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Compensation for Nonprofit CEOs

The number isn’t the full story.

All our lives we’ve been taught that one of the best questions you can ask in researching a charity is, “How much do they pay their CEO?” If the number’s low, that means they respect your donation. If the number’s high it means they don’t, and there’s something fishy going on.

 

What if we’ve got it all wrong? 

 

Let’s say the issue is child hunger. I offer you three choices: A) I can give you a charity leader with a low salary, but they don’t produce any results, or B) I can give you a charity leader with a medium-ish salary, but they produce mediocre child hunger reduction, or C) I can give you a charity leader with a very high salary, and they’re actually reducing hunger in substantial numbers? Which would be the better investment for you?

 

"How much do you pay your CEO?” is the wrong question. The right question is, “Is your CEO worth the money you pay them, and how do you know?” Just because a person earns a low salary doesn’t mean they are a good value. Imagine hiring someone for $60,000, and they actually take the organization backward. A real loafer. Good people underneath them get demoralized and leave—people the charity spent years training. The person leaves a bad taste in a big donor’s mouth, so the big donor goes elsewhere. A $100,000 gift goes away as a result. Now all of a sudden, $60,000 for that person looks very expensive. Heck, a volunteer—working for free—can be very expensive if all they do is distract other workers.

 

On the other hand, let's say we hire someone for half a million dollars. Gulp. But they bring in ten million dollars in revenue in their first two years. They attract a great team because people want to work for them. They're having a huge impact on the problem. Now all of a sudden, $500,000 looks cheap!

 

Did you ever buy a cheap winter coat instead of the more expensive one, only to find out it didn’t last the season? Would it have been less expensive in the long run to buy the better coat? It's like that.

 

"But I just don't feel right about it.” People didn't feel right about it when someone first told them that the Earth was round instead of flat, but eventually, they got used to it and started feeling smart that they were no longer anxious about falling off the edge of the planet. You deserve to feel smart about your giving.

 

“People who want to make a lot of money don’t belong in charity.”

 

If you think about it, that’s a little bit like biting off your nose to spite your face. Let's say you’re a Red Sox fan, and you say, "Pitchers who want to make a lot of money don’t belong in Boston," so the pitcher goes to play for the New York Yankees. The Yankees go on to win the World Series, and the Red Sox finish last. Who's the victim of your standards? You, or the pitcher?

 

In the case of a charity, it’s worse, because when we say, "People who want to make money don't belong in charity," those people go elsewhere, probably into the for-profit sector, where their talents are appreciated and rewarded. In this case, it's not only you as a donor that loses their talents, it's the hungry children they could have helped. That's a very expensive standard for hungry children.

 

We pay college football coaches—at nonprofit colleges—seven, eight, nine million dollars a year because we want those teams to win. And the colleges wouldn't be paying that kind of money if it wasn’t getting them the best coaching talent in the world. As a donor, you want your team—so to speak—to win the battle against hunger, cancer, illiteracy, racism, and the rest. It's time we started investing in the coaches who can win. Instead of the coaches who are simply cheap. Cheap coaches, more often than not, lose games and lose lives. And it's time we applied the same standard to all of the other workers at the charity that the coach is going to work with.

 

In short, it's time for you to feel smart about your giving. Asking the right question instead of the old question will make you feel pretty intelligent.

 

About the author: Dan Pallotta created the AIDSRides, Breast Cancer 3-Days and Out of the Darkness Suicide Prevention Walks, which raised over half a billion in nine years and were the subject of one of the first Harvard Business School case studies on social entrepreneurship. His TED talk on philanthropy has been viewed over five million times and is the 16th most-commented TED talk of all time. He has written over 100 blogs for the Harvard Business review online. The Stanford Social Innovation Review has said his seminal book about giving, “Uncharitable,” “deserves to become the nonprofit sector’s new manifesto.”