The Right Price

Charities turn to controversial pay deals to lure top talent

When the Greater Los Angeles Zoo Association was looking to recruit a new president

this year, the group’s board used a controversial tactic that is becoming increasingly popular in the nonprofit world: the promise of a performance bonus based on the amount of money the organization raises.

By offering to pay its new president an “incentive” on top of a base salary if the zoo association met its fund-raising goals, the association was able to woo Donald Youpa from KCET, a public-television station in Los Angeles where he had worked for 23 years, most recently as an executive vice president. The zoo association, which raises private dollars for the Los Angeles city-government-run zoo, told Mr. Youpa that if he could bring in 15 percent to 20 percent more money in fiscal 2002 than the organization takes in this year, it would add 10 percent to his salary.

Mr. Youpa, who earned $225,768 at KCET in fiscal 2000, says the offer clinched the deal for him.

“I made more in base salary at KCET,” he says. “I was excited by the initial offer because I found the job at the zoo very desirable. But when they added in the incentive, it made it possible for me to make the move. If you want to get the right talent, you have to give people incentives to come.”

Like the zoo association, more and more nonprofit groups are using pay incentives to land and keep high-level managers, particularly chief executives and development directors. Driving the trend are competition for top administrative talent and the influence of for-profit executives who sit on nonprofit boards, experts say.

“Nonprofits are trying to change from a paternalistic culture to a performance-driven one,” says Larry Comp, a principal in Humanomics, a national compensation consulting firm in Granada Hills, Calif. “Everyone seems to be raising the bar as far as productivity goes in the nonprofit world, and it’s starting to be reflected in compensation structure.”

Still, the growing popularity of incentive pay has stirred deep philosophical differences within the nonprofit world, particularly over the idea of giving bonuses that are based on how much money a charity raises.

Concern About Ethics

Advocates say bonuses that are tied to fund-raising goals help charities to recruit top-notch executives and spur them to work harder at raising money for good causes. Critics, however, liken such bonuses to sales commissions in the for-profit world, arguing that they can lead to unwarranted pressure on donors and induce charity executives to raise money for activities that don’t advance a charity’s mission.

The Association of Fundraising Professionals’ code of ethics proscribes its members from taking commissions and discourages salaries based on percentages of an organization’s income. Still, Colette Murray, who in 2003 will begin a two-year term as chair of the association, says she supports bonuses that are based on other goals, including increases by a charity in fund-raising calls, numbers of donors, and numbers of major gifts.

“You have to include certain goals,” says Ms. Murray, who is a partner in an executive-search firm in San Diego. Organizations should make sure that fund raisers are rewarded for effort, not just dollar amounts. “Keeping within budget, retaining employees — these kinds of things have little to do with raising money.”

Survey Results

While the debate over bonuses is far from settled, the practice of adding incentive pay to the salaries of nonprofit executives — whether they are involved in fund raising or not — is becoming increasingly common, though it remains unclear whether the trend will grow if the U.S. economy continues to slow.

Respondents to The Chronicle’s 10th annual survey of nonprofit salaries reported that in fiscal 2000, 34 of 280 nonprofit organizations that raise money from private donors paid either or both of their two best-compensated executives a bonus, though the number could be higher because of reporting differences by organizations.

Among the executives who received bonuses in fiscal 2000, but not in fiscal 1999, were Kathryn E. Merchant, chief executive officer of the Greater Cincinnati Foundation, $25,000; Charmaine S. Chapman, president of United Way of Greater St. Louis, who also received $25,000; and Gordon Conway, president of the Rockefeller Foundation in New York, $3,500.

Executives who manage investment portfolios for foundations are regularly beneficiaries of bonuses. For example, Robert E. Swaney Jr., vice president of investments at the Charles Stewart Mott Foundation, in Flint, Mich., received a bonus of $249,618 on top of a base salary of $352,860 in fiscal 2000. Mr. Swaney’s bonus is tied to the performance of the foundation’s investment portfolio.

