October 02, 2008

Executive Pay Outpaces Inflation

Median compensation rose 5%, a new Chronicle study finds

The median pay increase of leaders of the nation's largest nonprofit organizations outpaced inflation last year, according to The Chronicle's 16th annual survey of executive compensation and benefits.

Chief executives at the nation's biggest charities and foundations received a median pay increase of 5 percent, while inflation rose by 4.1 percent. (A median increase means half of the raises were higher and half lower.)

And yet that 5-percent increase marks the biggest one-year raise for nonprofit leaders since the 7.5-percent median increase reported in The Chronicle's 2002 survey.

Experts predict that executive compensation may continue to rise this year, even in the face of a slowing economy. Charity boards are increasingly recruiting for-profit executives to make the switch to the nonprofit world, and some are now sweetening pay packages to lure out-of-town candidates who may need to sell their home at a loss as part of a move.

The median salary for chief executives at the organizations surveyed was $326,500, based on information from 249 groups that provided data for both 2006 and 2007. In 2006 the median salary was $308,800.

The survey was based on information provided by 291 organizations that are among those that raised the most money from private sources in 2007, as well as grant makers that held the most in assets that year.

The median income of the charities that provided data was $141.9-million.

The median assets of community foundations in the survey was $1.1-billion. The median assets of the private foundations included among those surveyed was $4-billion, and the median assets of operating foundations was $286.1-million.

Corporate Salaries

The median 5-percent pay increase earned by nonprofit executives in The Chronicle's survey exceeded the percentage salary increase earned by executives at for-profit companies.

The median base salary of chief executives at large companies grew by 3 percent, to $1,030,000, in 2007, according to a survey by Equilar, a San Mateo, Calif., company that studies executive and board pay in the for-profit world.

The Equilar survey measured 233 Standard & Poor's 500 companies that had chief executives in place for at least two years.

Of course, total compensation earned by executives at large companies typically dwarfs that earned by charity leaders.

The median compensation, including bonuses and stock options, for executives in the Equilar study was more than $8.8-million.

Charity and college leaders may not earn that kind of money — but some of the people who work for them are getting close.

The five highest-paid people in The Chronicle's survey, based on total compensation, are doctors and coaches who work for universities.

For the fourth straight year, David N. Silvers, a clinical professor of dermatology at Columbia University, earned the highest compensation among nonprofit employees who are not chief executives.

Dr. Silvers earned $4,301,018 last year. He was followed by Peter Carroll, head football coach at the University of Southern California, with $3,953,648; Zev Rosenwaks, professor of medicine at Cornell University, with $3,101,231; James Grifo, a professor of obstetrics and gynecology at New York University, with $2,362,270; and Mike Krzyzewski, head men's basketball coach at Duke University, with $2,180,409.

'Nosebleed'-Level Pay

Ken Berger, who this year succeeded Trent Stamp as president of Charity Navigator, a watchdog group in Mahwah, N.J., described Dr. Silvers's compensation as being at a "nosebleed" level and "way out of range." After the New York Daily News wrote about Dr. Silvers's compensation in July — and cited records showing that he owns a $1.3-million Tribeca apartment, a Park Avenue home, and a $1-million house in Southampton, N.Y. — Columbia issued a statement defending the professor's compensation package.

"Dr. Silvers is renowned in the field and has significant responsibilities in directing this highly specialized lab at Columbia University Medical Center," the university said.

The general public, and mainstream newspapers like the Daily News, are now paying more attention to salaries paid by charities, following numerous allegations of misspending by charity executives in recent years. Those scandals have also attracted the attention of Congress, and the Senate Finance Committee has held several hearings on nonprofit accountability in the past four years that have focused in part on executive compensation.

Mr. Berger says the most-common complaint that he hears from donors is about compensation — but he believes that the donors who carp that no charity employee should make more than $100,000 are as wrong-headed as the Columbia administrators who authorized the big payday for Dr. Silvers.

"The truth is somewhere in the middle," he says. "We don't want the outrageous salaries like we see at Columbia, but you can't expect people to be doing this work for $25,000 per year."(Mr. Berger himself makes $140,000, which, according to his organization's own research, is below the national average of $149,000 made by executives of public benefit charities like Charity Navigator.)

Through 2007, charities and foundations were not required by the Internal Revenue Service to list the base salaries of their top executives on their public tax forms. As a result, the survey's compensation numbers can also include payments like bonuses, pension contributions, and allowances for housing and transportation.

It should become much easier to compare compensation of nonprofit executives in 2008 and future years, thanks to changes in the Form 990 informational tax form that clarify how charities should report salaries and benefits.

For many years, hospital leaders dominated the top ranks of The Chronicle's salary survey, but in both 2006 and 2007, only one executive among the top five highest-paid chief executives worked at a hospital. This year, however, that hospital executive claimed the number-one spot in the survey. James J. Mongan, chief executive of Partners HealthCare System, in Boston, which includes Massachusetts General Hospital, earned $1,371,399 in total compensation.

University presidents and arts executives took the next four spots of highest-paid chief executives in The Chronicle's survey. Henry S. Bienen, president of Northwestern University, took the second spot, receiving $1,342,595 — nearly twice his 2006 compensation of $690,333. Two deferred compensation accounts, worth a total of $590,929, vested in 2007 and accounted for most of the difference. If Mr. Bienen stays on the job until his scheduled retirement in August 2009, he will earn an additional $375,000 in deferred compensation that was awarded during 2007.

Mr. Bienen was followed on the list by John E. Sexton, president of New York University, who earned $1,291,525. Michael Kaiser, president of the John F. Kennedy Center for the Performing Arts, in Washington, took the fourth spot, with $1,017,690 in compensation. Fifth was Peter Gelb, general manager of the Metropolitan Opera, who received $1,000,002.

