March 17, 2010

Nonprofit CEOs Who Want For-Profit Salaries Should Work at For-Profit Companies

The Boys & Girls Clubs of America has come under fire for paying its CEO nearly $1-million in 2008.

According to The Chronicle, "Four Republican senators have asked Boys & Girls Clubs of America to provide details about what it spends on executive compensation, lobbying, perks, travel, and other items" and have said that "they wanted the answers so they could consider changes to Senate legislation that would provide $425-million to the youth organization over five years."

The senators' biggest beef with the Boys & Girls Clubs is that chief executive officer Roxanne Spillett earned more than $900,000 in compensation in 2008, amidst a backdrop of a tough economic climate in which "local Boys & Girls Clubs nationwide close their doors due to budget shortfalls."

You would think that large nonprofit groups like the Boys & Girls Clubs would know by now that paying out near-million-dollar salaries would bring about public concern. Just two years ago, controversy broke out over the salary of Gloria Pace King, President of United Way of Central Carolinas. After a significant increase to her retirement plan, Ms. King's total compensation topped out at $1.2-million, to the dismay of some in the nonprofit field.

Aaron Dorfman, executive director of the National Committee for Responsive Philanthropy, called Ms. King's pay "outrageous." "Why do people believe that we can retain the trust of the public when we pay people at outrageous levels like this?"

Not surprisingly, Uncharitable author Dan Pallotta defends Ms. Spillett's  paycheck, which falls in line with the ideas he shares about nonprofit salaries and business models on his Harvard Business Review blog. While I disagree with him, it doesn't surprise me that a man who comes from the for-profit world — where he earned six figures helping nonprofit groups raise money through AIDS rides — would defend high salaries. But Pallotta Teamworks was a for-profit business, and the Boys & Girls Clubs is not.

There are a number of reasons why we should view the Boys & Girls Clubs case as being problematic for the entire nonprofit sector.

Good Pay Does Not Mean Excessive Pay

I absolutely believe that nonprofit CEO's should earn good pay. But there's a big difference between good pay and excessive pay. While an organization can use any number of formulas to set compensation, it's clear that many a reasonable person would deem Ms. Spillett's salary excessive. I'm certainly not saying that nonprofit CEO's should take a vow of poverty but that it may be problematic to have leaders in our sector who could be deemed "rich."

Million-Dollar Salaries Are Not Sustainable for the Sector

I have heard many nonprofit folks say things along the lines of, "Oh wouldn't it be great if all nonprofit CEO's could earn salaries comparable to those in the for-profit world?" But just think about that for a moment. If all nonprofit organizations paid their CEO's or executive directors extremely high salaries, little would be left over for programming. Just take a look at the Boys & Girls Clubs, which is actually closing down some of its programs around the country. My question to those folks is always, Where is all this extra money going to come from?

High Salaries Do Not Equal Effective Leaders 

Mr. Pallotta often makes the argument that we need to pay people well to stay in the sector. On it's face, that is true, but he and others take that premise a step further in implying that we can't attract good leaders without giving them for-profit salaries. I disagree with the idea that we need to pay nonprofit CEO's high six figures to do a good job. It's just not true. There are great nonprofit CEO's and bad ones at both ends of the salary spectrum, and many ineffective leaders have been paid well. So it's not a given that we will "lose out" on talented leaders if we don't pay them excessive salaries. It's also not a given that we need to be able to attract talent from the business world or from outside of our organizations. We should really be developing the amazingly talented people we already have within our organizations, who are passionate about the work even if it doesn't come with a million-dollar salary.

Excessive Salaries Turn Donors Away

For me, this is one of the main reasons not to pay nonprofit CEO's so much money. Sen. Charles Grassley notwithstanding, public perception is incredibly important if you want to keep donations coming into the door. In a time when donors themselves are being laid off and struggling to contribute to nonprofit causes due to the recession, hearing that the head of the Boys & Girls Clubs earns nearly $1-million a year is just not going to sit well with them. I don't care what the board says or what the executive-compensation consultant says. Nonprofit organizations have to pay attention to how donors feel about certain salary decisions.

We Need to Be More Concerned With Paying All Nonprofit Staff Better, Not Just CEO's

Have you noticed how so many people in the sector always come to the defense of the highly paid nonprofit CEO? Part of it is self-motivation. They rush to defend partly out of fear that their earning potential will be affected by arbitrary salary caps, but the truth of the matter is that most of us will never be put into a position of even coming close to earning a salary that would need to be capped.

Now if we defended increasing the salaries of other nonprofit staff members as much as we do for CEO's, the sector would be in much better shape. I know that while many CEO's get paid extremely well, their staff members still make pennies on the dollar. No matter how great they are, no successful nonprofit CEO raises millions singlehandedly. It takes great staff members to do this, and they deserve decent pay, too. And common sense tells us that if you pay nonprofit CEO's a little less, you can pay the nonprofit staff a little more.

While the kids that the Boys & Girls Clubs serves are worth a million dollars, I can't say the same for its CEO.