Few Charities Pay Exorbitant Salaries to Their CEO’s

To the Editor:

Pablo Eisenberg’s commentary (“Charities Shouldn’t Follow Lead of Business in Setting Compensation for CEO’s,” June 17) wraps zealous muckraking around a valid point, at the expense of many dedicated and ethical professionals whose selfless contributions make the nonprofit world such a special place. Yes, there is abusive executive compensation in some charities. And, yes, charities shouldn’t base their compensation levels on private-sector pay. But almost none do this. Everyone knows that whether you’re the executive director or even an administrative assistant, you’re going to earn less in the nonprofit world than in the business world.

Mr. Eisenberg proposes that pay of nonprofit executives above $400,000 per year be taxed at 100 percent to 200 percent of the amount over $400,000.

This arbitrary limit is wrong. First, there are some nonprofit positions—the president of the University of Maryland or the chief executive of Kaiser Permanente, for example—whose scope of responsibilities and annual budget and potential liabilities require someone with substantial experience and ability. Even in the nonprofit world, those positions are worth well above $400,000 per year.

In some cases, independently wealthy people will take on such assignments for low wages. But limiting the field only to such people doesn’t make sense.

Second, Mr. Eisenberg’s proposal doesn’t deal with overpaid charity executives earning less than $400,000. For many smaller charities, a salary of $250,000 or even $100,000 may be excessive, given their size, funding, scope, and complexity of management. Determining the right compensation for any position is more complex than Mr. Eisenberg recognizes.

The implication in Mr. Eisenberg’s article is that charities are teeming with overpaid executives not worth their salt.

“Why are so many nonprofit directors’ compensation packages doubled or tripled from their previous salaries when they take on a new job?” This is an absurd contention; in over 40 years of consulting to nonprofits on executive compensation, I have never seen even one such case.

Finally, a look at the landscape shows that Mr. Eisenberg’s alarm is misplaced. Charity Navigator’s database of more than 5,500 nonprofits—including most of the leading ones—shows that only 291 (less than one half of 1 percent) reported total compensation over $400,000 on their most recent IRS 990 form.

One hundred and eight of these executives were in either hospitals or universities, meaning that in general, the percentage of nonprofit executives earning over $400,000 is tiny.

Boards of trustees take their responsibility for setting fair and reasonable executive pay very seriously, and most of them do a very good job of it. Watchdogs should continue to look for abuses—Senator Charles Grassley, Republican of Iowa, has been most effective in this respect—and the IRS enforcement group should have more funding and a greater presence.

Pete Smith
President
Smith Compensation Consulting
McLean, Va.