Ask More of Business

Asking More Commentary: Perspectives from Mendoza College of Business

Commentary Post - Thomas Harvey

Should Executives Be Paid Well For Doing Good?

October 20, 2009

The Mendoza College of Business educates leaders to manage successful organizations.  Key measures of success involve salary levels from entry level positions to that of the CEO.  Higher salaries should indicate success, level of responsibility and risk-taking.   And obviously, higher salaries reflect well on those schools that educate the top earners. 

If you view this as a truism, do you also think that it applies equally to those who specialize in leading nonprofit businesses?

This question was triggered by a front page story in the Oct.1 edition of The Chronicle of Philanthropy on the compensation levels of the nation’s largest nonprofit organizations.  Overall, the article is a very good news story that details several current trends in salaries.  However, by limiting the report and study to the largest nonprofit organizations, it gives a very unrepresentative picture of executive compensation in the nonprofit sector, which comprises about 10 percent of the U.S. workforce.

Those who work in foundations, universities, hospitals and some performing and visual arts institutes have compensation levels that compare favorably to their for-profit counterparts.   But this is a small minority of the organizations in the nonprofit sector.  The Chronicle article, by focusing on this small pool, creates a false image of remuneration levels throughout the sector.  I should note, however, that even among these larger and better funded organizations, there is a pecking order.  For example, hospital administrators earn about 400 percent more that social service CEOs.

The Chronicle of Philanthropy should complement this article by also reporting on the CEO salary levels for the rest of the sector.  Many of the people doing the most critically important work earn embarrassingly low wages. 

The ethical challenge for me is why there is the huge disparity in pay levels.  The answer is simple.  It is market driven.  Those with easy access to financial assets are paid accordingly. The salaries paid in the nonprofit industry do not define the value of the work in terms of its importance to the good of society and to the quality of life in our communities.

We seem to have developed a double standard in the United States concerning compensation.  If you work for stockholders, you should be paid at the highest possible level.  If you work for donors, you should not expect as much.  The thinking seems to be that if the donor sacrificed by giving, the nonprofit staff also should sacrifice by accepting lower wages.

But this is faulty logic.  I fear that the Chronicle’s limited focus on the high-end nonprofit leaders will hide the actual reality of modest, and even inadequate, salaries in the majority of nonprofits.  Many of these organizations need the best and the brightest to deal with complex problems that must be solved for the good of our society and its people.   And these individuals should be compensated at levels reflective of the quality and importance of their work.

My hope is that Mendoza College of Business faculty and staff, especially those involved in nonprofit organizations, will advocate for decent salaries for all such staff and managers.  Let the Chronicle’s article keep us from only criticizing the salary scale of the few and make us fight for better salaries for the many.