How Much to Pay the Executive Director?
Nonprofit board members are often puzzled when it comes to setting the salary of the executive director. Some legal and practical guidelines.
Legal and practical guidelines for setting the salary of the executive director
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.
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 make significantly more than their female colleagues do. This is true at five of the six sizes of organizations studied. The gender gap is especially wide at agencies with budgets of more than $5 million. In one study, the average salary nationally for women executives of nonprofits with budgets between $5 million to $10 million was $82,314. At this same budget size, the average salary for men was $98,739.
Relative to whose salary?
In this era when people discuss their sex lives on TV talk shows, information about salaries is still very, very private. Most of us don’t know the salaries of our siblings, our neighbors, our colleagues, our best friends. As a result of such a meager data set, people fall back on our own salaries as the main comparison.
To a board member who makes $40K a year, paying the executive director $90K a year seems exorbitant and unnecessary. A board member on the same board who makes $300K a year may feel that $90K is too low to get anybody competent. And to another board member with a government job, the $90K might seem too high, but this board member hasn’t taken into account that she’ll get 60% of her salary every year for the rest of her life once she retires… while the executive director will get 0 when she retires.
Executive director salaries are often very close to the salaries of other employees, in a phenomenon called “compressed salaries.” In contrast to Walmart, where the CEO makes more in an hour than low-level employees make in a year, an executive who makes $75,000 is often making just twice that of the lowest paid employee.
Why executive directors are so bad at asking for raises
One executive director told us about steeling herself mentally for an upcoming discussion with the board about her salary. She was determined to ask for a 10% raise. But when she got to the meeting, the board told her they were giving her a 25% raise! She was thrilled! But as she was driving home, it hit her: Now I have to RAISE the money.
Because the executive director’s salary typically acts as a ceiling, keeping the executive director’s salary low also serves to keep other salaries low. Executives know that a raise in their own salary of, say, $10,000, will mean $50,000 in raises across all other positions… $60,000 more to raise next year.
This question of how much to pay usually arises in one of two quite different settings: when hiring a new executive director and when discussing a raise for a current executive director. When hiring a new ED, boards typically choose a salary designed to attract strong candidates. Later, the same board may end up ignoring salary as a retention tool, and instead focus only on percentage increases.
Objectives and factors to take into consideration
1. Competitive:
The executive director’s salary should make the organization competitive in the market for talent. To where is your executive director most likely to leave? From where are you most likely to recruit your next ED? If the answer is a similar nonprofit, look at the salaries of comparable nonprofits in the area. (But keep in mind that salaries at very similar nonprofits can be different by factors of 10 or more.) If the answer is government, look at the kinds of positions your ED might take, and what salary and benefits are being offered.
2. Fair internally
The salary is fair in the context of other salaries in the organization. How much are other employees making? How distant or how close a spread do you think is appropriate?
3. Future-looking and strategic
The ED’s salary for the coming year reflects the contribution we expect the ED to make this coming year, not as a reward for past contributions. Performance in the last year gives us the best clues about how well the ED will do next year, but this year’s salary is not a reward for last year’s work.
If an executive is underpaid, recruiting his successor will be more difficult within the budget. Even more importantly, if all wages have been kept under a low ceiling, you may find it difficult to recruit and keep a qualified, committed workforce. There are many more reasons than salary why people go to work at a nonprofit, but low salaries narrow the pool of applicants to those who can afford low salaries… often inadvertently meaning that only upper middle class people can afford to work there.
4. Sending a message
The ED’s salary should send the appropriate signal to the ED, to the staff, and to others. Words are important, but so is money. Praising an executive director while keeping her compensation flat ends up conveying a message that the board doesn’t really value her work. In the same way, giving an inadequate executive a raise while quietly considering her termination sends a mixed signal you may later hear about in a wrongful termination lawsuit.
5. Don’t over-pay a so-so executive because you’re a large or prestigious organization
Over-paying a so-so executive can encourage “cooking the books,” and an over-paid person will fight more aggressively against termination.
