High CEO Salaries Raise More Than Eyebrows

ceo salariesIt has come to the attention of the public, state governments and the federal government that a few nonprofit CEOs are making over $1 million a year in salaries and bonuses. As you can imagine, this has caused quite a stir as officials at every level attempt to cut unnecessary and excessive expenses in this era of tight budgets. For example, a New Jersey provision limits what nonprofit groups can pay their chief executives if they are providing services under state contracts, and Vermont is following suit by trying to curb salaries paid by nonprofit groups that have state contracts.

High-paying nonprofits come under scrutiny

While not every nonprofit is doling out big bucks for the CEOs, the ones that are call attention to the way these nonprofits are functioning as businesses and what they are accomplishing as organizations that merit such high pay for their top leaders.

According to an article from California Watch that cited information from a study by the trade publication Payers and Providers, as many as 16 chief executives at nonprofit hospitals in California earned more than $1 million per year in 2007 and 2008.

Ron Shinkman, editor of the newsletter, culled data from 2007 and 2008 tax filings of the state's nonprofit hospitals. He found that CEO salaries, in 11 cases, surpassed the charity care rendered by those hospitals. Among the highest paid CEOs were executives from Cedars Sinai, Hoag Memorial, Scripps Health and Stanford, all of whom earned more than $1.5 million in 2007.

These findings add to a list of accumulating research that questions whether nonprofit hospital CEOs' compensation is in alignment with the purpose of tax-exempt hospitals that receive billions in tax breaks in exchange for helping the needy receive care.

Capitol Hill weighs in

As part of a routine vetting process this spring, the Boys & Girls Clubs of America came under scrutiny when Capitol Hill found out that its CEO was paid $510, 774 in salary and another $477, 817 in bonuses. Many Hill members felt the need to speak out about this issue and refused to approve a $425 million grant package for the organization. As reported in outsidethebeltway.com, "a nearly $1 million salary and benefit package for a nonprofit executive is not only questionable on its face but also raises questions about how the organization manages its finances in other areas," said Senator Tom Coburn, R- Oklahoma.

Other government officials supported Coburn's assertions and encourage better policing of pay in the nonprofit sector to help regulate compensation packages. Charles E. Grassley, R-Iowa, called "regulations governing compensation too weak."

There are already some laws on the books that address this exact issue of high salaries among nonprofit CEOs. The Internal Revenue Code contains provisions that impose penalties on excessive compensation paid to CEOs of nonprofits, and the laws of many states, such as New York, have specific statues as well.

Nonprofit professionals weigh in

"I've been a nonprofit professional for over 10 years and we're not here for the money. We have the smarts and the skills to make much more money; we choose this sector because we feel our life's work should be about more than just a bank account. We are trying to benefit society and save the world. So yes, a sham charity should be shut down. But just because a person works for nonprofit does not mean they need to live in poverty. Shouldn't doing good be rewarding too?" says Carol Meerschaert, director of marketing and communications of the Healthcare Businesswomen's Association (HBA).

Bruce Hurwitz, president and CEO of Hurwitz Strategic Staffing, points out that nonprofit CEO salaries should not be looked at in a void. In 2006, Hurwitz did a study of his own about nonprofit compensation for CEOs. He found that the Montefiore Medical Center CEO made just shy of $2 million, making him the highest paid nonprofit executive in the Bronx, yet his high salary represented only 0.13 percent of his organization's gross revenue. Thus, while some salaries are high when you single them out, there are often other mitigating factors that help account for those high salaries and bonuses, such as responsibilities of the CEO, size of the organization, and gross revenues of the organization.

The issue of taxpayer-funded organizations

While some nonprofits are forced to offer competitive salaries to top executives in order to attract and retain the best leaders out there, not all nonprofits have to shell out big bucks to attract big talent. Especially those funded almost totally by taxpayer dollars, says Hurwitz. "Nonprofit executives' primary motivation for their work should be charitable, not personal financial aggrandizement," he says. "If they are in it for the money, they shouldn't be in it."

One such organization that Hurwitz studied in 2008 was Aging in America. "Aging in America is a government subcontractor. The government provides 96.3 percent of all revenue," he says. And, if "the government is paying the lion's share of expenses, then salaries should be 'governmental." Why should the CEO of Aging in America earn $254,267 more than the president of the United States?"

Where does the scrutiny end?

There are a number of factors to consider when thinking about whether nonprofit CEOs are being overpaid for their work -- scope of work, size of the organization, job responsibilities, revenue of the organization, government funding and more -- but the question still remains: Is it OK for someone to step in and say that nonprofit CEO salaries are to high? Would this even be an issue if these same executives worked in a corporate environment and were paid huge bonuses at the end of the year for a job well (or, in some cases, not-so-well) done?

Furthermore, does the CEO deserve that kind of pay and is it within the legal statues of that specific state to pay a CEO such a high salary, or is it a red flag that something questionable or unfair is taking place? If the government or Americans or regulation boards start scrutinizing the salaries of nonprofit CEOs, then where will it end? Will everyone's job and salary be under the microscope?

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