Bloomberg News

Nonprofit CEO Pay Topping $1 Million Rises With Scrutiny

September 17, 2012

More than 20 nonprofit groups, from New York Presbyterian Hospital and the Boys & Girls Clubs of America to Lincoln Center for the Performing Arts, paid top executives more than $1 million a year in 2010 and 2011, the Chronicle of Philanthropy found.

The tally, an increase from 15 such pay packages in the previous study, showed chief executive officers or other leaders at 23 nonprofit charities and foundations had taxable compensation exceeding $1 million, the Chronicle said in a study to be released today.

“By far the most comments we get have to do with CEO salaries and a general outrage and shock at some of the salaries that they see,” said Ken Berger, president of the nonprofit watchdog group Charity Navigator. “There are even donors shocked at the notion of a six-figure salary.”

As protest movements such as Occupy Wall Street have brought more focus on the richest 1 percent of Americans, high pay for nonprofit executives has prompted New York and other states to suggest limits on compensation. Nonprofit watchers such as Berger say it may also prompt additional U.S. oversight or public policy changes for the $2.5 trillion industry.

“To assume that you’re going to become a millionaire or a multimillionaire, running a public charity that’s supposed to provide a public benefit, is just absurd as far as we’re concerned,” Berger said.

Top executives at the largest U.S. charities and foundations received a median pay increase of 3.8 percent to $429,512 in 2011, according to the Chronicle’s survey of 132 of the biggest organizations. For other large nonprofits, the Chronicle said information filed in required tax filings show 2010 pay rose 2.7 percent.

Top Fundraisers

The Chronicle data is drawn from charities ranked highest in the group’s Philanthropy 400, the annual list of nonprofits that raise the most from private sources. The Chronicle collected compensation data on 274 charities and 49 foundations.

Total compensation includes salary, bonuses, deferred compensation, and retirement pay that individuals received in a single year. Other payments can include housing allowances, club dues, and additional perks nonprofits counted as compensation.

The annual survey is a way for executives and their boards to take a measure of pay and for donors to find out what’s happening, as well, said Stacy Palmer, Chronicle editor.

“Most at nonprofits are not millionaires, and it’s been tough times with many people not getting raises,” she said. “But there’s also a lot more focus on results, and that means paying for talent.”

Hospital, Museum

The highest-paid executive in the Chronicle survey, which was obtained by Bloomberg Rankings, was Herbert Pardes, executive vice chairman of the New York Presbyterian Hospital board of trustees, who had 2010 compensation of $4.3 million, including a $1.71 million salary. Houston Museum of Fine Arts Director Peter Marzio, who died in December 2010, was second with $3.94 million, in part because of payouts triggered by his death, the Chronicle said. Pardes didn’t return a phone call seeking comment.

Among traditional charitable groups, American Cancer Society CEO John Seffrin was fifth with a 2010 compensation of $2.08 million, including $1.49 million in deferred compensation and retirement. Boys & Girls Club CEO Roxanne Spillett, who retired last year after 34 years with the group, ranked eighth with 2011 compensation of $1.81 million, the Chronicle survey showed.

Cancer Society

Seffrin’s compensation for 2011 was $764,135, including deferred compensation, and he declined an incentive for fiscal 2009 performance and agreed to a cut to his base salary of 6.4 percent, the American Cancer Society said in an e-mailed statement. In 2010, his total compensation was $2.4 million, which included $1.62 million in deferred benefits that will be paid at retirement, according to the statement.

Spillett’s compensation included $1.18 million that was paid out as part of a previously reported retirement plan and the compensation was reviewed by PricewaterhouseCoopers LLC and her pay was “in line with industry standards and appropriate,” spokeswoman Jan Still-Lindeman said in an e-mailed statement. The group doubled in size and tripled in financial scope during Spillett’s 16 years as CEO, Still-Lindeman said.

New York University’s John Sexton had compensation of $1.31 million, ahead of Yale University President Richard Levin’s $1.19 million, according to the Chronicle data. Levin and Sexton didn’t respond to e-mails seeking comment.

The top executives for the John F. Kennedy Center for the Performing Arts, Los Angeles Opera, Metropolitan Opera Association, Museum of Modern Art and the Art Institute of Chicago also made the list.

CEO Compensation

By comparison, the median total compensation for Standard & Poor’s 500 CEOs rose about 6.2 percent to $9.6 million in 2011 from about $9 million in 2010, according to Equilar Inc., which gathers data on executive pay at public companies.

More than 1.4 million nonprofit organizations were registered with the U.S. Internal Revenue Service in 2009, and the 632,604 public charities -- those known as 501(c)(3) organizations -- reported $1.4 trillion in revenue and $2.53 trillion in assets, according to a 2011 report by the Urban Institute in Washington, which tracks nonprofit activities.

Groups such as Charity Navigator aren’t suggesting specific limits on pay such as a $199,000 limit proposed in the state of New York, Berger said. The nonprofits need to ensure the pay they adopt is easily defensible among other executives, he said.

The norm is low six-figure compensation, a median of $130,000 to $140,000 for midsize to large nonprofits, he said, with pay rising to $500,000 for the biggest groups, Berger said.

Top Charities

The focus of the pay controversy, much like the protests centered on the richest Americans, is on the 1 percent of the largest charities that raise about 86 percent of the funds, Berger said.

“In these very hard times, money is all that more precious and you have to maximize it,” he said.

The furor over pay to CEOs of nonprofits is misplaced and may end up damaging charity fundraising, said Dan Pallotta, author of “Charity Case” and “Uncharitable,” books on the steps the nonprofit world can take to be more effective.

“We have this total double standard that extends beyond compensation issue where we blame capitalism for creating these huge inequities in our society and then refuse to allow the nonprofit sector to use the tools of capitalism to rectify the situation,” he said.

Expert Executives

The expertise of a top-paid executive will increase the amount of money raised at the nonprofit organization and also provide more efficient leadership, Pallotta said.

“It’s always positioned as a zero-sum game, where any money paid to the leader is money wrenched out of the hands of those kids rather than looking at it as money invested in the leader to potentially dramatically enlarge the money available to the kids,” he said.

Each of the highest-paid coaches at nonprofit universities in 2009 was paid more than $2 million, and people accept that, Pallotta said.

“We look at this through the lens of preserving the purity of the nonprofit ethic rather than looking at it through the lens of do we actually want to solve these problems and what would it take,” he said. “You had better invest in leaders who are experienced at playing at those levels.”

He traces some of the resistance to highly paid nonprofit executives to the tensions between religion and capitalism set by the first Puritan settlers in New England. The Puritans were aggressive capitalists who saw charity as penance for making money, he said.

“The nonprofit system is like this church,” Pallotta said. ``It’s this irrational, emotional religion that’s all about scoring holy points so that you’ll be saved from eternal damnation. I have this friend who says, ‘the cheapest way to pay for things is with money.”’

To contact the reporter on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net.

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net


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