6. Within the budget
Neither the ED’s salary — or other salaries — should cause undue financial stress on the organization. The board has a responsibility to keep the total costs of the organization (including the executive director’s salary) in an affordable range.
Sometimes when hiring a new director it may be appropriate to invest “venture capital” to offer a higher salary. In an experiment by the Neighborhood Investment Corporation, $5,000 and $10,000 grants were made to local groups to raise the salary offered to a new executive. The theory was that by offering more, a better qualified person could be hired and such a person could raise enough money to meet the new costs as well as bring up all salaries. In some cases, boards did succeed in hiring at a new level of competence and the model was proven correct. But in other cases, boards still were unable to attract talent with which they were satisfied.
7. Consider other aspects of compensation
Retirement benefits, an extra week of vacation, dental insurance, or other benefits are important to attracting and keeping talent. “We’re even seeing people pay more attention to benefits than to salary,” commented Regina Birdsell of the Southern California Center for Nonprofit Management, which maintains a job site and publishes wage and benefits surveys. “Be sure to put retirement benefits, longer vacations, flexible work hours into your job advertisement.”
Whatever you pay your executive director, it’s a good idea to have the salary reviewed and approved by the board annually, preferably in the context of performance evaluation and the budget for the upcoming year. The simple step of assigning one person to look up the salaries of comparable organizations can set a helpful context for the board.
Given the importance of the executive director to the organization’s success, boards often spend very little time thinking about his or her salary, and perhaps even less talking it over with the executive. Setting the top salaries is a strategic choice that boards should not be shy about bringing into the open and discussing with candor.
Information on salaries
More information may be found at:
- Guidestar: draws salary data from 65,000 Forms 990, which are filed annually by nonprofits with annual revenues of $25,000 or more. Salaries reported are those of $100,000 or higher. Perhaps more useful than purchasing Guidestar’s summaries is to look up organizations in your community with which you are familiar to see the salaries of their key employees. Keep in mind that the data is typically a few years old and does not include hours worked and certain other types of benefits.
- Abbott, Langer: offers a range of salary surveys, typical cost around $250
- Nonprofit Times has an annual issue on nonprofit compensation, but focuses on large national organizations such as the American Cancer Society, the SPCA, and others; information may not be relevant for community-based organizations. Other surveys available at a fee.
- Local or state compensation studies on nonprofits are conducted in some areas. The local United Way or community foundation will have the information if there is one. Local business newspapers or the local Chamber of Commerce often conduct local studies on for-profits.
- IRS Instructions for Form 990 (with the full language on “reasonable compensation:); see page 68.
See also:
- Amaze Your Friends with These Nonprofit Factoids
- The Board’s Role in HR
- Nonprofit Job Sites Directory
- High Pay for Nonprofit Execs? An Analysis of 100,000 Salaries
You might also like:
- Innovative Leadership — Culture Doesn’t Have to Eat Strategy: Tending to Human Factors During Strategic Planning
- Insider Newsletters: An Easy Way to Keep Your Board in the Loop and Engaged
- Five Years and Growing: How One Nonprofit Built a Sustainable, Collaborative Mission
- Measure What You Value: Designing a Values-based Performance Appraisal System
- Drive Your Nonprofit’s Mission by Investing in Your People
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About the Author
Jan is a former editor of Blue Avocado, former executive director of CompassPoint Nonprofit Services, and has sat in on dozens of budget discussions as a board member of several nonprofits. With Jeanne Bell and Steve Zimmerman, she co-authored Nonprofit Sustainability: Making Strategic Decisions for Financial Viability, which looks at nonprofit business models.
Articles on Blue Avocado do not provide legal representation or legal advice and should not be used as a substitute for advice or legal counsel. Blue Avocado provides space for the nonprofit sector to express new ideas. The opinions and views expressed in this article are solely those of the authors. They do not purport to reflect or imply the opinions or views of Blue Avocado, its publisher, or affiliated organizations. Blue Avocado, its publisher, and affiliated organizations are not liable for website visitors’ use of the content on Blue Avocado nor for visitors’ decisions about using the Blue Avocado website.
71 thoughts on “How Much to Pay the Executive Director?”
