for-profit organizations) operating under like circumstances. For some charities, that vagueness has been a god-send—and key, they say, to their ability to tap competent leaders at the helm. But Daniel Borochoff, founder and president of the American Institute of Philanthropy, a Chicago-based charity watchdog group, says that if nonprofits simply paid more to everyone, they’d spend far less on staff retention and recruitment.

He may have a point there: according to an October 2007 study by Johns Hopkins of nearly 300 nonprofits, 87 percent said they find it at least “somewhat” or “extremely challenging” to recruit personnel. A majority blame restrictions on the amount of money they can offer, low benefits, and lack of career advancement at the top. “The irony,” says Borochoff, “is that charities spend a lot of money because they’re trying to hire people into jobs that don’t pay enough.”

NYU Professor Paul Light says the problem is immense. “There are several hundred thousand jobs per year that we’re going to need to fill in this sector over the next 10-15 years,” he says. “We’ve got a big challenge in terms of replacing our leadership. We’re going to need to have to spend more money on salaries throughout the workplace. How else do we make the nonprofit sector more appealing?” Warns Light: “Excessive pay at the top and not enough at the bottom creates a management crisis for the sector.”

Recently, some have pushed for reform—but success is hard to come by. In March, the IRS determined that 25 nonprofits had offered excessive compensation to 40 executives, and levied $21 million in excise taxes against the offenders. Then the IRS suggested a change to the 990 tax form that would have required nonprofits to list the percentage of the organization’s overall budget that was going to salaries on the first page of the form. But after an outcry from charities, the IRS backed off and the change was dropped. “We recognize there’s a disconnect between (a nonprofit’s) financial statement and the 990, and we’ve got to find a translation device,” says Steve Miller, commissioner of the IRS Tax Exempt and Government Entities Division, which collects the 990s.

Some donors aren’t waiting for Washington. When Joel Jacob, the president of a Detroit, Mich., bottling company, learned that the local United Way president made a $400,000 salary, he halted his company’s collection drives on their behalf. “The response I’d get from the people responsible for the salary was, ‘Well, we have to compete with industry.’ I don’t buy it,” Jacob says.He now donates to smaller groups with lower salaries and supports what he calls “parent-sponsored internships.” He also suggests that salaries should start around $15,000. “Nonprofits can’t afford to pay,” he says. “If you want to make money, nonprofits aren’t the place for you.”

Maybe so. But lowballing employees would get you “thrown out of venture capitalist offices” in the business world, says Richard Marker, a philanthropy professor at NYU. “You can’t nickel-and-dime the people behind the programs.”

Karyn Finkle would likely agree. She made $33,000 a year as a research associate under Nunez at Homes for the Homeless in 2002. She knew money would be tight, given her $60,000 in student debt, but the financial strain and work environment proved overwhelming. Finkle now works as director of finance at a for-profit firm in New Jersey, where her pay is more than double what it had been. “I was very proud of what I was doing at the nonprofit. I felt like I was actually working to help those homeless families,” she says. “But I don’t think the potential to make money is in the nonprofit world.”

Stephen Bauer, director of the Initiative for Nonprofit Sector Careers, a clearinghouse for would-be advocates, says it doesn’t help that CEO pay is high and entry-level pay low, with hardly any mid-range salaries to be found. Between the debt faced by most recent college graduates, the low salaries on offer at the entry levels, and the rampant use of unpaid internships, says Bauer, “we [in the nonprofit sector] are killing ourselves.”

 

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Jesse Ellison is a former employee of Homes for the Homeless.

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