Pay for the Top Executive at Non-Profit Organizations

Pay for the Top Executive at Non-Profit Organizations

May 31 2017

The Internal Revenue Service mandates that non-profit organizations pay reasonable compensation and imposes stiff penalties for those who fail to comply.  In its study of top executive compensation at non-profits, Steven Hall & Partners (SH&P) reviewed and analyzed pay and related governance data among 370 organizations with median revenue of $31.4 million, and as disclosed in Form 990s for the 2015 fiscal year, the most recent year for which such data is available.

For this year’s study, the compensation and governance data is summarized as follows:

  • Total survey sample
  • By organization type
  • By revenue size
  • By region

Summary of Findings

This study examines pay and related governance data for 370 organizations that disclosed organization information in form 990s for fiscal 2015. Study findings reflect the following:

  • Median total compensation was $256,252 for fiscal 2015
    • Median base salary – $233,794
    • Of the 99 organizations (27%) that paid bonuses in 2015, the median amount was $40,000
    • All other compensation at median was $26,695
  • Perquisites were provided and disclosed by 24% of the total sample in fiscal 2015
    • Most prevalent perquisite was health / club fees (11%)
      • More prevalent among Education & Research (24%) and Arts, Culture & Humanities (22%) organizations
  • Governance measures related to executive compensation were reported by 92% of organizations that reported on such measures
    • In general, organizations with higher paid executives utilized more governance measures, suggesting that organizations are aware of potential risks associated with higher pay levels and have taken steps to systematically mitigate those risks

Compensation Findings

Median total compensation was $256,252 among top executives for fiscal 2015.  27% of the organizations studied paid a bonus for fiscal 2015, with the median amount among those paying bonuses being $40,000.

Use of one or more perquisites served as part of the total compensation package at 24% of the organizations in our sample.  The median value of All Other Compensation in the study was $26,695.

By Organization Type
The highest total compensation was observed among Arts, Culture & Humanities organizations, which paid a median of $449,468, approximately $60,000 more than the next highest paid sector, International (with median pay of $387,322).  Note that only three organizations were classified in the International sector.  Education & Research was the next highest paid sector (with median pay of $315,421).

The lowest pay was observed among the Human Services sector, where median total compensation for the top executive was $204,834.

By Size
Similar to trends among for-profit companies, compensation levels were generally correlated to revenue size.  Among organizations with revenues greater than $35 million, median total compensation for the top executive was $275,497 compared to $235,180 paid at organizations with revenues less than $30 million.

Median total compensation for the top executive at organizations with revenue between $30 and $35 million was $237,675.

By Region
The highest median total compensation for top executives was observed among organizations in the Midwest, which paid a median of $288,555.  Note that among this sample, the Midwest has the highest concentration of organizations in the Arts, Culture and Humanities field, which reports the highest compensation among the group.

The next highest level of pay was in the Northeast region (with median pay of $282,714).  The other two regions had considerably lower pay with a median of $236,737 in the West and a median of $214,691 in the South.

Compensation Findings – Perquisites

The use of perquisites was a minority practice among the total sample for fiscal 2015, disclosed by only 24% of organizations.

By Organization Type
The prevalence of perquisites differs across organization types, a reflection of the variations in typical job responsibilities and the importance of remaining competitive with peers.  Education & Research, where leaders are often expected to reside on-site, had the highest prevalence of perquisites, primarily focused in housing.

By Size
Health / club fees were the most commonly used perquisite among organizations with less than $30 million in revenue and greater than $35 million.  Housing benefits were most commonly found at organizations between $30 to $35 million in size.

By Region
Health / club fees were the most commonly found perquisite in both the South and Midwest regions.  Housing was the most commonly used perquisite for top executives in the Northeast and West.

Governance Findings

Governance measures are often used to help organizations develop reasonable compensation programs and establish rebuttable presumption which provides important legal protections for directors and organizations.  SH&P has tracked and analyzed each of the six governance measures outlined in Schedule J of Form 990.  Of note, 45 organizations did not file Schedule J and were excluded from this analysis.

In fiscal 2015, 92% of organizations disclosed the use of at least one governance measure.  The most common governance measure (employed by 90%), was the requirement that the Board or Compensation Committee determine/approve top executive compensation.

A significant number of organizations also used a survey or other study to assist in the determination of pay (68% of organizations) and had an established Compensation Committee to oversee compensation-related matters (51% of organizations).

The review of Form 990s of similar organizations to determine compensation (38% of organizations), and the use of a compensation consultant (25% of organizations) remains a minority practice.

By Organization Type
Utilization of governance measures was relatively consistent across organization type, although their usage was notably lower among Human Services organizations due in part to low pay levels at these organizations.

By Size
Prevalence of governance measures was generally highest among organizations with revenues between $30 million to $35 million.

By Region
Board or Committee approvals, as well as the use of surveys and studies, were majority practices in all regions in the study.

For Consideration
The Internal Revenue Service may impose intermediate sanctions if pay is deemed excessive and unreasonable.  For this reason, higher compensation levels were correlated with a greater usage of governance measures.

Among organizations with higher levels of pay, these measures demonstrate an acknowledgement and acceptance of “best practices” with regard to establishing executive pay levels and provide a critical measure of protection against potential penalties.  As might be expected, the prevalence of all six governance measures was lowest for organizations in the bottom total compensation quartile.

Methodology

Steven Hall & Partners analyzed top executive compensation data and governance practices for 370 non-profit organizations that filed Form 990s with the Internal Revenue Service in fiscal 2015. The study looks at each organization’s top executive who may be the Executive Director or Chief Executive Officer, and who is not necessarily the highest paid.

Executive compensation analyses reflect the components of total compensation (base salary, bonus, and all other compensation).  Base salaries for new hires have been annualized.  All other compensation includes contributions to benefit and deferred compensation plans, nontaxable benefits, and all other compensation as reported.

Perquisites and executive compensation-related governance practices are as reported in each organization’s Form 990, Schedule J.  Data has been analyzed in aggregate, as well as by organization type, revenue and region, as appropriate.

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