Big Rise in Pay for CEO’s

Charity and foundation heads see 7.5% median gain in salary

In a year that saw the economy dip into its first recession in 10 years, salaries paid in 2001 to

the top executives of the nation’s largest nonprofit organizations rose by more than twice the inflation rate, according to The Chronicle’s 11th annual survey of compensation and benefits.

The heads of the biggest charities and foundations received percentage increases in pay more than double those paid to corporate chief executives last year, with a median increase of 7.5 percent.

That median raise was higher than the 6.7-percent gain in pay in 2000. The median figure for 2001 means that half the 216 groups that provided The Chronicle with information for both the 2000 and 2001 fiscal years increased pay by more than that and half by less.

After accounting for last year’s 2.9 percent inflation rate, the median increase for nonprofit executives was 4.6 percent, compared with 3.4 percent in 2000, after adjusting for inflation.

Nonprofit executives fared better than their counterparts in private industry. Salaries for corporate executives rose 4.7 percent in 2001 — 1.8 percent after adjusting for inflation, according to a survey by WorldatWork, a company in Scottsdale, Ariz., that conducts research on compensation.

The Chronicle’s survey is based on data provided by the organizations that raised the most from private sources in 2000. In addition, the 20 wealthiest private foundations and 20 wealthiest operating foundations were included in the survey. The survey does not identify the highest-paid nonprofit officials in the country, but only those at the organizations that raise the most money. Some institutions that raise less could be paying their executives more.

Concern About Growth

Of the 282 nonprofit groups in the Chronicle survey, 34 paid their chief executives $500,000 or more. At 30 organizations, the highest-paid employee other than the chief executive also was paid $500,000 or more.

The pay increases for nonprofit executives come at a time when concerns about charity compensation have led to significant criticism of the nonprofit world. Some experts on nonprofit groups worry that paychecks for top officials have grown too fast, and have questioned whether salaries of a half-million dollars or more are acceptable to the public, especially at a time when the economy is in recession, public sensibilities have changed in the aftermath of last year’s terrorist attacks, and a wave of corporate and nonprofit scandals has rocked people’s faith in many institutions.

Nonprofit pay practices have already attracted unfavorable attention on Capitol Hill. Sen. Charles Grassley, the senior Republican on the Senate Finance Committee, has asked the Internal Revenue Service to do more to “help the public identify whether charities are spending donors’ money on lavish salaries, expensive vacations, or other inappropriate items” (The Chronicle, June 13).

Senator Grassley, as well as the news media, government regulators, and watchdog groups have raised questions about compensation of American Red Cross officials. Bernadine Healy, the former American Red Cross president who resigned under pressure following her handling of September 11 donations, received $519,123 in 2001, and the chief executive of the group’s San Diego chapter, Donita Rotherham, who was fired in June amid charges that she misused donations intended for fire victims, was paid $297,500 in 2001. (Ms. Rotherham had refused a request by the national Red Cross that she resign, insisting the money had been spent properly on chapter expenses.)

Mr. Grassley, a federal grand jury, and the U.S. Department of Labor are all investigating the United Way of the National Capital Area, in Washington, which has been gripped by a controversy for the past year that began with charges that its former chief executive was paid an overly generous consulting contract after he left that job. Oral Suer was paid $72,000 over 12 months after retiring as chief executive, and gained another $200,000 when he was allowed to take his pension two years before he retired, The Washington Post has reported.

Effects on Donors

Scholars who focus on nonprofit organizations say they are worried that donors and potential donors will be turned off by the compensation received by some charity officials.

“If you choose to work in the nonprofit sector, you’re not taking a vow of poverty, but you are saying you’re motivated by something besides how do I make the most possible money,” said John Vogel, a professor of nonprofit management at Dartmouth College’s Tuck School of Business. “The chief executive officer’s salary does send a signal. It does say what kind of organization you are, what you value, what you care about.”

Nonprofit groups that pay such high salaries often end up with executives who are out of touch with the people their organizations serve, said Jon Van Til, a professor of urban studies at Rutgers University at Camden, and past president of the Association for Research on Nonprofit Organizations and Voluntary Action. “If you’re going to be the head of a national organization, you should be spending much more time in blue jeans and work shirts and be out among the people who you’re serving,” said Mr. Van Til. “The problem is that we’ve bought into getting people in Armani suits wooing the wealthy to become supporters of the organization.”

Nonprofit officials and compensation consultants counter that, while charity boards must be sensitive to public perception, they have an obligation to pay salaries high enough to allow them to recruit and retain talented executives who will help an organization operate its programs effectively.

James Abruzzo, managing director of nonprofit practice for the executive-search company DHR International, in Short Hills, N.J., says that executives who can attract major gifts are critical to any organization’s ability to carry out its mission. Many of the largest nonprofit groups now link chief executives’ salaries to their success in fund raising and other areas, he said.

“Fund raising has gone up significantly, federal funding has gone up, programs have expanded, all the things that would be performance measures are up,” Mr. Abruzzo said. “That would be a reason for this increase in compensation.”

Mr. Abruzzo said that in most cases higher salaries attract more talented job applicants. That becomes an important factor when the nonprofit organization involved is a complex institution like a major university or hospital, said James Riepe, chairman of the Board of Trustees at the University of Pennsylvania.

