Is It OK For Nonprofit Leaders to Make Big Salaries?

nonprofit salaries

Recently, I came across this comment on a Huffington Post article about nonprofit salaries:

“Here’s why I don’t donate to non-profits. There is no legal cap to the salaries paid to executives. Really? Do y’all think I donated to feed the pig CEO, or the needy? See a poor person in the street, give them the money. They may buy a bottle, but at least they will see the money, with no strings attached.”

At some level, he has a point.

If the goal of a nonprofit is to solve a societal problem, shouldn’t as much money as possible go directly to the people being helped? Isn’t it true that every dollar paid to the “pig” CEO is a dollar pulled away from achieving the mission?

It’s exactly this commenter’s attitude that makes nonprofits frightened about “overhead.” I’ve written before about whether nonprofit overhead is too high. Today I want to explore something a bit more specific.

Is it inappropriate for nonprofit leaders to be well paid? And how can nonprofits – especially smaller ones that don’t have big budgets — navigate this dilemma?

I WAS ONCE A WELL PAID NONPROFIT EXECUTIVE DIRECTOR

As you may know, in the years before I started Joan Garry Consulting, I served as the Executive Director at GLAAD, a mid-size gay rights nonprofit.

During my tenure, a leading publication conducted an annual survey of the salaries of executive directors in our particular sector. My colleagues and I dreaded the day this article hit the newsstand every year.

Why?

No one wanted to be at the top of the list.

Hit the top and you became a target. Your board starts asking questions about comparable compensation and folks in general just start making comments – and not of the “you’re worth every penny” variety.

I call this phenomenon “salary angst.”

Salary angst doesn’t happen in the private sector. CEOs fight for the honor of making the biggest salary. Right or wrong, it’s considered a measure of effectiveness. It means you’re a good negotiator. Companies fall over themselves to pay more money to attract the candidates they consider the best.

Not remotely so in the nonprofit sector.

One year I hit the #1 spot on the salary survey. Ugh. Salary angst.

What made this even worse was that GLAAD wasn’t the largest organization in the movement. Why should I be making so much money? Never mind that it was a major pay cut from what I made in the private sector before I came aboard.

I found myself having to justify being well compensated. It made no difference that I had been, by many measures, an effective leader, manager, strategist, public voice, and movement leader.

While I no longer work as an executive director, I sure do work with a lot of them. Some of them feel a sense of guilt at making a semi-reasonable salary. Others resent making so little. But for most of them, their salary isn’t something they feel particularly good about. They have serious salary angst.

This has big consequences.

THE CONSEQUENCES OF EXECUTIVE DIRECTOR SALARY ANGST

Nonprofits exist in a free market. They need to be competitive in order to attract the best talent.

It’s that simple.

Big companies pay big bucks.

Startups attract outstanding leaders by offering company shares that can eventually make the CEO very rich.

Strong leadership is not just important for a nonprofit – it’s absolutely critical. This person is the voice and face of your organization. The strategist. The visionary. The lead fundraiser. The advocate. A leader in your sector.

Without strong leadership, nonprofits die.

So no – it’s not true that every dollar paid to the “pig” CEO is a dollar pulled away from achieving the mission. To the contrary, a healthy nonprofit with outstanding leadership will be able to help more people in a more effective and bigger way for a much longer time. They achieve their missions faster.

When a terrific leader from the private sector is considering a position at a nonprofit, there’s only so much of a pay cut she’s usually willing to take. Yes, it’s an opportunity to do good in the world… to make a real difference… and that has serious value all by itself. But that doesn’t put her kids through college. And there are plenty of ways to do good in the world while working in the private sector and making a lot more money.

Do you see how shortsighted nonprofits shoot themselves in the foot by not paying competitive salaries to their top leaders?

6 WAYS NONPROFITS MAKE THEIR LEADERS FEEL SALARY ANGST

Boards that overly focus on reducing overhead at the cost of not attracting the very best available leadership tend to screw up contract discussions. This is a great way to make the leader feel the salary angst. It’s also the fast lane to a leadership exit.

