Top Leaders See Fatter Paychecks

5.7% rise in executive compensation in ’98 is double the growth rate of ’97

Compensation for top executives of major non-profit groups grew at nearly double the rate last year that it did in 1997, according to The Chronicle’s eighth annual compensation survey.

The median rise in chief executives’ compensation was 5.7 per cent in 1998 — meaning that half received bigger percentage gains and half were awarded smaller increases.

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Results of The Chronicle’s survey of salaries of top executives at non-profit organizations and foundations presented in a series of charts, and links to related articles.

In 1997, the median increase was 2.9 per cent.

Low inflation meant that the raises were even more significant than they might appear: Only 1.6 per cent of those pay increases were eaten up by the cost of living, compared with 2.3 per cent in 1997.

The Chronicle’s survey of 246 non-profit organizations found that the median salary for chief executive officers was $207,990.

The strong economy is a major factor behind the growth in compensation, observes Ann P. Kern, who oversees non-profit searches at Korn/Ferry International, an executive-recruitment company. With salaries increasing in many fields, she said, “you’re going to see a piece of it in the not-for-profit” world.

Other consultants say that non-profit groups are less likely today than in the past to be attacked when they pay their executives big salaries.

“There is less public pressure on excessive executive compensation than there used to be,” said James Abruzzo, managing director of the non-profit practice at the executive-search firm A. T. Kearney. “People have forgotten about [William] Aramony,” he added, referring to the 1992 scandal that forced the resignation of Mr. Aramony as president of United Way of America.

Mr. Abruzzo also said that the public’s confidence in non-profit boards — and their decisions on compensation — had been bolstered by a new federal law that penalizes trustees if they award excessive compensation to executives.

Moreover, he said, in comparison to rising compensation in the business world, the increases seem relatively tame.

“If some programmer has stock options worth $1-million in Amazon.com, then who cares if the head of a major non-profit group makes $250,000?” said Mr. Abruzzo.

The raises for chief executives of non-profit organizations are slightly outpacing those given to business leaders. The American Compensation Association’s most recent annual survey of 2,891 companies in the United States and Canada reported a 4.6-per-cent pay increase for executives in 1998.

In addition to gathering data on compensation, The Chronicle survey examined the race, gender, and ethnicity of the leaders of America’s biggest non-profit organizations. At 154 organizations that provided data on their five highest-paid employees, 7 per cent of those workers were black or Hispanic. Women held a little more than one-quarter of the leadership positions.

Raul Yzaguirre, president of the National Council of La Raza, a Hispanic advocacy group in Washington, said non-profit organizations must move quickly to take steps to put more minorities into top-ranking roles. “The non-profit world prides itself on providing leadership, social consciousness, and moral relevance,” said Mr. Yzaguirre. “We should do much better.”

The compensation section of the survey examined salary, bonuses, retirement benefits, and other perquisites awarded to the chief executive officer and the highest-paid official other than the C.E.O. at each of the 246 groups.

The organizations included in the survey were selected primarily from The Chronicle’s 1998 Philanthropy 400 list of non-profit groups that raised the most money in private donations. They include charities, hospitals, universities, community foundations, and other organizations with incomes ranging from $9.7-million to $3.6-billion.

Also included were the nation’s 20 wealthiest private foundations, with assets ranging from $1.1-billion to $14.2-billion.

Although the survey reveals what many top non-profit officials earn, it does not necessarily include all of the highest earners. Some smaller, less-wealthy non-profit groups that are not included in the survey may pay their executives more money. Some large organizations such as medical centers are not included in the Philanthropy 400 because they raise relatively little in private donations.

Among the survey’s key findings:

* Thirteen of the 246 chief executives received compensation of $500,000 or more, with two of them earning more than $1-million. For the sixth year in a row, the highest-paid executive was John W. Rowe, president of Mount Sinai Medical Center, in New York, who earned $1,163,875 in 1996, the most recent figure available. The other chief executive who earned more than $1-million was Paul A. Marks of Memorial Sloan-Kettering Cancer Center, also in New York, who received $1,077,500 in 1998.

* Of the remaining chief executives,12 earned between $400,000 and $499,999; 43 earned between $300,000 and $399,999; 71 earned between $200,000 and $299,999; and 77 earned between $100,000 and $199,999. Thirty chief executives earned less than $100,000, four receiving no salary.

* Sixteen of the chief executives’ salaries increased by more than 20 per cent from 1997 to 1998.

* Twenty-five of the top leaders received more than $100,000 worth of fringe benefits, for items ranging from retirement benefits and other forms of deferred compensation to housing and car allowances.

