Bonuses for Top Nonprofit Officials Are Growing Quickly in Size

The amount of money the nation’s biggest nonprofit organizations paid in bonuses to their top executives

more than doubled in 2006, reflecting a growing trend toward tying executive compensation to an organization’s performance.

Thirty-nine organizations in the Chronicle survey of executive compensation at 298 of the largest charities and foundations paid $5.6-million in bonuses to their top executives in 2006. Those who received bonuses received an average payment of $142,700.

By comparison, in 2005, 38 chief executives received bonuses totaling $2.6-million, with an average payment of $69,477.

In addition, among the 27 organizations in the Chronicle survey that paid bonuses to their top executives in 2005 and 2006, total payments increased 25 percent, from nearly $1.9-million in 2005 to more than $2.3-million in 2006.

The largest bonus in 2006 was paid to Catholic Healthcare West’s Lloyd H. Dean, who earned a payment of $2.7-million based on his performance. That bonus accounted for more than 68 percent of Mr. Dean’s total compensation.

The San Francisco hospital system uses performance bonuses to attract people who have the skills needed to run the complex organization, which has $8.6-billion in assets, said Tricia Griffin, a spokeswoman for Catholic Healthcare West. Mr. Dean’s compensation is tied to “long- and short-term charitable, fiscal, and quality-of-care goals approved in advance by the CHW Board of Directors’ Compensation and Benefits Committee,” she wrote in an e-mail message to The Chronicle.

Last year’s bonus reflects Mr. Dean’s work to make Catholic Healthcare West financially solvent, she said. When he joined the group in 2000, it was losing roughly $300-million annually, but in fiscal 2006 it had a net income of $438-million, Ms. Griffin wrote.

Nine other top executives earned bonuses of $100,000 or more in 2006. The Museum of Fine Arts, in Houston, for example, paid its director, Peter C. Marzio, a $400,000 bonus. City of Hope, in Duarte, Calif., paid Michael A. Friedman, its chief executive, a bonus of $346,263. Glenn D. Lowry, director of the Museum of Modern Art, in New York, received a $291,748 bonus.

To be sure, the dollar amounts for bonuses range in size. The smallest one — $300 — went to Israel L. Gaither, national commander of the Salvation Army, in Alexandria, Va., and his wife, Eva, who runs the charity’s women’s ministries. (Compensation is paid jointly to couples who work for the Christian social-service group.)

The Christmas bonus is based on the couple’s combined 86 years of service with the charity, said Melissa Temme, a Salvation Army spokeswoman.

Scott Walker, an executive recruiter for nonprofit boards in Atlanta, says he sees such incentive-based payments becoming more frequent for large nonprofit groups in the future.

“It is so obvious now that these organzations are going to have to reach into their quivers and pull out some type of arrow,” Mr. Walker says. “Within the next five years to 10 years, that will continue.”

Focus on Performance

Many nonprofit organizations are already thinking about adding bonus plans.

Walter Sczudlo, general counsel for the Association of Fundraising Professionals, in Alexandria, Va., says that during the past 18 months his organization has received an increasing number of queries from nonprofit boards interested in setting up executive incentive plans. The membership organization often provides advice to nonprofit groups that are seeking new leaders.

The Association of Fundraising Professionals prohibits its members from tying incentive compensation to fund-raising performance because such arrangements can encourage executives to put personal gains ahead of the needs of the people being served by their organizations. As a result, the organization works with its members to explore approaches to incentive compensation that are based on the organization’s performance, such as whether it has met budgets or improved services.

Lyn Brennan, an executive recruiter at Battalia Winston International, in New York, says she recently worked with a nonprofit hospital that was facing financial trouble and hired a turnaround expert to work as its chief executive. Because of its financial situation, the hospital offered a below-standard salary, but augmented that salary with a generous incentive plan that would allow the executive to earn a significant bonus if he was able to meet aggressive financial benchmarks.

“Incentive compensation offers a tremendous opportunity to earn a significant bonus,” Ms. Brennan says. “What that means is the organization wins as well. People who are good are really willing to be paid on a performance basis. If they are confident in themselves, they see a great opportunity.”