A recent article in the Boston Globe about the generous perks major Massachusetts nonprofits are providing to their CEOs has stirred up debate once more about proper compensation and incentives for charitable executives.
Some of the perks are wildly generous. The Museum of Science pays the college tuition for its president’s two children. The director of the Museum of Fine Arts receives a $60,000 housing allowance every year, on top of his $900,000+ salary. Several organizations provide generous entertainment allowances, dues at exclusive private clubs, free travel for spouses, fancy cars, and retention bonuses.
Board leaders justify their actions by citing the vital importance of attracting and keeping excellent managers, and they say their executives are well worth the special treatment. They talk about how lucky they are to have their CEOs, and how they’ll do whatever it takes to retain them. And they say that the nonprofit world is like the corporate world: you have to compete hard for the top talent. If that means giving out a free car or a club membership, so be it.
One thing that’s not quite said in the article, but that I hear a lot in these sorts of discussions, is that the CEOs could be making so much more in the business world. “Don’t you realize what Fred would be paid in the private sector?! We have to do what we can for him!” There is a sense that these executives are working in the nonprofit sector at great personal sacrifice – a perspective that reveals the social bias of the board members, many of whom are at such an elite economic level that they think subsisting on a $900,000 salary is roughing it.
But the fact is that Fred isn’t in the private sector. He made the choice at some point in his career to follow a different route, and the skills he’s developed are especially valuable only in the nonprofit world. Simply because he’s a smart guy and simply because some of his law school or business school classmates became CEOs of Fortune 500 companies or partners in major New York City law firms does not mean that Fred would have been equally successful in those worlds. And it certainly doesn’t mean that Fred has that option now that he’s been a nonprofit guy all these decades. A veteran nonprofit executive cannot present himself at Goldman Sachs at age 55 and expect to be made a partner.
I’ve written before about the negative effect of income inequality within an organization. I’ve also talked about the “Lake Wobegon effect,” whereby nonprofit boards compare their CEOs’ salaries to those at comparative organizations, and then, because they consider their CEOs above average, pay them more than what their peers are getting. Within a few years, there is an inexorable ratcheting up of salaries. Salaries spiral out of control, with the rest of the staff left behind.
And that’s a major point that the Globe article leaves out. Because not only do lavish perks for the CEOs raise eyebrows among donors, but they undermine morale among the staff members at the organization. Nonprofits have picked up the contagion from the corporate world of venerating and over-valuing the CEOs, while neglecting the rest of the employees. I can promise you that while CEO salaries have been ratcheted up in the last decade as boards try to match and out-do their peer organizations, the salaries of the line staff who actually provide services have barely budged.
Perks only add salt to the wound. It’s one thing to know that the boss is getting ten or twenty times your salary. But to find out that the CEO gets valuable freebies on top of that? Outrage!
Imagine you’re a nurse at a small hospital, and you’re struggling to pay childcare expenses for your two pre-schoolers so you can get to work. You’re figuring out which bills to pay and which bills to put on hold. And then you find out that the hospital CEO, on top of his $750,000 salary, is sending his kids to college courtesy of the board of directors. You’re incensed. And rightfully so.
Newspaper stories exposing nonprofit CEOs’ inappropriately large salaries and over-the-top benefits can be a public relations nightmare. But even more damage is done internally. Nothing brings down the morale of an organization more than a board lavishing its CEO with money and perks, while the rest of the staff languishes in the shadows, underpaid, underappreciated, and understandably resentful.
Copyright Alan Cantor 2015. All rights reserved.