Nonprofit CEO’s See Salaries Rise

Pay raises beat inflation rate despite economic squeeze

Executive salaries at the nation’s biggest nonprofit groups continued to rise last year despite the sluggish economy

and layoffs and program cutbacks at many charities and foundations, according to The Chronicle’s 12th annual survey of compensation and benefits.

The chief executives of the 235 organizations that responded to The Chronicle’s survey both last year and this year received a median salary increase of 4.3 percent in 2002. That means the compensation of half the executives in the survey grew by more than that figure. The median increase was down from 7.5 percent in 2001 but was nearly twice the 2002 inflation rate of 2.4 percent.

The median salary last year for all chief executive officers in the survey was $285,000. Chief executives at private foundations earned a median salary of $402,-821, compared with $282,712 for charity CEOs.

The organizations included in the survey were selected primarily from The Chronicle’s 2002 Philanthropy 400 list of nonprofit groups that raised the most money in private donations. Also included were the nation’s 50 wealthiest private foundations, with assets ranging from $207-million to $24-billion, and the 20 largest operating foundations.

Nonprofit executives fared slightly better last year than their counterparts in private industry, where salaries rose 4 percent in 2002 before adjusting for inflation, according to WorldatWork, a trade association in Scottsdale, Ariz., that conducts research on compensation.

Growth in Recent Years

While nonprofit salaries tended to rise by less than 10 percent last year, a Chronicle review of compensation trends over the past five years shows that the pay of some charity leaders more than doubled from 1997 to 2002, and more than four dozen executives saw their compensation climb by at least 50 percent.

Among the biggest five-year gainers was William H. Gray III, president of the United Negro College Fund, whose compensation rose 132 percent, to $404,427 last year from $175,000 in 1997. Mr. Gray’s salary had changed little from 1991, when he joined the charity as president, until 1999, when the charity commissioned a study that showed that Mr. Gray’s salary was significantly lower than that of top executives in nonprofit groups of similar size and scope, said Lajuan Lyles, vice president of human resources at the charity. In addition, she said the charity has raised twice as much money under Mr. Gray than it did in the rest of its 59-year history.

Thomas M. Lofton, chairman of the Lilly Endowment, in Indianapolis, received $822,000, 83 percent more than in 1997. That increase came amid a 36-percent plunge in the value of Lilly’s endowment, which dropped to $10.1-billion last year from $15.8-billion in 1998. “The board believes that the compensation of its employees is proportional, warranted, and appropriate,” said Gretchen Wolfram, Lilly’s communications director. Salaries of foundation staff members last year represented a very small proportion of Lilly’s $600-million in grants, she said.

Other substantial increases over five years included those of Susan V. Berresford, president of the Ford Foundation, whose compensation rose 48 percent, to $651,713, from 1997 to 2002; and Harold Varmus, president of Memorial Sloan-Kettering Cancer Center, who made $1.45-million last year — 52 percent more than his predecessor did in 1997.

Both the review of compensation trends over five years and this year’s annual salary survey show how nonprofit salary and benefit plans increasingly rival those in the for-profit world.

Among the key findings from this year’s annual survey:

