He's at it again.
Pablo Eisenberg’s commentary in the June 13 issue of the Chronicle of Philanthropy Charities Shouldn't Follow Businesses in Setting Executive Pay once again wraps zealous muckraking around a valid point, at the expense of many dedicated and ethical professionals whose selfless contributions make the nonprofit world such a special place. This is the third or fourth op-ed Eisenberg has published in recent years advancing essentially the same arguments.
Yes,
there is abusive executive compensation in some charities. And yes, charities shouldn’t base their
compensation levels on private sector pay. But almost none do this – everyone knows that whether you’re
the Executive Director or even an Administrative Assistant, you’re going to
earn less in the nonprofit world than in the business world.
Mr.
Eisenberg goes on to repeat his previous proposal that pay of nonprofit
executives above $400,000 per year be taxed at 100% to 200% of the amount over
$400,000. This arbitrary limit is
wrong on two counts. First, there
are some nonprofit positions –the President of the University of Maryland or the
Chief Executive of Kaiser Permanente, for example – where the scope of
responsibilities and annual budget and potential liabilities require someone
with substantial experience and ability, and where even in the nonprofit world
the positions are worth well above $400,000 per year. In some cases independently wealthy people will take on such
assignments for a low wage. But
limiting the field only to such people doesn’t make sense.
Second,
Mr. Eisenberg’s proposal doesn’t deal with overpaid charity executives earning
less than $400,000. For many
smaller charities, a salary of $250,000 or even $100,000 may be excessive,
given their size, funding, scope, and complexity of management. Determining the right compensation for
any position is more complex than Mr. Eisenberg recognizes.
The
implication in Mr. Eisenberg’s article is that charities are teeming with
overpaid executives not worth their salt.
“Why are so many nonprofit directors’ compensation packages doubled or
tripled from their previous salaries when they take on a new job?” This is an absurd contention; in 40 years of compensation consulting to nonprofits, I have never
seen even one such case.
Finally,
a look at the landscape shows that Mr. Eisenberg’s alarm is misplaced. Charity Navigator’s data base of 5,497
nonprofits – including most of the leading U.S. nonprofits – shows that only
291 (less than one half of one percent) reported total compensation over
$400,000 in their most recent IRS 990 form. One hundred and eight of these executives were in either
hospitals or universities, meaning that in general charities, the percentage of
executives earning over $400,000 is .033%. (My thanks to Sandra Miniutti of Charity Navigator for providing this information.)
My experience shows that today, boards of trustees take their responsibility for setting fair and reasonable executive pay very seriously, and that most of them do a very good job at this. Watchdogs should continue to look for abuses – Senator Grassley has been most effective in this respect – and the IRS enforcement group should have more funding and a greater presence. But publishing a broad-based screed on this subject from Mr. Eisenberg every year isn’t helping anyone, and it isn’t providing the Chronicle's readers or charity donors the level of intelligence on this subject they deserve.
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