At the Ewing Marion Kauffman Foundation, in Kansas City, Mo., Judith B. Elsea, chief investment officer, received $194,582 in bonus pay — more than half of her total salary of $383,362. Ms. Elsea can withdraw half that sum annually, but the rest must remain invested alongside the foundation’s money until she leaves her job, says David Lady, senior vice president at Kauffman.

Little scholarly research has been done on the prevalence, size, and effect of performance bonuses in the nonprofit world, but Matthew Beem, executive vice president of Hartsook and Associates, a fund-raising consulting company in Wichita, Kan., says a study he conducted in 1998 of fund raisers in Illinois, Iowa, Kansas, and Missouri found that 25 percent of respondents received bonuses. What’s more, Mr. Beem says, three-fourths of the respondents said they favored performance bonuses as part of their contracts.

Mr. Beem, a professional fund raiser for the past 10 years, says the growing support for bonuses reflects a change in the backgrounds of executives who are being recruited for high-level development jobs. In the past, those who became fund raisers tended to be ministers or people who had worked for the same charity for many years, he says. But now, with many business executives flocking to development positions, “we have for-profit CEO’s and others who have very different values and who aren’t indoctrinated in the mission-based work of the typical nonprofit group,” Mr. Beem says.

As the talent mix has changed, so too have salary plans, especially for chief executives and top fund-raising executives, experts say.

“I’m beginning to see the percentage of increases in base pay becoming smaller, with the bonus component becoming the more dynamic part of the compensation package,” says James Abruzzo, managing director of the nonprofit, education, and philanthropy practice at the Stratford Group, an executive-search and consulting firm in Cleveland.

‘Qualitative’ Criteria

Mr. Abruzzo says that agreements that contain rewards for meeting performance goals — such as dollars raised, numbers of donors tapped, and adherence to budgets — have increased sharply in the last two to three years.

The New Jersey Performing Arts Center, in Newark, concentrates on “qualitative” criteria, updated annually, in shaping bonuses that it gives to seven members of its senior-management team, says Lawrence P. Goldman, the center’s chief executive.

Although some of the center’s bonuses are based partly on financial performance, finances are never the basis for more than one-third of a bonus evaluation, Mr. Goldman says. The arts-center executive says that team performance, budget considerations, and success of the organization’s programs factor into its bonus criteria. “It’s very subjective,” he says.

The point of the bonuses is not to help the performing-arts center recruit good executives, but to hold on to the ones it has — and to the chemistry that has developed around them, Mr. Goldman says.

“Performance bonuses are absolutely one of the most important ways we try to retain our best people,” he says.

The U.S. Fund for Unicef, in New York, also is among the groups that have added bonuses to their compensation packages in recent years. Since 1997, the fund’s president, Charles J. Lyons, has received annual bonuses that are based on such factors as how successfully the charity has retained employees and whether it has been able to keep expenses in check, says James Carey, chairman of the board of trustees. Mr. Lyons earned $268,750 in the 2000 fiscal year.

At the Boys & Girls Clubs of America’s national headquarters, in Atlanta, board members, citing competition in the labor market, decided to include incentive clauses in contracts for executives last year, one year after offering one-time bonuses for high-performing nonexecutives.

The charity, which has nearly 3,000 local clubs and is adding 300 new ones per year, offers bonuses equal to about 10 percent of base salaries when the organization receives enough money through private sources and public grants to justify giving them, says Jan Still-Lindeman, a spokeswoman for the Boys & Girls Clubs.

In the 2000 fiscal year, Roxanne Spillett, president of Boys & Girls Clubs, received a $30,000 bonus in addition to her $276,408 salary.

Glenn Permuy, a vice president, received a $5,000 bonus in addition to his $195,196 salary for meeting fund-raising and organizational goals, including the number of clubs that were opened by the charity.