• Fringe benefits made up a substantial portion of some compensation packages. The top recipient was Martha Lamkin, president of the Lumina Foundation for Education, who received a one-time lump-sum contribution to her retirement plan of $1.1-million. The payment stemmed from a new executive-retirement plan that SallieMae, the country’s largest student-loan financier, established when it purchased the assets of Lumina’s predecessor, USA Group, a nonprofit student-loan provider that had an education-oriented foundation, in 2000. Ms. Lamkin previously worked at USA Group, and the lump-sum contribution was intended to cover her years of employment at USA Group as well.
• Compensation of 59 high-level nonprofit officials eclipsed that of their bosses. For example, Zev Rosenwaks, a professor of medicine at Cornell University, in Ithaca, N.Y., earned $2.1-million, while the university’s president, Hunter R. Rawlings III, made $205,697. Daniel Barenboim, music director of the Chicago Symphony Orchestra, made $840,000, compared with the $330,000 earned by the orchestra’s president, Henry Fogel. Donna Dean, treasurer of the Rockefeller Foundation, earned $677,597, including a $295,989 bonus, while the foundation’s president, Gordon Conway, earned $598,479.
• Senior fund raisers were the second-highest-paid officials at 14 groups. Top among them was Lillian Silver, director of development at the Metropolitan Opera Association, in New York, who made $309,000 in compensation.
• Some leaders earned substantially more than their predecessors. Among them was Steven J. McCormick at the Nature Conservancy, who was also the highest-paid executive of an environmental group. Mr. McCormick earned $378,366 last year, nearly twice as much as his predecessor, John C. Sawhill, who received $196,015 in 2000. Mr. Sawhill “never took a pay raise in 10 years and had accumulated substantial wealth” from positions in the for-profit world, said Mr. McCormick. A 29-year veteran of the Nature Conservancy, Mr. McCormick said he declined a pay raise last year, and he and other top executives at the charity volunteered to take a 5-percent pay cut for themselves in the 2004 fiscal year.
• The median salary for umbrella groups that monitor and support nonprofit organizations was $155,000, though compensation varied widely among those organizations. The highest earner in the group was Dorothy S. Ridings, president of the Council on Foundations, whose salary was $329,446; the lowest was Christopher J. Hempe, president of Wall Watchers, a group in Matthews, N.C., that evaluates Christian charities. Mr. Hempe did not work the full year as president, but had he done so his 12-month salary would have been $60,000.

Some of the biggest compensation gains both in 2002 and over the past five years have come in the form of deferred compensation, which charities may pay as a way to keep executives from leaving for a higher-paying job elsewhere.

Partners HealthCare System, a hospital group in Boston, set aside $500,000 in a deferred-compensation account for Samuel O. Thier, Partners’s CEO, in addition to putting another $171,163 into a supplemental executive-retirement program for him. In order to receive those sums, however, Dr. Thier must complete another five years of employment with Partners in addition to the eight years he has already worked for the organization, Partners said.

Deferred-compensation arrangements and bonuses for executives departing their organizations can stir controversy. The United Way of America has changed its pension plan to bar lump-sum payouts, after reporting that it had made a $1.5-million pension payment to its former chief executive, Betty Stanley Beene, when she departed after four years in the job. Brian Gallagher, United Way’s chief executive, said the organization’s board felt the payment reflected Ms. Beene’s 27 years of service at local United Ways and at the Girl Scouts, and was fair.

Still, Mr. Gallagher said compensation for nonprofit executives is viewed more critically by the public than during the period when Ms. Beene was in nonprofit-executive positions. The change in United Way of America’s compensation rule means that employees of the umbrella organization no longer will be allowed to count service at other nonprofit groups toward their pension payments, and they will receive monthly distributions of their pension payments rather than lump sums.

Foundation Overhead

Deferred compensation is not the only form of pay that has sparked backlashes. Concern over some private foundations’ financial practices, including the view that some foundations pay excessive compensation to their top executives and trustees, has led to proposed legislation that would, among other things, limit the amount of top officials’ salaries that may be counted toward the required 5-percent distribution of foundation assets annually. Some experts expect Congress and nonprofit watchdog groups to continue to monitor foundation spending closely.

Despite examples of significant bonuses, fringe benefits, and deferred-compensation packages for some nonprofit executives, salary gains for many charity officials nonetheless tended to be modest last year. That trend reflects what experts see as competing pressures on charity boards and their compensation committees to pay competitively, but not excessively.

A key influence on boards was the string of corporate scandals that occurred at Enron, WorldCom, and other companies. The scandals focused attention on the lavish compensation given to many business leaders, and subsequently made boards of directors — in both the for-profit and nonprofit worlds — “very gun-shy, and very sensitive to increases,” said David Dawson, a partner at the accounting firm PricewaterhouseCoopers, in Washington, who specializes in nonprofit groups.

