Separate the Wheat from the Chaff
So, the question gets asked of some presidential economic advisor in some NPR interview (and, I’m sure, is repeated in many other interview settings), is $1 trillion going to take care of getting rid of all of the “toxic assets” banks are currently holding? The response, in summary: well, minimally, it should go a long a way.
We are talking about sums of money that the vast, vast majority of nonprofits, let alone their clients, can’t even fathom. It is a sum of money that suggests that whatever leftover monies the government has, it should be putting to really good use – use that will maximize the impact of the few dollars that remain. Should some of those dollars be going to monitor the exorbitant salaries of nonprofit executives? Well, it depends on how much bang for your buck you wish to receive.
I’ve yet to see a survey that shows how many nonprofit executive directors receive “exorbitant” salaries, but I can tell you based on decades of experience that they are absolutely the exception rather than the rule; they make up a very small minority. Unfortunately,however, they receive the bulk of the media and, therefore, the public’s attention. The Wall Street Journal recently ran an article under the headline “Pay at Nonprofits Gets a Closer Look” The article correctly starts by pointing out that nonprofit executive salary was being scrutinized even before AIG’s executives took over the headlines, but that in the post AIG bonus days, nonprofits should expect even greater scrutiny.
Why? To what end? Is the money in excess of “what is reasonable” going to be recovered? No. Will board practices at those organizations where executives were hired with excessive salaries change their ways? Only if the board truly believes that it made a mistake in determining the salary. And just as one example, the board of the beleaguered head of Philadelphia’s public radio station – beleaguered only because compensation is viewed by some as excessive and thus gets scrutinized in some media fairly regularly – believes that the compensation package is fair, just and – where have we heard this before – necessary, initially to woe, and now to retain the talent. They are a strong candidate for taking on the IRS’ offer to rebut the presumption of reasonableness. And they are far from alone.
And just how many nonprofit organizations will the IRS find with the perks (a word that so rarely surfaces in discussing nonprofit compensation) that the Journal article calls out: first-class air travel, expense accounts, housing allowances and “the use of bodyguards, chauffeurs and lawyers.” It is true that many college and university presidents get free housing. A quick web search to find out the total number of colleges and universities in the United States produced a non-definitive answer, but suffice it to say the number appears to be somewhere between 4,000-4,100. Even if 100 percent of 4,100 institutions provided free housing to their presidents – which is so, so far from the reality – we are talking less than .01 percent of the 1.4 million nonprofits in the United States. I’ve yet to meet an executive director who has bodyguards, let alone free ones, but I’m willing to admit this is a possibility. Then there are those executive directors who get to live for free in the half-way house or on the grounds of the rehabilitation hospital, etc.
I made the mistake of reading the comments that attached to the on-line version of the Journal article. The ignorance that some of the responses reveal is par for the course. One suggested that officers of nonprofits are perpetrating a “national scam” because they benefit from “immunity from taxes.” Excuse me, but my pay check does not reveal such immunity. This same author suggests that employees of nonprofits who wish to earn a decent living do not understand what “non-profit”—his quotes, not mine– means. Another author says, categorically, that most nonprofits spend only 10-20 percent of dollars raised on programs and the rest goes to salaries and the cost of fundraising. Ah, the name of our sector and the ignorance of the average American about nonprofits.
Forget going after the 1 percent of nonprofits who don’t play by the same ethical code as the rest of us; let’s use the dollars that would go to checking out executive salaries and go after the 95 percent of Americans who are so ignorant about nonprofits that they do not know how to judge the good from the bad. For the reality is that the vast, vast majority of nonprofits in this country are doing just what they are supposed to be doing—working hard , and ethically, on behalf of the public good.
I am a former employee of a large non-profit organization. I became the employee of such an organization expecting to be of use and working for the common good. Unfortunately, I was disappointed. Employees received discreet and large bonuses on top of their salaries. Based on that fact, it wasn’t difficult to realize that what the executive director made in writing was probably being topped off. Employees were allowed basically limitless travel expenses, and most usually combined recreation with actual work. Offices were located in the most expensive real estate districts possible, and thousands of dollars spent in office decoration alone. And when I realized that they created a “program” to which they attributed most of their administrative expenses (including traveling), which enabled them to say they only spent 5-10% in administrative expenses, instead of the 50-60% that was most likely being spent, I knew that things were not going as I had hoped. Additionally, the “open forum” environment in which employees were encouraged to discuss their opinions of the organization was a joke. When a human resources issue came up, leaders became offended, and the faultless person who was the subject of the issue was insulted, demeaned and almost fired. This person decided to stick it out, but I decided to get out while I could. I tried to bring up my observations that much money was being wasted that could be better used, however, everyone else just enjoyed the perks and left their morals at home. I tried to point out that if the “open forum” environment wasn’t working out, things should be handled in a more corporate way, where options for employees are clearly delineated and according to a fair and objective rule. Unfortunately, I have to say that my experience was disappointing, and now when I consider donating to charitable organizations (which I have done for several years) I find it difficult to trust the “reviews” given by independent analysts.
When it comes to non-profits the boards need to be watchful. Otherwise the non-profit can be one big vulnerability. Make sure everyone involved knows the direction that your going in. Don’t let anyone person have to much control, especially over the finances. Just speaking from experience.