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Our organization, Exhale, has approached salaries and raises in two different ways. At one point, after 5-years of operation, we reviewed our salaries against others to assess if we need to make salary adjustments. Not "raises" based on performance for individual employees, but to establish organizational salary ranges that were comparable and competitive with other similar organizations. Turns out, all our positions were comparable, if not better paid than other organizations, except for the Executive Director – mine. I was paying my staff more than other organizations, and myself less. The Executive Director salary was the only position we had to adjust significantly.
In terms of how we decided on the range for my salary, we took two approaches – I conducted my own informal survey of several colleagues that I work with in the Bay Area from a variety of fields and from colleagues that I work with in a similar field across the nation. Yes, people were quite open about their salaries when I asked them. I averaged these salaries out. Then, we used the Center for Nonprofit Management’s Compensation and Benefits Survey for Northern California and conducted a similar average. Turns out the average from my informal review and the average from the survey were exactly the same. Where to set the range became pretty clear. Then the board and I negotiated about where I would start within that higher, adjusted salary range.
Also, I did this process simultaneously with another ED colleague who was doing it within her own organization. She had to do it because her staff had come to her and told her she needed to make more, so they could make more, because her low salary was serving as a salary cap for them. Doing this process and asking for the raise was one of the most important things I’ve ever done as an ED – for myself and my organization. I love helping other ED’s ask for raises, or conduct salary adjustments, so the value of their work and contributions are properly reflected in the organization’s budget.
Dear Aspen, is it possible to know what other benefits the ED receives? Are those similar/different than the benefits other employees receive?
-submitted by Carmen on August 27, 2012
I am finding this response you made 3 years ago very useful, Aspen!
I think it would be very interesting to track salaries of men who succeed women and the women’s salaries before they left. In my very limited experience, the male taking the reigns from a woman is paid a great deal more than the woman was paid. This sometimes results in very bitter feelings for the woman.
A non profit is supposed to be just that. When salaries are excessive (and anything over the national average starts the tilt in that direction), then the c3 “non profit” status is suspect. Any salary over $100,000 ought to require full public disclosure (included in fund appeals). If those salaries are so well earned and justified, then why be secretive about them?
If anyone thinks such a disclosure is unnecessary (and may curb donations), then the next step should be for the IRS to do an audit. A private gouging of profit taking does not deserve a 501(c)3 classification.
Hire more, but don’t give excessively to a few.
I must respectfully take issue with your first sentence. In my opinion, “nonprofit” is a tax status, not a business model. NPOs that make money have more resources to reinvest in their services so the organization can be more efficient and effective, or they can even expand their offerings. It seems to me that organizations should pay their EDs whatever they can to ensure the outcome the board specifies.
I would love to be compensated on par with my colleagues but that means that I will have to raise the money with very little board support. I realize that this is an age old problem and some will say that I should just get another job. However, there are many great things about my organization and I want to continue my work.
The well known local philanthropist who is President of my board is convinced that boards no longer get involved in fundraising. What’s an ED to do when that is the prevelant attitude and there are not enough staff on board? There are many very small non-profits that do important work but struggle with this problem. Does anyone have suggestions? Board development and training should help but it takes a long time to implement that. I have tried it–no success yet but am not giving up YET.
Amen! There are alot of Board members that don’t realize it is not just a resume builder to be on a board of directors.
Excellent article and discussion. I am definately going to make sure all my board members receive your newsletter. It’s great to see broad base discussion and comments on so many vital issues of the NP world.
Here’s my two cents. You’ve got to pay the top executive no more than 10x what the lowest paid person makes. That’s how they do it in Germany, and they’re an economic juggernaut, because everyone gets to be lifted up if the executive salary is raised. Coincidence? NO! Nonprofits with executives that get paid $120,000 per year are well and good if everyone in the nonprofit makes $40,000 or above per year. Sadly, this is never the case. Sincerely, Mazarine http://wildwomanfundraising.com
How about start ups? Any thoughts?
Beware of the “benefits” beside salary potholes, especially with a small organization. I now receive more annual leave than I will ever be able take. I’ve banked the maximum amount and now I just kind of laugh as days build up and disappear at the end of the year. I actually took a two week vacation in September but it took months to catch up on my work load.
