Compensation Rises by 6.7% for Nonprofit Executives

Top executives at the nation’s largest nonprofit organizations received pay raises

well above the rate of inflation last year, garnering a median increase of 6.7 percent, according to The Chronicle‘s 10th annual survey of compensation and benefits.

Reflecting last year’s booming economy, half of the 239 organizations that provided The Chronicle with information for both fiscal 1999 and 2000 reported pay increases for chief executives of more than 6.7 percent. All together, 280 nonprofit groups provided data for the survey.

The median rise compares with gains of 6.2 percent in 1999 and 5.7 percent in 1998.

But unlike the two previous years, when median increases totaled about 4 percent per year after adjusting for inflation, the increase in 2000 was slightly more than 3 percent, after accounting for last year’s inflation rate of 3.4 percent.

For the third straight year, The Chronicle‘s survey shows that the nation’s largest nonprofit groups are giving raises that surpass those given to executives in business. A survey published this year by WorldatWork, a company in Phoenix, that conducts research on nonprofit compensation, found that salaries for executives and officers at for-profit companies rose 4.8 percent in 2000, or 1.4 percent when adjusted for inflation.

Competition From Business

Executive-search and compensation consultants say higher salaries in the nonprofit world are evidence of continuing competition between nonprofit groups and for-profit companies for high-level executives. Furthermore, executives from the for-profit world who sit on charity boards of trustees have helped to shape salary practices, particularly when it comes to hiring new executives.

“It used to be that you could recruit chief executives for 10 percent to 20 percent above their salaries,” says James Abruzzo, managing director of the nonprofit, education, and philanthropy practice for the Stratford Group, an executive-search firm in Cleveland. “Now, it’s 30 percent or higher. Boards are telling me, ‘I’m paying $110,000. I’ll pay a new person $130,000, but I’ll go $50,000 higher than that for the right person.’ That’s the prevalent attitude right now — that exceptional talent merits exceptional pay.”

Ten of the organizations in The Chronicle’s survey increased the pay for their chief executives by at least 50 percent in 2000, compared with six organizations in 2000. Five groups more than doubled the salaries paid their chief executives.

New hires received most of the highest increases. For example, Bernadine Healy, president of the American Red Cross, in Alexandria, Va., earned $377,700 in salary and a bonus, $77,700 more than her predecessor’s annualized compensation. Paul Brest, president of the William and Flora Hewlett Foundation, in Menlo Park, Calif., earned $378,348, more than double the amount paid to the foundation’s previous top executive.

Some of the highest-paid executives received pay increases through performance bonuses. R. Bruce Journey, publisher of the Massachusetts Institute of Technology’s Technology Review magazine, made a sizable portion of his $872,585 in compensation from bonuses that were based on advertising revenue, a spokesman for the institution said. MIT would not disclose the size of the bonus.

One group, the Kaiser Family Foundation in Menlo Park, Calif., said it would pay the college-tuition costs for the two children of its president, Drew E. Altman, if Mr. Altman stays with the foundation until June 30, 2002.

“It’s something the board offered me as part of a deferred compensation or pension arrangement,” says Mr. Altman, who is the father of a 15-year-old son and a 13-year-old daughter. The foundation has promised an amount tied to tuition costs at Stanford University.

Organizations in The Chronicle survey were selected primarily from the newspaper’s 2000 Philanthropy 400 list of nonprofit groups that raised the most money in private donations in fiscal 1999. They include hospitals, social-service charities, colleges, and other organizations with incomes that range from $2.7-million to $5.9-billion.

The survey also covers 20 private foundations, each with assets of more than $2-billion, and 19 operating foundations with assets ranging from $200-million to $10.9-billion.

While the survey covers many of the highest-paid nonprofit officials, it does not necessarily include all the top earners. Some small groups not included in the salary survey may pay their executives more money than large ones in the survey, and some large nonprofit organizations such as medical centers are not included in the Philanthropy 400 because they raise relatively little in private donations.

Of the 18 executives or other employees who made more than $1-million in total compensation, according to this year’s survey, 17 worked as specialists or administrators of hospitals or medical centers, some affiliated with colleges and universities. Total compensation reflects salary, benefits, and expenses.

