The amount of money that the nation's largest nonprofit organizations paid in bonuses to their top executives more than doubled from 2005 to 2006, according to a recently released Chronicle of Philanthropy survey of executive compensation in 298 charities and foundations.
According to the Chronicle, average bonus payments to top executives grew from $69,477 in 2005 to $142,700 in 2006.
This finding is aligned with what seems to be a growing interest among nonprofit organizations and their boards in tying executive compensation to organizational performance. To this, I would submit my observation that the nonprofit sector is not yet as experienced as the for-profit sector in developing and managing incentive pay. The design of incentive plans in nonprofit organizations must reflect considerations not present in the for-profit sector, including - but not limited to - the nature of the organization's tax-exempt mission and the increasing scrutiny of regulatory and other bodies (such as the IRS and Attorneys General) on these compensation arrangements. One case in point noted by the Chronicle is the Association of Fundraising Professionals which - as part of its professional code of ethics - prohibits members from tying their compensation directly to fundraising performance. Fundraising executives and professionals, who are also part of the increasing trend toward incentive pay, must develop and use plans that consider and focus on broader, mission-related considerations in order to comply.