Monday, September 18, 2006

NONPROFIT COMPENSATION

Here's the article I was trying to write in Nonprofit Doublespeak/Excessive Compensation:

Who here is a compensation specialist? Not me, but I know there is a science to it. Salaries aren't (usually) plucked out of thin air. They are determined, not just by mean and median, but by geography, skills, the market and scope of responsibility.

Therefore, before we evaluate whether a $200,000+ salary could be appropriate for a non-profit executive, let us go through three steps:

STEP ONE: CONTEXT

Start with some stats cut and pasted from the "Economic Statistics Briefing Room" section of the White House's website...

Median household income was $46,326 in 2005, up 1.1 percent from 2004 after adjusting for inflation. This is the first annual increase in real median household income since 1999. Since 1967, the first year for which household income statistics are available, real median household income was up 30.9 percent

How does that break down by ethnicity?

Black households had the lowest median income in 2005, $30,858, which was 61% of the median for non-Hispanic White households, $50,784. Asian households had the highest median income among the race groups. Their median income was $61,094, about 120% of the median for non-Hispanic White households. Median income for Hispanic households was $35,967, which was 71% of the median for non-Hispanic White households.

Want to read the full (depressing) report? 2006 Stats.

STEP TWO: GEOGRAPHY

Now let's take that $46,000 and say you are earning that in Los Angeles, but want to go work for a non-profit in New York:

The cost of living in New York, NY is 42.1% higher than in Los Angeles, CA Therefore, you would have to earn a salary of $65,351 to maintain your current standard of living.

Likewise, earning $61,094 at 42.1% would need to earn $86,794

STEP THREE: SCOPE OF RESPONSIBILITY
Now that we are in New York, how big is the budget we are going to manage? How many employees? How many clients? What are our performance expectations? Managing 1-5 million? Maybe $60,000? Managing 10 million? Maybe $75,000? Managing $50-$200 million? Surely at some point $200,000 doesn't sound unreasonable.

On the other hand, that Dallas CEO who gave himself a million dollar salary made us all look bad...

I'm not alone in trying to understand this perplexing issue, here is a really good exploration:

Nonprofit Compensation: Some Challenges of Comparison
This from the Nonprofit Times salary survey:

Male executive directors were paid $108,555 on average last year (2005), while females holding the same position received $77,086. Men executive directors are expected to receive $109,516 this year (2005), and women executive directors are slated to receive $79,992.

Now that I think about it maybe I should go work for National Organization for Women...


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1 comment:

Michele said...

Good post. First, I wouldn't put it outside the realm of possiblity for salaries to have been pulled from mid-air. Or at least for them to have been created in a vacuum that has nothing to do with either context or scope of responsiblity. Often there's some kind of historical precedent--this is what we've always paid and so we'll just add some increment to it

On the topic of male/female executive director compensation, I'd be curious to know if there were differences in the size/type of organization where the EDs were employed. Not that I don't see bias, but I suspect it may start with who gets hired.