For example:

  1. They avoid salary discussions. When the ED has to nag the board chair to remind her that it is well past 12 months since the last annual review and compensation discussion. No one ever wants to nag the boss for a raise.
  2. The process takes forever. It never feels like it is taking forever to board members. They are busy people and lose track. Meanwhile the ED sits and waits. And gets frustrated and feels de-valued.
  3. “Conversations” happen via emailDiscussions about how much money you make should not happen in email. Email is voiceless, toneless, and never can communicate the sense of value and appreciation that ED’s need to hear.
  4. Board Chairs say “You know our organization can’t afford to do any more.” If I’m an ED, I hear that and realize that my board is not making any connection between my salary and their ability to fundraising aggressively on behalf of the organization. And you know how I feel? Really angry.
  5. Board member says “The joy and privilege of working at a nonprofit has to be considered as part of your compensation.” It is a joy and a privilege but don’t let this one go if someone says it. As I wrote before, there are lots of ways to do good and important things in this world. Why should the ED want to stay at this nonprofit.
  6. Your spouse’s high paying job is mentioned during your salary negotiationThis happens more than you’d imagine. Honestly, it’s offensive. What your spouse makes has nothing to do what you should make. NOTHING. It’s wishful thinking on your board’s part that you’d work for cheap (or free?) But why should you? You are a high performing ED. You have power in these discussions. If I found myself in that position, I’d either say, “I’m going to pretend you didn’t say that” or “That comment and information is both irrelevant and offensive.”

HOW CAN SMALLER NONPROFITS DEAL WITH SALARY ANGST?

Here’s the dilemma. It’s all well and good to say that nonprofits need to pay competitive salaries. Perhaps you’re thinking, “I’m sure a UNICEF or Red Cross can afford to do that. But I work at a 6-person nonprofit with less than a million dollars in revenues. Do you actually expect us to pay 25% of our total budget to the Executive Director?”

It’s true. Smaller organizations may not be able to compensate their EDs as well as they deserve. There are hundreds of thousands of 501c3 organizations in the US with budgets under $500,000.

Private sector startups without much or any revenue handle this by offering stock options. That’s not something nonprofits can do.

But what you can do is make the ED feel like a million bucks. At the end of the day, it’s the combination of a reasonable wage and solid value and appreciation that will fire up an ED to deliver a five-star performance.

Here are 8 things smaller nonprofits can do to make their EDs feel valued, especially if they’re not in a position to offer competitive salaries.

  1. Annual review. Formal and on time. Get out in front and alert your ED that you know it’s coming up. Don’t make the ED nag.
  2. Offer a contract. Ask your ED if she would like a 2 or 3 year contract. Just the request alone tells her that you want her to stay and value her contribution.
  3. Get creative about money. Maybe the organization cannot afford a raise. Tell her that and also tell her that the board is going to take responsibility for a year-end bonus of some sort based on some simple achievements. Then, unbeknownst to the ED, each board member gives (stretches if they have to) to reach a very nice amount. Can you imagine how much that would mean to an ED?
  4. Time off. Add more vacation time. And then it must be the board chair’s obligation to check in and ensure that it is being taken.
  5. Get creative about assets. Consider assets that the board has that can be part of a compensation package. A one-week vacation at a board member’s second home while the board member is out of town. Or even a long weekend.
  6. Make sure the salary is reasonable. Do your homework. Be sure your ED is being paid on par with other nonprofit ED’s in your size and geography.
  7. Respond. Make a board commitment to respond to every ‘success’ email the ED sends (if you believe you can deliver on it). ED’s talk all the time about the “radio silence” they get to exciting emails about program successes. If a board could change that dynamic, the level of appreciation an ED feels skyrockets.
  8. Offer a sabbatical. How about a month off with pay? Great way to test drive the organization with the board and other staff driving. Great way for an ED to re-charge. Note: Please give this some thought and not through a corporate or even an academic lens. Boards often reject this out of hand because it is not in their frame of reference. Don’t take my work for it. Read this article from the Stanford Social Innovation Review.

A FINAL THOUGHT

To all of you who sit on a board, a search committee. To search firms. To EDs who are timid about salary negotiations.

To everyone in the nonprofit world who has salary angst.

Let’s revisit the comment I mentioned at the beginning.

“Here’s why I don’t donate to non-profits. There is no legal cap to the salaries paid to executives. Really? Do y’all think I donated to feed the pig CEO, or the needy? See a poor person in the street, give them the money. They may buy a bottle, but at least they will see the money, with no strings attached. 

This is what we are up against.

If you are a board member and feel even the slightest bit of this, it is time for a serious attitude adjustment.

Think of it this way. As a board member, you are an ‘owner’ of the enterprise. The success of all of you is dependent on the folks at the top and their ability to deliver on the promise. Whether you run a tiny, mid sized or large organization.

Please start thinking that way. Put yourselves in the shoes of your current leader and remember:

Your leader is outstanding. He has plenty of other options. And the joy and privilege of service is actually NOT priceless.