For economic, cultural, and social reasons, executive pay raises are sometimes characterized as unnecessary, unjust, and unfair, particularly as they provide a symbol for increasing income inequality. Two thousand eleven’s Occupy Wall Street movement reminded us of the disparity between the 99 percent and the 1 percent; however, we barely needed the prompting. In 2009, the nation was shocked to find out AIG awarded its executives large-scale bonuses following a government issued bailout. In 2010, communities were in disbelief when CEO pay recovered from the recession – “bounc[ing] back in a big way” – while unemployment rates soared and the recession continued.
Today, conversations of income inequality are in vogue (a simple Google News search renders nearly 20,000 results). New York City mayor Bill de Blasio has recently been on tour touting his message against inequality. President Obama recently remarked: “[T]his increasing inequality is most pronounced in our country, and it challenges the very essence of who we are as a people.” And Thomas Piketty’s 700-page Capital in the Twenty-First Century topped the New York Times’ bestselling list, injecting the thesis that inequality is a necessary feature of capitalism into our common parlance.
However, this conversation is not unique to contemporary politics. In fact, as most advocates against income inequality reveal, other eras of the United States have seen this type of disparity, particularly from the Gilded Age through the Great Depression. In fact, President Franklin Roosevelt even proposed a “maximum wage” to help combat this issue. In his speech to Congress on Economic Stabilization, Roosevelt asserted: “At the same time, while the number of individual Americans affected is small, discrepancies between low personal incomes and very high personal incomes should be lessened.”
When it comes to nonprofit executive pay, the echo of income inequality debates are paired with socially conscious concerns, including (but certainly not limited to) the objection that the money used for “inflated” executive salaries would be better used serving their nonprofits' missions. Some of those holding this position point to popular scandals as evidence of a boundless system. Others, like the Fiscal Times, provide an annual list of the “Ten Insanely Overpaid Nonprofit Execs.” Getting to the heart of this position, nonprofit consultant Alan Cantor argues:
The widespread veneration of the CEO, which has increasingly poisoned the for-profit corporate world, has infiltrated nonprofits. CEOs at many successful organizations are getting way too much credit, and way too much money. And the people in the trenches – the social workers, teachers, nurses, cooks, security guards, bookkeepers, and IT guys – are getting way too little.
A variety of nonprofit executive compensation reports are released throughout each year. The NonProfit Times released their 2014 report earlier this year and found the average nonprofit president/CEO pay was $118,678. Another major annual report, published by Charity Navigator, is expected to come out this October. The reports, each with different emphases, attempt to provide analysis of the entire nonprofit industry, as well as raise concerns regarding individual organizations.
Most recently, the Chronicle of Philanthropy has released its annual compensation survey (searchable data is behind a paywall). Among the eighty-two organizations it studied, the median change in salary was 4.9 percent, and the report found eighteen chief executives with compensation over $2 million. Though the rate of increase was not as steep as compared to rate changes for similar positions in business, the executives have continued to do well, even in light of a still struggling economy.
Significantly, the article concludes with remarks identifying that “[e]ven as salaries begin to rise fast at the largest charities, the vast majority of nonprofits operate on a shoestring and can’t afford to dole out big raises.” However, just like parallel discussions in for-profit industries, the debate regarding whether these raises are deserved is playing out in the nonprofit community. On the one hand, CEOs and presidents likely have been awarded such raises for good reasons; on the other hand, such pay increases come at the expense of other areas of investment.
As we await the Charity Navigator report next month (which is expected to provide a more extensive analysis of a greater number of organizations), it is important for both sides of the debate to acknowledge the merits of argument rather than merely react to the study’s topline findings. Are executive pay raises in the nonprofit sector contributing to perceptions of income inequality or are such executives revitalizing their organizations during tough times?