How Much to Pay the Executive Director?

by Jan Masaoka

Nonprofit board members are often puzzled when it comes to setting the salary of the executive director. On one hand, we want to keep our talented staff; on the other hand, we know the budget is tight. Some legal and practical guidelines:

It’s maddening and ironic that the press focuses on the extremely rare cases of high salaries for nonprofit executives, when salaries in nonprofits are typically 20% – 40% less than their counterparts in foundations, local government, and the business sector. Mistaken public perception that nonprofit salaries are high has even led to New Jersey now limiting the amount of state funds that can be spent on nonprofit executive salaries.

But despite the press, community nonprofit boards are more frequently worried that they are paying their executives too little, a feeling shared by many executive directors themselves.
Unfortunately, survey data is often of little use, because of small sample sizes, samples weighted towards universities, and the reality that all surveys show enormous variation in salaries for nonprofits of the same fields and sizes. An example of the inconsistency of data: one recent national survey showed average executive director salary to be $60,000 while another reported $158,000.

“Under $50,000, people aren’t going to move,” says Karen Beavor of the Georgia Center for Nonprofits, publisher of the online nonprofit jobs site Opportunity Knocks. “But any search at $100K, $150K is recruiting from a national pool. Look at a number of surveys, including both national and local.”

On the web, salaries for “key employees” who are paid $100,000 a year or more are posted at Guidestar in the Forms 990 that US nonprofits (with annual revenues of $25,000 or more) are required to file. (If the executive is on the board the salary will be in the board section.) In other words, by going to this website anyone can find out the salary of the top staff in most nonprofits.

Legal guidelines

As part of preventing “excess compensation,” U.S. federal law (Prop. Regs. Sec. 53.4958-4) notes that nonprofits should pay “reasonable compensation,” defined as “an amount as would ordinarily be paid for like services by like enterprises under like circumstances.” Not exactly the clearest statement. Regrettably, it’s not hard to find law firms that always seem able to discover that the proposed compensation fits these imprecise guidelines. We know one nonprofit with five staff that pays its CEO $375,000 . . . blessed by an expensive legal report.

In California, nonprofits with non-governmental income of $2 million or more are now required to have the board approve the salaries of the CEO/executive director as well as that of the CFO. A good idea in any event, but with a median salary of $75,000 for nonprofits with budgets between $1 million and
$2.5 million, excess compensation hardly seems like the biggest problem.

Men still get paid more at the same size organization (surprised?)

More disturbing than generally low salaries are the gender differences in salary. Despite the predominance of women in nonprofit executive positions around the country, male executives…READ MORE.