* Only four organizations spent more than 2 per cent of their total income to compensate their two top executives; most groups spent 1 to 2 per cent.

The organization that spent the greatest proportion of its income on its top two executives was the SETI Institute, in Mountain View, Cal., which spent 2.5 per cent of its fiscal 1998 income of $10.2-million — or $257,944 — on paying its top two executives. Coming in at No. 2 was the Heritage Foundation, which spent 2.4 per cent of its $45.6-million income — or $1.1-million — on its top two executives.

* At most organizations, the C.E.O. was the highest-paid official. But at 59 of the 246 groups, the highest-paid individual was someone other than the chief executive.

Among them were many surgeons and other medical specialists, a basketball coach (Mike Krzyzewski of Duke University), two football coaches (John Robinson of the University of Southern California and Gary L. Barnett of Northwestern University), and two music directors (Daniel Barenboim, music director of the Chicago Symphony Orchestra, and Leonard Slatkin, music director of the National Symphony Orchestra, in Washington).

Among the 20 highest earners in this year’s survey were seven heads of hospitals or health-related institutions, four university presidents, and two leaders of New York City arts organizations: Nathan Leventhal, president of the Lincoln Center for the Performing Arts, and Joseph Volpe, general manager of the Metropolitan Opera.

Also represented were four chief executives of grant-making foundations: the Annenberg, Ford, and W.K. Kellogg Foundations, as well as the Lilly Endowment.

As in previous years, Walter Annenberg, the retired publishing magnate, received $500,000 in pay from his foundation in 1998. Gail Levin, the Annenberg Foundation’s program director, said that the money compensates Mr. Annenberg for the work he does overseeing the investment of the foundation’s $3-billion in assets. That’s “no small matter,” said Ms. Levin.

Among foundation leaders, Mr. Annenberg was topped in his salary only by Thomas M. Lofton. Mr. Lofton, chairman of the Lilly Endowment, in Indianapolis, earned $540,000.

The largest increase among chief executives went to Paul Crouch, president of Trinity Christian Center, in Santa Ana, Cal., which operates the Trinity Broadcasting Network. His total compensation rose from $159,500 in 1997 to $262,915 in 1998, an increase of 64.8 per cent. The compensation for Mr. Crouch’s wife, Janice, who is the organization’s vice-president, rose 101 per cent, from $159,500 to $321,375.

James Monroe, Trinity’s controller, said that Mr. Crouch had been “undercompensated in the past.”

The Crouches’ salaries have been rising in recent years upon the recommendation of an independent compensation committee that has reviewed the pay of all the organization’s executives, comparing them to “salary levels for a number of non-profit ministries and other organizations,” Mr. Monroe said.

“For many years Mr. Crouch took a very small salary, and in some years no salary,” Mr. Monroe said. The compensation committee’s recommendations “indicated that the salary levels should be a lot higher than they had previously been,” and Trinity “has been adjusting his salary toward the recommended levels,” Mr. Monroe said.

Others receiving substantial compensation raises in 1998 included Ralph E. Plumb, president of International Aid, in Spring Lake, Mich., whose total compensation increased 60 per cent, from $52,841 in 1997 to $84,481 in 1998.

Two factors account for the increase, according to Gordon Thompson, chief financial officer. The charity’s board decided that, based on a survey of other non-profit organizations, an “adjustment was due” in Mr. Plumb’s pay. In addition, Mr. Plumb was among International Aid executives who received a bonus for meeting goals related to the overall performance of the organization. Mr. Plumb’s bonus for 1998 was $19,000, Mr. Thompson said. Mr. Plumb, an ordained minister, also received an increase in a housing allowance, from $30,900 to $33,000, and a $6,394 rise in benefits, mostly for retirement, Mr. Thompson said.

Ralph Dickerson, Jr., president of the United Way of New York, also received one of the biggest raises in the survey. His 23-per-cent gain followed a two-year period in which his salary remained the same. A United Way spokesman said a 24-month contract covering Mr. Dickerson’s compensation was in place at that time.

In 1998, Mr. Dickerson received $363,098 in compensation, including a $40,000 cash bonus, plus $46,152 in benefits, for a total of $409,250, compared with the $331,850 in salary and benefits he received in fiscal 1997.

At least one charity executive has not received a raise in more than a decade. William F. Baker, president of WNET/Educational Broadcasting Corporation, has imposed a cap on his salary for the past dozen years, saying it was not to exceed $200,000.

Mr. Baker joined WNET in May 1987 after serving a dual role as president of Westinghouse Television and chairman of Group W Satellite Communications.

