How Much CEO Compensation is Too Much?

Charity Navigator Study Finds Nation's Non-Profit CEOs Are Not Overpaid

MAHWAH, N.J., Aug. 1, 2005 - The average charity's chief executive officer's compensation is $148,477, according to Charity Navigator, the nation's leading charity evaluator and donor advocate. This represents 3.39% of the average charity's total expenses.

The study of charities' CEO compensation practices was designed to help donors better understand nonprofit CEO compensation and to determine whether CEOs are too generously compensated or not. The report revealed that, along with location, a charity's size and its mission are significant factors that affect each CEO's level of compensation.

The study examined CEO compensation at the 4,257 largest charities in the United States, as reported on the organizations' most recently filed tax returns. In this study, CEO pay included salary, cash bonuses and unusually large expense accounts, but not contributions to benefit plans or deferred compensation. The findings show that the highest compensation earned was $1,579,014. The study also revealed that:

  • There is a huge difference between the highest and lowest CEO salary:
    The over 4,200 charities examined in the study encompass a broad range of salaries, including one charity that pays its top executive $1,579,014 and several charities that have unpaid CEOs.
  • CEO compensation is dependent on the charity's mission:
    With an average compensation of $230,276, educational charities best compensate their chief executives. Alternatively, CEOs at religious charities report an average salary of just $97,357, the lowest of any of the categories examined in the study.
  • There is a correlation between the organization's size and CEO pay:
    Charities with total expenses greater than $13.5 million pay their CEOs on average $251,846. In contrast, the average salary for nonprofits with less than $3.5 million in total expenses is $87,390.  Essentially, the higher the amount of total expenses, the more likely it is that the CEO will earn higher compensation.
  • Geography plays a role in determining the top executive's salary:
    As is the case in the for-profit sector, CEO salaries at nonprofits reflect the regional variation in the cost of living. CEOs at charities in the Northeast ($175,919) and Mid-Atlantic ($155,803), which include cities like Boston, Washington D.C. and New York, tend to earn higher salaries. On the other hand, charities operating in the Mountain West ($117,922) and South ($135,424), home to cities such as Salt Lake City, Little Rock and Birmingham, pay their CEOs less on average.

"There is a great deal of misconception among the public regarding nonprofit salaries," said Sandra Miniutti, director of external relations at Charity Navigator. "Most donors fail to consider that these are multi-million-dollar operations. The top executive must possess both savvy business skills and the expertise to meet the institution's charitable goals. Obtaining and retaining such talent requires a certain level of compensation.

"With an average salary of roughly $150,000, our findings prove that the majority of CEOs do not earn excessive pay. We hope this study helps improve the public's confidence in the charitable sector as a whole, as well as equip donors to evaluate the appropriateness of an individual charity's CEO compensation in relation to its location, size, mission and overall performance."

Charity Navigator's ratings are accessible at no charge at www.charitynavigator.org, and catalog the financial health of nearly 4,500 of America's best-known charities. Using publicly available tax returns (Forms 990) filed with the Internal Revenue Service, the Charity Navigator rating system bases its evaluations in two broad areas -- organizational efficiency and organizational capacity. Based on how the charity rates in each of the two areas, it is assigned an overall rating, ranging from zero to four stars. To help donors avoid becoming victims of mailing-list appeals, each assessment of a charity's finances is accompanied by a review of its commitment to keeping donors' personal information confidential. The complete report, including tips to help donors evaluate CEO pay, is accessible here.

About Charity Navigator:
Charity Navigator is the largest charity evaluator in America and its web site attracts more visitors than all other charity-rating groups combined. The organization guides intelligent giving by evaluating the financial health of nearly 4,500 charities. Charity Navigator is a 501 (c)(3) organization that accepts no advertising or donations from the organizations it evaluates, ensuring unbiased evaluations. Charity Navigator, www.charitynavigator.org, can be reached directly by telephone at (201) 818-1288, or by mail at 1200 MacArthur Blvd, 2nd Floor, Mahwah, N.J., 07430.

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