“There are large, complex nonprofit organizations that require the same kinds of skills and talents as does the private sector,” he said. “The University of Pennsylvania is an institution with $3.5-billion in revenues, 20,000 employees, 20,000 students, an alumni constituency of 200,000, and a physical facility worth billions of dollars.”

Penn’s president, Judith S. Rodin, is the highest-paid university executive in the Chronicle survey, earning a salary of $690,405 in 2001, along with a benefits package worth $117,616. But her compensation was not very different from what the heads of other large universities received. Princeton University President Harold T. Shapiro was paid $658,323, while New York University President L. Jay Oliva (who has since left the position) earned $625,000. Those three were among eight university presidents paid at least $500,000 in 2001.

However, Mr. Riepe said, those salaries are less than those people could earn in the corporate world. “Top people in the nonprofit sector concede when they go into it that the financial rewards will be less than if they took the same talents into the for-profit sector. We on the board know that for a fact, because a number of us are in the private sector,” added Mr. Riepe, who is vice chairman of the investment company T. Rowe Price.

Hospital Executives

Organizations that run hospitals paid their chief executives the highest salaries in the Chronicle survey.

Officials at the Cleveland Clinic Foundation — the nonprofit institution with the highest-paid chief executive in the survey — did not return phone calls seeking comment. The foundation’s chief executive officer, Floyd D. Loop, was paid $1.6-million in 2000 (the most recent year for which the organization has filed its financial report). The top executives at three other health-care institutions were also paid more than $1-million: Harold Varmus, president of Memorial Sloan-Kettering Cancer Center in New York, who received $1.3-million in 2001; Barry R. Freedman, who received $1.3-million as president of the Mount Sinai Medical Center, in New York, in 2000 (and has since left that position); and Lloyd H. Dean, paid $1.2-million in 2001 as president of Catholic Healthcare West, in San Francisco.

Other types of nonprofit groups, Mr. Abruzzo said, need to be aware of public perception. “Four or five years ago, I advised clients not to break certain psychological compensation levels. Let’s say $200,000. It sends a bad signal.” Through the late 1990s and 2000, however, he said, nonprofit boards worried less about such issues as the economy boomed.

That attitude is changing, according to Alex Wilde, vice president for communications at the Ford Foundation.

“There is no question the recommendations for salaries [at the Ford Foundation] this next year will be on the austere side,” Mr. Wilde said, noting that foundations and other large nonprofit groups have seen their endowments cut deeply by the stock-market decline of the past two years.

He would not comment on how that might affect the pay of Ford’s president, Susan V. Berresford, who received $615,939 last year. But even organizations that can continue to afford substantial salaries should be concerned about the effect they have on public opinion in difficult economic times, he added. “We serve the public. The problem of perception is a real problem,” Mr. Wilde said.

Ms. Berresford was the second-highest–paid chief executive among the private foundations in the Chronicle survey. The highest salary went to Thomas M. Lofton, chairman of the Lilly Endowment, who received $775,000. The top executives at eight of the 40 private and operating foundations in the survey were paid $500,000 or more.

“It’s clear that everyone in the nonprofit world needs to be conscious of the perception of executive compensation,” agreed Brian Gallagher, president of United Way of America.

But he added that a segment of the public has unrealistic expectations about how much nonprofit executives should be paid. “For a lot of people, a charity is a charity, and the pay should be nothing or next to nothing. Once you hit $100,000, for most people that seems excessive.”

Salaries for chief executives at the United Ways in the Chronicle survey are consistent with the organizations’ annual revenue.

The highest-paid executive is Ralph Dickerson Jr., president of the United Way of New York City, who earned $420,000. That United Way also had by far the largest annual revenue, with $133.1-million.

The lowest salary for a United Way top executive was $136,487, paid to Ellen K. Annala, head of the United Way of Central Indiana, whose revenue was among the lowest, at $43.2-million.

One new United Way executive, however, has opted to take a much lower salary. Robert Egger, named interim chief executive of the United Way of the National Capital Area after Norman O. Taylor resigned in August, said he will be paid $85,000 annually. Mr. Taylor made $220,417 in 2001.

Mr. Egger came to the United Way from his position as executive director of the D.C. Central Kitchen, where his salary was $49,514 in 2000 (the most recent year for which that nonprofit group has filed a federal tax return).

Some nonprofit experts say they are not concerned so much that executives at large groups are paid too much, but that other employees at many charities — along with executives of small groups — are not paid a living wage.

“Do I think that $900,000 is an outrageous salary for any nonprofit executive? Probably,” said Rikki Abzug, a professor of nonprofit management at New School University’s Milano Graduate School, in New York. “But I’m much more worried for the people earning $30,000 or $50,000 running a small nonprofit who are thinking, ‘I’m going to have to close this organization because I can’t live on this.’ If I felt that moving the money away from the one paid $900,000 would get more equity on the lower end, I’d be excited about that idea. But that’s not where the money would go.”

Mr. Gallagher said United Way of America pays close attention to the gap in pay between the top executive and other staff members when it advises United Ways, and recommends that they “not let that gap grow.”

“If you want to talk about people who are committed to their work and not driven by money, you find those people in mid-level jobs,” he said. “You need to compensate them fairly and allow them to live a decent life.”