I am offered full insurance benefits (medical, dental, vision etc,) but it it is typical insurance purchased by non-profits – high deductibles and lousy coverage. I now pay a $1,500 annual penalty to be covered by my spouse’s insurance. I do have a 401K with a 4% match which is much appreciated. I am in my early 50’s and am really questioning if a lifetime as a non-profit director is going to be a personal disaster as I plan for retirement. Well at least I have an encyclopedic knowledge of public assistance programs1
Anonymous – we had that same problem of too much leave building up and no time to take it. We now pay the vacation pay with the salary each month. That way the employee is not out the vacation pay. If they do take days off they are not paid for those days as they have already been paid. This is especially useful for small nonprofits that live on grants and have to lay off folks when the grant runs out. If the employee who is laid off did not take their vacation days, and you forgot to factor in that you have to pay them for those days once laid off, that was a problem. So changing to paying for vacation as we go along solved that.
As for retirement, at least you have a 401K with a match. For those of us in very small nonprofits we don’t have matches or pensions. So we have to plan very carefully by saving all that we can to compensate for living our passion. Not even going to lunch at McDonald’s. LOL. As for medical care I’d encourage you to check out an HMO. We have Kaiser with no deductible. Downside is you don’t have a wide selection of doctors. Upside is good coverage including dental and vision paid for by the nonprofit.
Please I need your help. I am doing research on how much the CEO of a not for profit organization should be getting in retirement and I have no idea where to start looking. Seeing that you have been dealing with this, could you PLEASE point me in the right direction. guillaume at indiggoassociates dot com. Thank you in advance
Last year the ED of the non-profit for which I worked got at 6% raise. She gave the office staff a 2.5% raise. The hourly staff with many years experience is barely paid above minimum wage for our province. The ED thinks she is underpaid but that the office staff are well paid. Needless to say I resigned.
I wonder if anyone has done a survey on the costliness of not retaining an effective ED. I was involved with a non-profit whose board was uncomfortable providing any salary increase over several years, and also felt they were unable to afford to provide benefits. The ED continually received good to excellent performance evaluations but never received a raise or benefits. The ED held on as long as possible, but eventually moved on to a job with a strong compensation plan. But I wonder how to calculate the interruption of continuity to relationships and programs, the difficulty in retaining staff after her departure, the need to increase staff compensation and hours to compensate for work that was falling behind in the absence of the ED, the cost of performing a search for a successor, etc. I wish I had been able to present case studies to help our board better evaluate the cost of a raise against the cost of losing a very competent ED.
They want to fire a President of a Florida Corporation which also is a shareholder (5%) the Treasury and the Secretary. The corporation only have two shareholders beeing one of them the President. The reason to fire him is because someone else bought the 95% of the shares and wants to name another person in his/her place. Is that possible? What tools has the President to defend himself and mantain his/her position?
As Vice-President of a non-profit board which recently had to terminate its ED because it simply couldn't afford her, I immediately clicked through to your article on ED compensation. I was, however, disappointed to very little of use to the smaller non-profits who probably represent 80% of the total. I did get from the article that compensation is all over the map, but some guidance as to the rough percentage of revenue ($275K for our shoestring operation) which should be represented by staff salaries, particularly that of the ED, would be very useful.
