News and analysis
September 21, 2014

As the Economy Heats Up, Nonprofit CEOs See Pay Rise

Alberto E. Rodriguez/Getty Images

Wayne Pacelle, president of the Humane Society of the United States, got a 6.6-percent raise in base pay in 2013 after having received a 12-percent increase the previous year.

Charity executives of big nonprofits and foundations are beginning to win bigger raises after a long run when the median annual increases did little better than keep up with inflation, according to The Chronicle’s annual compensation survey.

Among the 82 organizations for which The Chronicle has 2011 and 2012 data, the median change in salary was 4.9 percent.

Since the financial crisis ended in 2009, charities have nudged up compensation for their top executives only modestly, on average by about 3 percent a year.

But some charities—especially larger ones—have regained sound financial footing thanks to the recovering economy, and some are beginning to give generous raises to top executives, compensation experts say. Excluding the groups that cut pay or kept it flat, the remaining 62 organizations in The Chronicle’s survey increased pay for their CEO in 2012 by 6.8 percent.

The survey identified 18 CEOs with compensation of more than $2-million.

"Organizations have a bit more money, and they’re willing to bid up salaries," says Brian Vogel, a compensation consultant in Washington. "The market is stiffening just a bit."

Small Pool of Executives

Wayne Pacelle, president of the Humane Society of the United States, received a base salary of $321,037 during the 2013 calendar year, up 6.6 percent from $301,285 in 2012. Rick Bernthal, chairman of the Humane Society’s board, says the charity has long experienced an "upside-down negotiation" with Mr. Pacelle in which he "has resisted the raises we have pressed upon him" to bring his compensation in line with peers. Apparently his ability to resist isn’t as strong as it once was: Mr. Pacelle’s 2013 raise follows a 12-percent increase in base pay a year earlier.

Humane Society officials point out that his salary is still far lower than some other charities focused on animal welfare. Edwin Sayres, the former president of the American Society for the Prevention of Cruelty to Animals, received base pay of $463,159 in 2012, the latest year available, 50 percent more than Mr. Pacelle that year.

Compensation consultants say the pool of executives ready to lead large nonprofits is relatively small, and salaries are rising as charities compete to attract top leaders.

"Any organization wants to succeed, and they want to make sure they get high-caliber talent to achieve their mission," says Sandra Pace, who heads the nonprofit-compensation practice at a New York consulting company that also has corporate clients. "It’s more costly to get the talent that won’t get the job done—that’s the same whether you’re a nonprofit or a for-profit."

Higher Raises at Businesses

Even as salaries begin to rise for nonprofit executives, the rate of increase lags far behind pay in corporate America. Chief executives of S&P 500 companies saw median compensation rise 9.5 percent last year, to $10.1-million, according to a study by Equilar, a company that studies executive pay.

The rising stock market contributed to their compensation gains. The report noted that nearly two-thirds of pay for leaders of S&P 500 companies comes from stock-based compensation.

Nonprofit chief executives aren’t riding stock options to million-dollar paydays—but each year, some charity leaders see their total compensation surge thanks to the vesting of deferred-compensation agreements.

Deferred compensation drove a huge increase for Rebecca Rimel, president of Pew Charitable Trusts, in 2012, the latest year available for the charity. Ms. Rimel, who has been president of Pew since 1994, and oversaw its conversion from a private foundation into a charity a decade ago, received a base salary of $735,363 in 2012, up 4.6 percent from 2011. But her total compensation in 2012 was $4.11-million—more than five times her 2011 pay.

Melissa Skolfield, a Pew spokeswoman, says Ms. Rimel had been accruing a supplemental retirement benefit since 2004, and the plan finally vested in 2012. That made the entire value of the $3.3-million supplemental plan taxable, even though Ms. Rimel won’t start drawing those funds until she retires.

Salary Research

A charity paying a big salary to a top executive can reduce the likelihood of facing inquiries from the Internal Revenue Service if it follows several steps to document that the pay is reasonable.