Gains at Arts Organizations

The heads of arts organizations earned the highest salary increases. They received a median of 10.3 percent.

Receiving more in straight salary than any other executive in the survey was Peter C. Marzio, director of the Museum of Fine Arts, in Houston. His pay rose from $450,000 in 1999 to $2,221,353 in 2000, an increase of nearly 400 percent.

Mr. Marzio was one of only three chief executives in the survey to earn a seven-figure salary. The other two $1-million-plus earners were John W. Rowe, president of Mount Sinai Medical Center in New York, who made $1,938,411, and Floyd D. Loop, chief executive officer at the Cleveland Clinic Foundation. Mr. Loop earned a salary of $1,506,039.

Leaders at three other performing-arts organizations — the Metropolitan Opera Association, the New York City Ballet, and Lincoln Center for the Performing Arts — took in $500,000 or more in 2000.

The New York Ballet’s master in chief, Peter Martins, received $506,000 as an independent contractor.

United Way leaders finished slightly behind chief executives of arts organizations, with a median increase in salary of 10.2 percent. The median pay in fiscal 2000 for chief executives at United Ways that The Chronicle surveyed was $213,000.

Salaries for chief executives of private foundations rose by a median rate of 9.8 percent. Thomas M. Lofton, chairman of the Lilly Endowment, in Indianapolis, was the top earner, with $705,600 in salary for fiscal 2000.

Leaders of health charities reported a median increase of only 3.8 percent.

Operating foundations and education groups reported median increases in pay for top executives of less than 1 percent. Fifteen Jewish organizations reported that salaries remained flat before adjusting for inflation.

Survey’s Highest Earner

Although Mr. Marzio of the Museum of Fine Arts in Houston earned the most in salary, he received less than one other person when benefits and expenses are taken into account.

William N. Kelley, former executive vice president of the University of Pennsylvania, earned $7,820,156 in fiscal 2000, $5.9-million of it in severance pay, making him the highest-compensated executive in the survey.

With benefits and expenses included, Mr. Marzio earned $2,260,065.

Of the 40 highest earners, 23 were in the health field. Seven were from private foundations, five from museums or other arts organizations, and five were college administrators who did not derive their incomes from hospitals.

Twenty-seven of the top executives in the Chronicle survey received benefits packages worth $100,000 or more, with nine of them garnering $200,000 or more in benefits.

Pay at Hospitals

At some nonprofit groups, the chief executive was not the highest-paid employee.

In all, 61 groups paid someone other than their chief executive more in fiscal 2000. Thirteen teaching hospitals paid medical professionals more than their top executives.

Twelve groups paid their top executive and other highest-paid official a total compensation package worth more than 2 percent of the group’s total income.

Topping the list was Houston’s Museum of Fine Arts, where Gwendolyn H. Goffe, associate director, earned $625,447 in salary and benefits in addition to Mr. Marzio’s $2.3-million. The museum paid 3.4 percent of its fiscal 2000 income of $86,239,794 in compensation for the two of them.

Among the survey’s other findings:

• Ninety-one of the 152 nonprofit organizations that broke down their salary information by category paid pension benefits, which they usually reported as benefits, not salary, on their IRS Forms 990.
• Eighty-six organizations surveyed paid their top executives straight salary, with no bonuses or deferred compensation.
• Half of the organizations in the survey reported paying health benefits.
• Forty organizations reported paying an automobile allowance.
• Cash bonuses were paid to 23 top executives. In all, 34 organizations reported performance bonuses. But some groups that paid bonuses may not have listed them separately.
• Of the 23 nonprofit organizations that offered their chief executives deferred compensation, three — the Scripps Foundation for Medicine, in La Jolla, Calif.; the Duke Endowment, in Charlotte, N.C.; and the W.K. Kellogg Foundation, in Battle Creek, Mich. — put away more than $100,000 in deferred money.
• Housing allowances were paid by 11 organizations, most of them in New York or California.

Marni D. Larose and Martha Voelz contributed to this report.