A recent Bloomberg article highlighting concerns about excesses in executive pay at non-profits (in this case, primarily theatres) got me thinking ...
The following excerpt from the article highlights what I think is an important angle in the issue surrounding non-profit compensation:
Paying competitively helps theaters attract and retain administrators capable of managing complex businesses, fundraising, and, as they outgrow their facilities, empire building.
Some public companies with comparable revenue pay their chief executives more than $1 million a year. Yet compensation that's modest by comparison can still rankle donors.
``Contributors are clear that when they see salaries over $200,000, they freak out,'' said Ken Berger, president of Mahwah, New Jersey-based Charity Navigator, which rates non-profits on growth and efficiency. ``They associate charity with a vow of poverty.''
To be clear, I am not defending excess compensation for any organization's executives, whether for- or not-for-profit. A non-profit agency with overpaid executives is not likely to attract my support, or my charitable dollars. But I see an unfortunate trend being played out here.
The non-profit world is a diverse one, made up of a wide range of very different kinds of organizations, from foundations to trade associations, from cultural and arts institutions to healthcare and social service providers. This makes it difficult and risky to draw generalizations. Nevertheless, here I go.
Within many (not all) non-profit sectors, there is seems to be an unspoken expectation that pay will and must be set at below-market levels. And I'm not just talking about executives, I'm speaking to all levels of employees. Sometimes this expectation runs hand-in-hand with the imperative to hold down administrative costs, sometimes it is the assumption underlying the public funding provided for ongoing operation. As the HR managers supporting these organizations will tell you, this presents a real challenge to the attraction, retention and motivation of qualified employees.
This leads directly to another dilemma, and that is a reluctance to hold non-profit employees accountable - in the same way a for-profit business would - for tangible results and accomplishments. Many non-profits struggle with the concept that dispensing candid performance feedback and direction to employees is somehow at odds with their charitable mission. Under these conditions, the default becomes to appreciate that "people have their hearts in the right place" and to conclude that it is unreasonable to set high demands when we cannot deliver commensurate rewards. This is all wrong. Our non-profits, or at least the lion's share of them - are doing critical work. If we want to see them make genuine headway toward fulfilling their missions, we must ensure that they are positioned to attract and retain qualified staff, with competitive compensation levels and then we must ensure that employees at all levels of the organization are held accountable for results.
Administrative costs? Of course we want to keep them at a reasonable level. But to scrimp where we should be investing - in tools, in technology and (most importantly) in talent - is to miss the opportunity to drive real improvements and results for the clients and constituents we mean to serve through these institutions.
Competitive pay and accountability (either one without the other doesn't fly) is a combination we must insist on if we want high performance from non-profit organizations.
Oh, thank you, thank you for saying this. I have long argued that nonprofits need to be just as hard-nosed as for-profits businesses in making tough decisions about terminations, accountability, etc., because the work many nonprofits are doing is too important for it to be any other way. If you believe in your work, it follows that you must have high standards and enforce them.
Posted by: Ask a Manager | October 31, 2008 at 08:34 PM
Alison:
Couldn't have said it any better. And hand-in-hand with the accountability must go competitive pay.
Thanks for sharing your thoughts. As a non-profit leader yourself, you know better than anyone!
Posted by: Ann Bares | October 31, 2008 at 08:49 PM
Correct again. But this is a terrible time for performance review at charities, where their funding sources dry up fastest in bad economic times and ignorant amateur boards (you all know what I mean) frequently (a) don't know how to evaluate performance at a non-profit, (b) feel free to act irresponsibly because they aren't paid a fee for board service, (c) expect the talent to work for slave wages, or (d) all of the above. Intrinsic rewards have limits; "warm & fuzzies" don't pay the bills, and you can't always assume people won't quit when neglected. See the figures at the bottom of page 2 of the October 2008 ERI Update Newsletter (http://www.erieri.com/newsletter/_Data/2008/Oct2008.pdf) for examples of nonprofit CEO pay by industry. A rainmaker is always valuable, and the head of a nonprofit like symphony orchestra is probably more crucial (if not irreplaceable) than the head of a similarly-sized private commercial business enterprise. Great struggles lie ahead for nonprofits.
Posted by: E James (Jim) Brennan | November 03, 2008 at 11:15 AM
Well said, Jim. Thanks!
Posted by: Ann Bares | November 04, 2008 at 01:13 PM