Many charities ask consultants to conduct studies that show that CEOs at comparable organizations are earning similar salaries.

But Lindalee Lawrence, a compensation consultant in Boston, says that the variability in deferred-compensation and retirement pay can affect the accuracy of those studies. One CEO making a base salary $300,000 a year might also receive retirement benefits of $18,000 a year. A second CEO with the same base pay might make far more total compensation, thanks to a deferred-compensation benefit worth $150,000 a year, she says.

"It’s difficult to draw conclusions about what the marketplace really looks like," Ms. Lawrence says. "Total compensation is comprised of all these odd numbers."

Clive Gillinson, executive and artistic director at Carnegie Hall, in New York, received a 7.5-percent increase in base pay in 2012, to $929,440, but his total compensation doubled, to $2.26-million, thanks to the vesting of a retirement plan that had been set up five years earlier.

Trend Lines

Mr. Vogel, the compensation consultant, says that in years affected by big vesting milestones—like Mr. Gillinson’s pay in 2012—neither the base salary nor the total compensation really captures the trend line of a CEO’s total compensation.

"The most meaningful number is the base amount that they’re getting in a given year and the amount of deferred compensation that has accrued in that year, even though they might not get it until future years," Mr. Vogel says.

The complexity of nonprofit compensation might explain why regulators rarely embrace large-scale efforts to rein in charity pay, despite plenty of rhetoric in Congress and state legislatures about excesses.

Several years ago, the Internal Revenue Service conducted studies of executive compensation at hospitals and colleges—two types of institutions known for high salaries—but, at least publicly, little came from the studies.

New York has been by far the most aggressive state in patrolling nonprofit-executive compensation.

Under an executive order by Gov. Andrew Cuomo that went into effect in 2012, nonprofits that receive more than 30 percent of their revenue from the state can’t use state funds to pay more than $199,000 toward an executive’s salary. In recent months, state judges have issued conflicting rulings on the legality of the executive order. In the latest ruling, in August, the judge upheld the rule and noted that it wasn’t a true cap on compensation since nonprofits can use other funds, including donations or fees they charge for services, to pay their executives more than $199,000 per year.

Charities can also apply for waivers to pay more.

Doug Sauer, CEO of the New York Council of Nonprofits, says the rule doesn’t seem be having much impact on salaries but has been a boon for lawyers and accountants. (Governor Cuomo’s office didn’t return phone calls.)

"We’re seeing more hoops to jump through and administrative expenses going up," Mr. Sauer says. "But there’s nothing from the state that shows any outcomes. I think that’s why you’ve seen a lot of other states back off."

Not Backing Down

One state that hasn’t backed off is Massachusetts. Attorney General Martha Coakley plans to require charities to file annual information about executive compensation that is more timely and thorough than disclosures required by the IRS.

In a report issued by her office last December, Ms. Coakley wrote that the disclosures required by the new Form EC may "lead to more moderate rates of increase in CEO compensation, allowing more charitable resources to be devoted to the organization’s charitable mission."

Emalie Gainey, a spokeswoman for Ms. Coakley’s office, said the new form is expected to become part of the state’s reporting process early next year.

Shoestring Budgets

Even as salaries begin to rise fast at the largest charities, the vast majority of nonprofits operate on a shoestring and can’t afford to dole out big raises.

Charity Navigator, a watchdog organization, conducted its own salary survey based on federal tax-form data from 2012. That study of more than 2,500 organizations found that the largest charities—those with budgets over $13.5-million—awarded CEOs raises averaging 4 percent, while the smallest—those with budgets under $3.5-million—gave raises averaging 2 percent.

Ken Berger, Charity Navigator’s president, says larger groups have more operating income that they can devote to salaries. But another factor, he says, may be the mergers that have occurred since the recession, with some larger charities absorbing smaller ones that offer related services.

"If after a merger, you have one CEO with a budget that has doubled, it’s not surprising that part of the reward is higher pay," he says.