“Compensation committees were saying, ‘Let’s be moderate. This isn’t the year to do anything that would reflect badly on the institution,’” Mr. Dawson said. Nonprofit boards, many of which are made up of corporate leaders, didn’t want their charities in the “bad company” of Enron and other corporations that were perceived to be overpaying their executives, he said.

Escalating Salaries

Over the past half decade or so, however, compensation packages have exploded in size for many chief executives of nonprofit groups, as The Chronicle’s review of five-year salary trends shows.

Many charities said they decided to raise salaries of their top executives after conducting studies that compared their pay with that of officials at institutions of similar size. For example, the Duke Endowment in Charlotte, N.C., paid its president, Elizabeth H. Locke, $130,000 in salary and benefits five years ago. But after comparing her salary with that of executives at other foundations with similar assets, the endowment’s board gradually increased her compensation to its current $292,000. That figure is based on what a spokesman called its “reasonableness” and “competitiveness.”

Likewise, the Columbus Foundation said that after James I. Luck retired as president at the end of 2000 with a salary of $175,000, it “needed to adjust the salary to represent salaries for positions at similar organizations.” The new president, Douglas Kridler, earned $263,447 last year.

Comparing Pay

Comparative-salary studies are one tool organizations can use to comply with the so-called intermediate-sanctions law administered by the Internal Revenue Service, which aims to keep nonprofit executives from receiving excessive pay and benefits. The 1996 law sets standards for nonprofit groups to use in comparing their salaries with those paid at similar organizations of similar size as a way to demonstrate that an executive’s pay is reasonable.

Yet, even though salary surveys help to keep executives’ salaries in line with those of their peers, compensation experts said the surveys also have the effect of driving up all executive compensation over time. Bruce Ellig, author of The Complete Guide to Executive Compensation, calls it “the ratchet effect.”

“What happens is there’s somebody out there [at another organization] who is ahead of the pack,” Mr. Ellig said. “You do a survey and say, ‘Hey, we’re behind.’ You move up your executive’s salary. But that organization believes they have the best person, so they move up his salary.” The leapfrogging continues every year, he said, because nobody wants to be paying the lowest salary.

Keeping Top Leaders

Even as top executives’ salaries have climbed steadily, pay for other nonprofit employees has risen more slowly or remained flat, compensation consultants said. At some organizations, executive pay has remained high even as programs and lower-level jobs have been cut, they said. Many charity boards reason that a good leader is essential if a charity is to keep going in tough times.

But the disparities are beginning to cause problems for some groups, said Bruce Flessner, a fund-raising and staff-development consultant in Minneapolis. He said a “disconnect” exists within some nonprofit boards between their charity’s financial pressures and the generous raises given to chief executives. “You make cuts elsewhere in the operation, while you see the people who are already paid a lot are getting more,” he said. Pay disparities have helped spark protests at Yale University and the University of Minnesota, he noted.

Public Image

The overall size of charity executives’ pay is starting to reflect badly on charities, some nonprofit observers contend.

Jon Van Til, a professor of urban studies at Rutgers University at Camden who studies nonprofit compensation and other issues, said that he has spoken to donors who give small amounts and are “shocked” and “absolutely befuddled” by recent reports of the high pay packages earned by some charity executives.

Prospective donors who see a charity leader’s income rising while their own stays flat may be less inclined to give to that charity, he said. Mr. Van Til suggests that charities that pay their executives more than the president of the United States — who currently makes $400,000 a year — should lose their tax-exempt status. “Once we nonprofits are seen as just another place to make money, what begins to emerge then is a sense of skepticism about the whole enterprise,” he said.

Gary D. Bass, executive director of Focus Project, better known as OMB Watch, a Washington advocacy group, also expresses concern about the trend in nonprofit salaries.

“We do not want to have a brain drain from the nonprofit sector because of just purely a monetary issue, but by the same token, the nonprofit sector is not the for-profit sector,” he said. “I don’t think we need to pay someone $350,000 to get the best and the brightest.”

Marni D. Larose, Stanley W. Krauze, and Matt Murray contributed to this article.