Tuesday, October 15, 2013
Evaluating the reasonableness of compensation paid by charities to their executive officers is, of course, essential to determine compliance with Internal Revenue Code section 501(c)(3)’s prohibition against private inurement of net earnings and to avoid excise taxes under Code section 4958 (in the case of public charities and section 501(c)(4) entities) and Code Section 4941 (in the case of private foundations). A helpful resource for evaluating executive compensation is Charity Navigator’s recently issued annual study of charity CEO pay, available here. Among the more interesting findings highlighted in the accompanying press release are these:
Modest raises are the norm since the recession: Salaries for the CEOs in this study increased modestly since the recession: just 0.8% from 2008 to 2009 and 1.5% from 2009 to 2010 and 2.5% from 2010 to 2011. These fairly small increases come after the 4.7% median increase charity CEOs received from 2007 to 2008.
Charity CEOs that aspire to have big salaries are more likely to succeed if they work at an Educational charity: The data shows that top pay at charities can vary greatly by mission with the heads of Educational charities earning as much as $90,000 more than those running Religious charities.
Geography influences the top executive's salary: CEO salaries at nonprofits reflect the regional variation in the cost of living. For example, CEOs at charities in the Northeast ($149,523) and Mid-Atlantic ($147,474), which include Boston, Washington D.C. and New York, tend to earn higher salaries, than those in the Mountain West ($108,893) and Midwest ($114,050), which include Milwaukee, Boise and Salt Lake City.
Notably, the study concludes by acknowledging “that the paychecks of some nonprofit executives are outrageously high,” but confirming “that those receiving excessive pay are in the minority.”JRB