Charities Grapple with CEO Compensation

By Lindstrom, Natasha | Tribune-Review/Pittsburgh Tribune-Review, December 6, 2014 | Go to article overview

Charities Grapple with CEO Compensation


Lindstrom, Natasha, Tribune-Review/Pittsburgh Tribune-Review


The Animal Rescue League of Western Pennsylvania's chief executive and many other leaders of nonprofit organizations know the size of their paychecks hinges on how well they perform.

League Executive Director Dan Rossi adopted policies to make sure his pay hinges on formal job evaluations, goals and benchmarking.

"I wanted to ensure things weren't done by the seat of the pants, without professional procedures in place," said Rossi, who made $97,680 in 2012 and spurred the policy change by using practices he learned during 18 years of working for United Cerebral Palsy.

Five years ago, the animal charity told the Internal Revenue Service that it used no such procedure.

The nonprofit, whose budget is about $4.1 million, is among at least 14 Pittsburgh-based charities to implement a standard method of determining CEO pay since 2008. That's when the IRS redesigned tax forms so nonprofits had to disclose whether they did so, in an attempt to get every tax-exempt charity in line with the best practice.

Indeed, the number of charities using ideal models for setting executive compensation is on the rise, just as funders demand greater accountability and proof of return on investment. Fewer than 200 of nearly 4,000 charities examined by Charity Navigator in 2014 had no documented policy, down from 244 that had none in the previous year.

Yet some charities still "seem to set salaries based on the whims of leadership, rather than on getting an expert to do a review and based on market conditions," said Ken Berger, CEO and president of Charity Navigator.

"You have boards that are friends of the CEO, or they're extremely wealthy and they assume salaries are going to be set a certain way, so as not to have full appreciation for the fact that every taxpayer in America to some degree subsidizes every charity because of tax deductions," Berger said. "They're supposed to be focused on providing public benefit, not lining the pockets of the leadership."

Not about the money

The 2012 median pay for Pennsylvania nonprofits ranged from $100,607 for small ones, or those with less than $3.5 million in expenses, up to $287,796 for large ones with more than $13.5 million in expenses, a Tribune-Review analysis found. Size played the most significant factor in compensation rates.

In Pittsburgh, small nonprofits increased CEO pay at a rate of 0.1 percent per year between 2008 and 2012; executive pay at large Pittsburgh nonprofits rose 5.8 percent, on average, annually during the period.

"There are some assets in this town whose salaries are too high," said Rick Pierchalski, who founded Medallion Wealth Management and evaluated local nonprofits as a former board member of the Allegheny Regional Asset District. He says the true test should be whether a qualified candidate is willing to do the job for less.

"If you're going to work in the nonprofit sector, then it's not about making a fortune; it's about doing something for the public good, and you have to set your salary sights accordingly."

To be sure, nonprofit CEO salaries pale in comparison with those in the private sector, whose 200 highest-paid CEOs made an average of $20. …

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