October 3, 2014
At Charity Navigator we receive numerous inquiries from donors, reporters and nonprofit board members asking “how much compensation is too much for a charity’s CEO?” And they aren’t the only ones asking this question. CEO compensation has become such a hot-button topic that several states ---including New York, New Jersey, Florida, Massachusetts, New Hampshire and Illinois --- have considered regulations that place limits on compensation for charity CEOs. And the IRS, the entity responsible for regulating charities at the federal level, continues to prioritize CEO compensation as one of its main areas of focus in uncovering fraudulent nonprofit practices. In recent years, the IRS has even redesigned the Form 990 (the informational tax returns charities submit to the IRS annually), in part, to force greater transparency around nonprofit compensation.
IRS rules state that nonprofit CEOs should receive ‘reasonable compensation.’ This is obviously not an especially helpful yardstick for the average donor. Yet, the procedure behind this terminology is useful. In determining ‘reasonable compensation,’ the IRS encourages a charity’s board of directors to collect data on the compensation practices of similar nonprofits.In the process of evaluating thousands of charities, over the past eleven years, Charity Navigator has collected a wealth of data on CEO salaries. Our analysts have examined tens of thousands of nonprofit financial documents, giving us insight into the real-world financial practices of America’s mid to large sized charities. We know how CEO salaries vary by the charity’s location, budget and type of work. Since 2005 we have published our findings in an annual CEO Compensation Study in an effort to help donors, nonprofit leaders and regulators make educated decisions about the appropriateness of a nonprofit executive’s pay.*
See our corresponding Press Release: Are Nonprofit CEOs Overpaid?