“When he came to us from the commercial world, he decided to cap his salary at $200,000,” said Stella Giammasi, vice-president and director of communications for WNET, a public-television station in New York City. “He feels that $200,000 is an appropriate salary for the president,” she said.

Some charity executives received substantial portions of their compensation in the form of fringe benefits. Of the 246 surveyed, 25 chief executives were awarded fringe benefits of $100,000 or more.

The top recipient was Paul G. Irwin, chief executive of the Humane Society of the United States, who received $311,502 in supplemental retirement benefits. The society’s board of directors voted to provide Mr. Irwin with the supplemental benefits to compensate for limits that the Internal Revenue Service places on certain retirement plans. The supplemental pension benefits paid to Mr. Irwin reflect what the society’s outside pension advisers determined was appropriate based on Mr. Irwin’s more than two decades of employment with the organization, said Roger Kindler, the society’s general counsel.

Among executives who received a large amount of fringe benefits, much of that money was used to provide housing. And among those in the survey who received housing benefits, most were in New York City. They included the chief executives of the Andrew W. Mellon Foundation, the New York Public Library, and the Wildlife Conservation Society/New York Zoological Society.

Both the president and director of the Metropolitan Museum of Art, also in New York, receive housing allowances to pay for apartments located within a few blocks of the museum, which is just off Central Park. The museum would not say exactly how much the housing was worth.

The Andrew W. Mellon Foundation reported that William G. Bowen, its president, received a non-cash benefit of $91,495 to cover his use of a two-bedroom apartment in midtown Manhattan that the foundation owns, according to T. Dennis Sullivan, financial vice-president. Mr. Bowen lives in the apartment part time. The $91,495 reported on Mellon’s informational tax return reflects an annualized fair market value of the apartment ($46,800) plus an amount that Mr. Bowen would have to pay in taxes if he received a cash subsidy to pay for a comparable apartment.

“It’s a comment on New York real estate and on taxes” that are levied on New York residents’ income, Mr. Sullivan said.

Ms. Kern of the Korn/Ferry executive-search company said that non-profit organizations in New York City and other major metropolitan areas are finding it increasingly important to offer some form of housing allowance when they hire a new C.E.O.

“I tell them up front, ‘You had better be prepared for this, because we lose too many good candidates who can’t afford to move to New York or Los Angeles,’” she noted. “You have candidates who come in and take a look at what housing costs, and they are stunned.”

Ms. Kern said she has seen several leading candidates for top jobs at non-profit organizations withdraw their names from consideration because they felt they could not afford the cost of housing.

Ms. Kern said that she now tells charity board members to “bite the bullet” and offer the benefit at the outset, rather than waiting for a candidate to ask for it.

Among the other kinds of fringe benefits awarded, several executives received financial-planning advice or accounting services.

The Heritage Foundation paid for a tax specialist to prepare the personal income-tax forms of its president, Edwin J. Feulner, Jr.

George Rupp, president of Columbia University, also received $5,000 worth of accounting services as part of his compensation package in 1998. Stephen J. Lauchaire, associate controller for disbursements, said that the university has offered those services for the past 15 years or so.

Executive recruiters and compensation experts said they see executives becoming increasingly assertive in asking for such perks.

With record low-unemployment rates creating a tight labor market, job seekers feel more comfortable asking for more money or benefits, they said.

“It’s very competitive for the top people,” observed Ms. Kern. “I would say these candidates have grown more sophisticated in terms of recognizing what some of the perks could be and requesting them, whether it is tuition for your children or country-club memberships.”

Mr. Abruzzo of A. T. Kearney noted that the competition for top-notch executives is a key reason salaries and benefits are increasing faster than in past years.

“Everyone I speak to says there aren’t enough people, that they are willing to pay anything for a good person, and that there is tremendous turnover,” he observed.

Cliff Balkam, a consultant specializing in compensation issues, said his clients are making big efforts to avoid losing good job candidates to the business world.

“Just as a rising tide lifts all boats, a shrinking labor pool leaves everyone a little hungry for good staff,” observed Mr. Balkam.

He said his non-profit clients are devoting more energy and money to retaining staff members — not just chief executives, but other key employees who are highly skilled.

“You can’t just go out in the market to find someone to replace them,” he said. “It’s just not as easy as it used to be.”

This article was written by Thomas J. Billitteri, Debra E. Blum, Harvy Lipman, Domenica Marchetti, Jennifer Moore, Meg Sommerfeld, Grant Williams, and Martha Voelz.