Interesting
I just started working part time with a new NPO as their Managing Director. Because it is new and I was told by the ED that the board had limited the amount of salary he could offer, I decided to accept both the position and the pay (which is less than I was making at age 19 and I am now 59) but insisted that I couldn't work for this type of salary for more than a 90 day period. Then we could sit down and conduct a performance evaluation at that juncture. Based on our initial working relationship (I was a Coach/Advisor to the ED for a brief period), I believed the ED when he confided in me that the almost-entry-level wage they were paying me for what was to be 20 hrs/work per week would be increased as soon as some sizeable donations came into the NPO. My accomplishments working as MD in such a short period of time have astonished him (and many others, including myself) but I sense he does not have ongoing communication with and/or real involvement from his Board. I also learned, after he asked me to write the Business Plan for the organization, that he was earning 8X's what I was getting paid and has been receiving that plus $2K more for health insurance while the rest of expenses which includes my meager salary comprises less than 30% of the budget. Today I have 30 days left to go before the 90 days are up and I find myself working 30 hrs (not 20) and am the point person for almost everything we are undertaking including a Sept event and a large 100 attendee golf tournament fundraiser. He and I are the only two employees of the company to date. My question is given this scenario (oh, by the way, we have approximately $45K in the bank with an incoming monthly donation of $5K and that's it) is it really kosher and "fair" for the ED to be getting $10K in salary and insurance benefit monthly while I am getting paid barely over minimum wage and we don't even have an administrative asst or clerical person to help with any of this? Curious to get feedback from you all regarding this scenario. Thanks in advance for all responses.
I found this article well done and because we serve the homeless (we call Urban Nomads) of our city of Santa Barbara, it is very hard to get donations and support, let alone a compensation for a director. So paying any of us 100% volunteers is impossible, even after years of serving. SB has more non profits than any city nationwide. People will give to clean the beaches or help a dog before they will help change the life of a person. So paying a salary of $45k per year for our ED is out of the question. Very hard work and very hard position in a city in the top 6 most expensive to live/work in. Not encouraging. We would spend more time fighting for the needed ED bucks than helping the emergency cases we have. Would give anything for this to change.
I have a question, I am starting Companion K9 Rescue SPCA a Nonprofit 501(c)(3) and was wondering what should the CEO/Executive Director be paid in a New Nonprofit and starting out? He/She will get Raises as we grow but I am stumped on how much for now. Can we just pay $30,000 a year starting out?
Also I am confused, I was told that most Nonprofits are starting to use CEO/President now then the title CEO/Executive Director?
Thanks for writing in Tony, but we are not able to advise on specific salary rates or titles. We recommend you check with your state nonprofit association to see if they might recommend resources on these topics.
I find your post disgusting justifying the gross salaries of the privileged CEOs. Somehow there is the idea that the person that does paperwork deserves more than the doctor that saves lives, the activist that risks his own life in the middle of the war to help, the vet that cares that wild animals do not dissapear, the doctor that researches and will save thousands of people… What has ever done a CEO that deserves being remembered for? Nothing. CEOs is just a disease of an aristocratic society which believes that there is need for a leader. Does really accounts need to be told to do their job? Do their doctors? Do marketing? Any company without CEOs will do just fine. They may be helpful as trying to align sections of companies but that should be considered a mere assistant job, and obviously paid the same or below that their peers who actually do the REAL job for NGOs.
Wow. If you only knew all that CEOs do, and all the knowledge they have to retain. Not just anyone can manage an entire oganization.
There are CEOs that are also doctors as well/ people who are working in the field. Just FYI…
you are ignorant
This is a really sad post by someone that I can only imagine is every bit as sad and disgruntled as his absurd post. The CEO of a non-profit organization tasked with raising their own funds to run an organization designed to do good in the world deserves to be compensated accordingly. Non-profit CEOs experience more stress on average than that of a private or public company because they are responsible for raising the funds to operate the organization and covering their salaries and that of the other employees. This is no easy task and should not be treated as if it were.
You’re right about saying that I have to prevent myself from paying my future executive director with too much money so that I can discourage them from fighting aggressively when I want to terminate them, and for this reason, I’ll have to hire a consultant. As a new founder of a startup business, the corporate guidelines are confusing to me, so I’m not sure how I should approach the vacant position’s compensation computation. I think that a consultant will be able to help me out with this since they know just how much an executive director from a garments industry should be paid.
You’re right about saying that I have to prevent myself from paying my future executive director with too much money so that I can discourage them from fighting aggressively when I want to terminate them, and for this reason, I’ll have to hire a consultant. As a new founder of a startup business, the corporate guidelines are confusing to me, so I’m not sure how I should approach the vacant position’s compensation computation. I think that a consultant will be able to help me out with this since they know just how much an executive director from a garments industry should be paid.