Among chief executives at private foundations, Susan V. Berresford, who retired in January as president of the Ford Foundation, was the top earner last year, with compensation of $724,244. Steven E. Sanderson, president of the Wildlife Conservation Society, took home the most pay among environmental and animal organizations, with $489,663. And Lorie Slutsky, president of New York Community Trust, earned more than any other community-foundation executive, with compensation of $589,800.

Biggest Increases

The Chronicle's survey does not necessarily show the highest salaries in the nonprofit world. Executives at smaller organizations might be paid more than the leaders of the wealthiest groups.

On the whole, though, salaries are rising faster at large organizations than at small ones, according to a study released last week by Guidestar, an organization in Williamsburg, Va., that collects the federal tax forms that nonprofit groups use to inform the Internal Revenue Service about their finances and activities. The study, which is based on 2006 data, found that chief executives at organizations with budgets of $50-million or more earned a median salary increase of 7.6 percent, compared with a median increase of just 4.5 percent for chief executives of organizations with budgets between $500,000 and $1-million.

One factor driving up salaries for big charities may be the trend of hiring new executives from the for-profit world. This year, the American Red Cross, the Ford Foundation, the Bill & Melinda Gates Foundation, and the Nature Conservancy all tapped leaders with significant experience in corporate America. Many other charities are pursuing proven fund raisers to be their chief executives; those new leaders may be moving over from the development office, where salaries tend to be high.

Charles S. Ingersoll, a recruiter at Korn/Ferry International's Washington office who specializes in nonprofit clients, says running a large charity requires "a businesslike focus" and those leaders deserve to be paid well.

"If you have to raise tens or even hundreds of millions of dollars per year, that takes a special person," Mr. Ingersoll says. "At the end of the day, you have to pay people to do that."

Higher expectations come with enriched pay packages, experts say. "Average performance is not being tolerated," Mr. Ingersoll says. "If they're not driving the revenues the way the board wants, boards are making the decision a lot faster to let the CEO go."

Some boards are using bonuses to send a message to chief executives about their expectations. Thirty-eight organizations in The Chronicle's survey reported awarding a bonus to their top executive in 2007. The median bonus grew from $45,000 in 2006 to $55,000 in 2007.

Roxanne Spillett, president of Boys & Girls Clubs of America, earned nearly a third of her total compensation, $557,013, through a $175,739 bonus. A spokeswoman for the charity said the bonus was "based on performance" but declined to elaborate.

More than three-quarters of the organizations in the survey gave fringe benefits to top executives, and 63 groups awarded fringe benefits worth $100,000 or more.

Glenn D. Lowry, director of the Museum of Modern Art, in New York, received the biggest fringe-benefits package, worth a total of $791,581. The package includes a housing allowance of $336,000 — the value of living rent-free for a year in an apartment that the museum owns in Museum Tower, a chic high-rise complex that incorporates part of the museum.

Mr. Lowry moved into the building in 2004, according to Kim Mitchell, a museum spokeswoman. "The trustees decided to require that the director live on site as a convenience to the museum — to ensure his ready access to attend and host museum functions, both at the museum and in the apartment, and to be immediately available should the need arise," Ms. Mitchell says.

The charity first listed the housing allowance this year, following a 2007 article in The New York Times that raised questions about whether the charity was adequately disclosing the full value of Mr. Lowry's compensation. The museum also amended returns for the prior two fiscal years to include the housing allowance.

Succession is a big issue in the nonprofit world, as many chief executives are approaching retirement age. Some 45 organizations, or 23 percent of respondents in The Chronicle's survey, said they have formal succession plans, including the American Cancer Society, Feeding America (formerly America's Second Harvest), and the Oregon Community Foundation.

Eighty-three percent of the organizations said health-care costs had risen in recent years. The median increase in health-care costs over the past year was 9 percent.

The charities in the survey spent a median of less than half of 1 percent of their income on their top two earners. Among private and operating foundations, a median of just .03 percent of assets was spent on the top two earners.

But some foundations spent a considerably higher percentage on executive compensation. At the Stupski Foundation, the top two earners made a combined $546,292 — 0.6 percent of the foundation's assets.

Ann Wallace, a spokeswoman for the foundation, says that calculation is misleading because the charity spends a much greater percentage of its assets each year than other foundations its size. The foundation's operating budget was $21-million in 2007, according to Ms. Wallace — the kind of spending one often finds at foundations worth $400-million or more.

She says the foundation is already organized like its larger peers and will be able to maintain its rate of spending because the founders, Larry and Joyce Stupski, intend to eventually transfer a far greater amount of assets into the foundation. (Mr. Stupski is a former executive at the financial services giant Charles Schwab; Ms. Stupski founded the management communications firm Pringle and Associates.) "It's difficult when you compare a foundation that has a nontraditional asset base to a more traditional foundation where the donors have passed on and the assets are fully endowed and transferred into the foundation," Ms. Wallace says.

Given the dreary economy, the steady string of salary increases received by charity executives over the past decade may appear to be on the verge of coming to an abrupt end. Susan Egmont, a recruiter in Boston who works for nonprofit clients, says that isn't likely. She believes newly hired executives in particular may have some cards to play precisely because of the weak economy.

Candidates relocating from outside the local area may seek a generous salary because they are worried about whether their spouse will be able to find a job in the new town. Those coming from areas where real estate is plummeting might also seek a bump in pay to compensate them for having to unload their old house at a loss.

On top of that, candidates might seek more money at the time of hiring because they are looking ahead and fearing that pay raises could be hard to come by while the economy remains troubled.

Says Ms. Egmont, "All that together means that once you've found the person and you know they'd like to come, it's not necessarily a done deal yet."

Maria Di Mento and Candie Jones contributed to this article.