The Ethics of Non-Profit Salaries

We’ve been hearing a lot in recent years about CEO compensation packages, and how many top firms are now paying their senior managers more than the GDP of some developing countries – or enough to feed half of Asia, depending on your point of view. As I mentioned in an earlier post, this isn’t necessarily a bad thing, and all of the neo-Marxists out there can just settle down about it; companies are created to make money, and if you can show that a given employee’s efforts increased your net profits by 700% then there’s certainly nothing wrong with given them a piece of the action. But what happens when that scenario will never and can never happen – because the company is a non-profit organization, required by law to break even every year? Do those same rules apply?

Some people would tell you that every member of a non-profit organization should work for free – less necessities like health insurance and such, of course – but in reality, all this would give you is an agency staff made up entirely of people who do not need to work for a living. Which is to say, volunteers, amateurs and dilettantes, for the most part. Given time, there’s no question that some of the volunteers will become quite adept at managing a non-profit organization, but anyone who believes (as a distressing number of people seem to) that running any large organization is easy is displaying the “anything I don’t understand must be easy” fallacy, as well as their own ignorance, and should be vigorously ignored. Certainly, running an organization with a $100 million budget, 4,000 plus service locations, and tens of thousands of employees is a job you’d want a professional for; the question here is what should you pay them?

An article that ran this week on the ABC News website quotes the Charity Navigator organization as saying that the average compensation for CEOs of charities that size is about $462,000, which is almost laughably tiny when compared with CEO salaries for for-profit companies the same size. But the article is about the scandal resulting from the Boy’s and Girl’s Clubs of America CEO getting a total compensation package of nearly $1 million last year while accepting Federal support money. In fact, the compensation and perks being granted to the senior management of this organization has so outraged a group of Republican Senators that they’re threatening to hold up all legislation that would give money to the agency. Which seems reasonable, at first; $4.3 million on travel, $1.6 million on conferences and meetings, and $544,000 on lobbying fees is certainly over $8 million that won’t be going to help any children. The real question, which is being ignored in the political grandstanding, is whether the agency is being run well, and if so, whether the same results could be obtained if you spent a smaller amount on salaries…

Which brings us, I think, to the heart of the ethics question that is integral to this issue: if a non-profit agency is being run properly, in terms of providing high-quality service to its constituents, should its decision to pay a higher than industry standard salary to its CEO be questioned? Should Congress be able to make that decision (or at least strongly influence that decision) in return for grant funding of less than $18 per child served per year? The idea that the Federal Government itself could provide the same services for less would be laughable if it wasn’t so sad, and so is the idea of Senators, who get paid their own considerable salaries for life even after they leave office, being sanctimonious about anyone else’s pay. If the agency is providing high-quality services for a better price than the granting agency could by itself, should ANY grant maker be able to exert that kind of external control? On the other hand, since non-profit organizations do not have stockholders (and have only limited government regulation), if grant makers and other donors do not exert some kind of control on these agencies’ spending, then who will? For that matter, how do we even know if the non-profit agencies our tax money is being granted to are well-run in the first place?

It’s worth thinking about…