posted on: Tuesday, September 29, 2009

According to recent survey data from The Chronicle of Philanthropy, the median pay increase for charity executives in 2008 was seven percent. This information comes with a host of caveats: nearly one-third of respondents indicated that executives accepted pay cuts, and many of the salaries were set before the full force of the current recession was anticipated. Nonetheless, the data on foundation executive salaries bears examining, particularly given that many foundations are informing their nonprofit partners that the state of the economy is forcing grantmaking cutbacks.

As noted above, the median pay increase in 2008 among large charities and foundations was seven percent. In 2008, inflation averaged 3.8 percent over the course of the year; a full percentage point higher than the average in 2007. In this way, it doesn’t seem that charity leaders were necessarily putting their own interests above their charitable missions. Yet, given the intractable socioeconomic problems that the recession has exacerbated, now more than ever foundations must commit themselves to their missions and invest in their nonprofit partners. Of the 29 percent (57 of 195) of the set that indicated they either received no increase or took a pay cut, the median amount of the cut was ten percent. Most foundations on the list of those taking no salary increase or pay cuts were community foundations. Several nonprofits and foundations also made cuts affecting staff other than the CEO. The median CEO salary for the 148 foundations in the set was $458,461. A handful of large foundation executives earned upwards of $1 million. Additionally, 30 large nonprofit top staff – mostly hospital, university and arts organizations - earned between $1 and $4.7 million.

In the Ethics chapter of Criteria for Philanthropy at its Best, NCRP states that foundations should adopt policies and practices that support ethical behavior, including establishing reasonable, not excessive compensation. Many factors are important when determining appropriate compensation, including the size of the organization, the scope of the executive’s duties, remaining competitive with the private sector, the geographic location of the work, and so forth. However, the new information from the Chronicle’s survey seems to indicate that despite the need to scale back grantmaking at nearly every foundation in the country, many executives are not personally feeling the effects of endowment losses. Even the perception that executives are overpaid leads to the loss of public trust: a crucial element of foundation and nonprofit success.

The pieces related to the data published by The Chronicle indicate that most in the sector expect more pay cuts and fewer raises in the coming year, given that foundations are still reeling from endowment losses sometimes topping 35 percent. Earlier this year, NCRP board member Pablo Eisenberg wrote in The Chronicle about rising nonprofit executive pay. He suggested caps on nonprofit executive pay; not an outrageous idea, considering recent agreement at the G20 summit to regulate pay at financial institutions to prevent abuse.

Are you concerned that foundation and nonprofit executives are risking the public trust with their behavior? How do we determine reasonable, not excessive compensation, given all of the factors described above? I’d love to hear your thoughts in the comments.

Julia Craig is research assistant at the National Committee for Responsive Philanthropy