Should charity begin with nonprofit executive's paychecks?

Early in August, when Jane McIntyre was a candidate for executive director of United Way of the Central Carolinas, the inevitable question arrived from the agency's search committee: How much would she want to be paid?
McIntyre had thought long about this, talked to friends, done her research. She pulled out a chart of nonprofit salaries. The number she wanted, she told them, was "a lot less than you want to give me."
The $150,000 range McIntyre suggested was, in fact, a lot less than the controversial $365,000 salary and $2.1 million pension package paid to McIntyre's United Way predecessor, Gloria Pace King. "I didn't want my salary to be a barrier to the success of United Way," McIntyre said last week.
McIntyre, a veteran of nonprofit leadership in Charlotte, knows that finding that salary sweet spot is a complicated and perilous exercise for nonprofit boards everywhere. Pay too little, and you may miss out on the talent that can best run your organization, industry experts say. Pay too much and you invite the headlines that have dogged the leaders of some Carolinas nonprofits this year.
Along with United Way's struggles with King, the Observer reported in May that S.C.-based Inspiration Networks CEO David Cerullo's $1.5 million salary made him the highest paid leader of any religious charity in the country, dwarfing executives in far larger religious nonprofits.
Earlier this month, the Observer reported charity watchdog criticisms of evangelist Franklin Graham's $1.2 million in total compensation last year while leading the Billy Graham Evangelistic Association and Samaritan's Purse.
The day after the Observer report, Graham asked the BGEA board to rescind his salary. "It's just not worth it," he told a spokesman.
How much is worth it for nonprofit executives? It's a number made increasingly delicate by an economy that has strained nonprofit budgets, left more needy to be ministered to, and sensitized donors who are selective about the dollars they have left to give.
"It's definitely more in the public consciousness," said Ken Berger, president of watchdog Charity Navigator. "It's even harder for people to give now, and they're giving their hard-earned money."
Berger and other nonprofit observers say more executives and boards also are grappling with salary issues in the wake of the recession, with some trimming salaries or eschewing executive raises.
Others, Berger says, "just don't care that people care about this."
Those that do care confront a calculation that's part finance and part social science, with some public-relations savvy sprinkled in.
High pay necessary?
Advocates of larger nonprofit salaries say such inducements are necessary to attract the talent needed to run important and complex organizations. "There are some jobs in the charitable area that are quite, quite complicated and require a lot of management, a lot of risk management, a lot of operations knowledge," said Pete Smith, a Virginia-based consultant for 30 years. "People who are managing these have headaches that are as big and challenges as important as many in the for-profit world."
Higher salaries also can bring the status, both symbolic and practical, that allows nonprofit leaders to better connect with the big donors they need to woo.
"The thought is that they interact with corporate and political leaders," said John Van Til, an author and professor at Rutgers University. "It's important for them to be socially connected, for their children to go to the same schools."
Such thinking, say industry watchdogs, reflects a misguided corporate mentality of people who often control nonprofit boards. "There's a perspective that the job can't be valued or important if the executive salary is too low," said nonprofit watchdog Pablo Eisenberg, a senior fellow at Georgetown University's Public Policy Institute. "You have these boards who want to replace an executive who's been making $300,000, and they find a guy who's making $125,000 and is very qualified. They'll automatically pay him $300,000. It's nonsense."
Corporate culture a problem
That corporate perspective, Van Til says, also clashes with the widely held belief that individuals make a special commitment when they move into a charitable field, and should have a spirit of community sacrifice that also applies to a charity's CEO.
When that agreement is violated with an egregious salary, experts say, the impact is greater than with for-profit companies.
"For a charity, trust is the most important thing to have with the public," Berger said. "These kinds of things don't just hurt the charity involved. They can invade the entire sector."
Trimming in Charlotte
McIntyre said she instructed United Way administrators last week to review their salaries - as well as staff pay - to ensure they're in line with United Ways in cities of similar size. She also has heard of United Way member agencies that are cutting executive pay - although United Way historically doesn't request that member agencies do so.
Agencies doing such trims include the YMCA of Charlotte. Last fall, director Andy Calhoun requested that the board cut his salary 28 percent in the face of an upcoming budget crunch. "I felt those kinds of changes we needed to make needed to start with me," said Calhoun, whose pay was cut from $404,205 to $319,800. His medical and retirement plans are the same as all YMCA employees.
Calhoun's salary remains among the highest of Mecklenburg County nonprofit executives. Months before the pay cut, however, the YMCA of Charlotte board hired a New Jersey-based consultant, the Hay Group, to examine its executive salaries. The consultant found that Calhoun's 2008 salary - compared to similarly sized YMCAs, including chapters in St. Louis, Seattle and Atlanta - was "reasonable" and in the 75th percentile.
Berger, of Charity Navigator, recommends that all nonprofits conduct a similar audit that compares CEO salaries to others in similar geographies. "I don't think it's that hard," Berger said.
Berger's site, as well as charity watchdog Guidestar, offers comparative compensation surveys and reports that nonprofits and donors use to gauge legitimacy. In an August survey of mid- to large-sized nonprofits - those with more than $1 million of annual revenue - Charity Navigator found an average salary nationwide of about $160,000. In the South, the figure was just under $140,000. "We think it's reasonable to have a low six-figure salary (at similarly sized charities)," Berger said.
The Charity Navigator report also found that nonprofits with expenses between $50 million and $100 million paid their executives an average of $378,026. The YMCA's 2007 expenses were $73 million, suggesting Calhoun's salary is within industry norms.
Georgetown's Eisenberg cautions, however, that comparative analysis is misleading if the peer group is overpaid to begin with. "I tend to view many of these executive salaries as highly inflated," he said. "There are thousands and thousands of well-qualified people who would be very happy to run an organization for about $100,000."
In Charlotte, United Way had expenses of $41.8 million in 2007-2008, putting McIntyre's $142,000 salary - with no special retirement or health benefits - near the bottom for similarly sized nonprofits.
McIntyre said she suspects some in the nonprofit community might be unhappy with her feelings about salary.
But, she said: "We're dealing with donor dollars here. They're sacred."