Yes, Virginia, Heads of Nonprofits Get Egregious Salaries Too

One of the side effects of increased income disparity is the assumption in some circles that anyone who has a “big” job deserves a lot of money, whether or not the circumstances or their performance warrants it. It wasn’t all that long ago that the prevailing assumptions were radically different: CEOs (except maybe in the auto industry) did not see themselves as near royalty, and most well run businesses recognized that firing staff in downturns and rehiring was costly (search time and training are bigger costs than most top brass admit to themselves).

A great piece at the Village Voice, “The Nonprofit 1 Percent” describes how this logic plays out in the not-for-profit sector. The centerpiece of the story is the Jewish Guild for the Blind. The opening anecdote describes how a meagerly-paid music therapist who worked there 20 years was fired, and she is in despair of the impact on her charges, who are elderly, poor,and have little else in the way of enrichment. The ostensible reason for the cut was that the Guild had a bad year in 2009. But its CEO, Alan Morse, saw his pay increase 82%, from $844,000 to over $1.5 million.

And it’s not as there is a ready justification for either the pay level or the increase. The Guild’s main source of revenue is Medicare. It was closing an operation in Yonkers because it was “unprofitable” at a time when employees were raising questions about the use of funds:

In a September 2011 article, the New York Daily News reported that “Michael Henderson, who once oversaw the guild’s procurement, claimed he was fired in 2009 after complaining about irregularities. Henderson said the guild spent $100,000 on imported furniture for Morse’s part-time White Plains office and he claimed another officer pocketed $100,000 from the sale of guild property.”

Management told staffers that the Daily News misrepresented Morse’s pay, and the increase was due largely to an increase in his retirement pay. Funny, that, since employee pension funds were frozen before that grant was made. And this little sweetener can’t be justified by Morse’s fundraising, since it lost money after expenses in the preceding period.

Morse isn’t alone. Huffington Post points out that there are other not-for-profits that are hardly deserving of the name, for instance, lobbying groups. The head of the Chamber of Commerce earned $4.7 million in 2010, and the head of the American Petroleum Institute made $6.4 million. that year. The Village Voice story lists other examples: the pastor of the Riverside Church in Manhattan, who made $600,000 in 2009; the head of Homes for the Homeless, whose funding comes almost entirely from government grants, earned over $460,000. (The article usefully debunks the rationalizations for lofty pay in the not-for-profit sector).

Reader bob supplied yet another egregious example: the “not for profit” Excellus BlueCross BlueShield, which reported $223 million of profit for 2011 and tripled the pay of its departing CEO to $5.2 million.

There’s a simple way to stop this feather-bedding. Implement Doug Smith’s maximum wage. Limit the pay of senior executives at nonprofits to no more than 25 times that of their lowest paid worker. Contractors that work on a full time or consistent part-time basis are to have their pay normalized to full time equivalents and be included in determining who the lowest paid workers are. It’s also time that people who donate to various causes look at the pay of the top executives to make sure their contributions really are going to the highest and best use.

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  1. ScottS

    There’s a simple way to stop this feather-bedding. Implement Doug Smith’s maximum wage. Limit the pay of senior executives at nonprofits to no more than 25 times that of their lowest paid worker. Contractors that work on a full time or consistent part-time basis are to have their pay normalized to full time equivalents and be included in determining who the lowest paid workers are. It’s also time that people who donate to various causes look at the pay of the top executives to make sure their contributions really are going to the highest and best use.

    Won’t pegging CEO pay to some multiple of average employee pay only encourage outsourcing junior positions? And it will push more Richistani towards living off of capital gains and doing nothing productive.

      1. ScottS

        I’m sympatico with the intent, and maybe getting the idea in the court of public opinion is a victory in and of itself. I have a feeling that any way you write it up, the C-level parasites will find a way to dump lower-paid employees.

        Imagine the last company in America that directly employs its sanitation staff. Any C-level parasite would dump them in a heartbeat and buy sanitation as a service. Are you saying that sanitation workers in this example would become full-time contractors and still figure into the 25:1 ratio? Would a company that sends freight via UPS have to figure the average UPS salary?

        I think naming and shaming would be the most effective route — provided we had a fire-breathing muck-racking fourth estate. But we don’t, so I’m out of ideas.

      2. Nathanael

        Just make the maximum an outright multiple of the national minimum wage, then.

        That’s effectively what we did when we had a 92% tax rate on the richest thieves. Nobody bothered to collect salaries much above that level.

  2. Sam

    George Romney (yes, you know his son) stated no CEO was worth more than 250K per year. Never hear Republicans talking Romeney’s view.

  3. libarbarian

    Is this really surprising? Con men have been exploiting the charity of people since the beginning.

    I’m not a fan of maximum wage laws, but since the whole concept of Tax Exempt Noprofits is a Government invention ….. it could be a condition of qualifying as a non-profit.

    1. JamesW

      I would refer anyone and everyone to Ferdinand Lundberg’s outstanding The Rich and the Super-Rich, where he explains things fully regarding this subject.

      Also, the purpose of non-profits is that they aren’t allowed to directly involve themselves in politics, which was the way to weaken or turn aside concentrated political protest previously, I believe?

      1. joel3000

        Indeed. Some of the best “nonprofits” refuse to take the official title because it censors them, and even refuse to accept government funding because it makes them too dependent on government largesse.

        The Catholic Worker is on that list. They’re one of the best charity groups around.

        “That’s because the Catholic Worker is the rare charity that refuses, on philosophical grounds, to register with the Internal Revenue Service as a tax-exempt nonprofit. The stance dates back seven decades to founder Dorothy Day’s admonition to keep the federal government at arm’s length.”


  4. EmilianoZ

    “Limit the pay of senior executives at nonprofits to no more than 25 times that of their lowest paid worker.”

    We would need to do something like that for the country as a whole. Why only for nonprofits?

    It could be something like: one person cannot have more than 100 times the median or mean assets.

    The rich would have less money to corrupt people with, less money to pour into election campaigns, etc.

    The rich would stop feeling poor looking at the rich above them. They would know they have reached the limit.

    1. Yves Smith Post author

      Look, I agree, but I’d like to start somewhere, and this looks like a very logical place.

      1. Crazy Horse

        My goodness, are you suggesting de-incentiveizing our Job Creators? No,we must preserve the sacred American ideal that the Worthy can earn an unlimited income, lest their fragile egos be damaged and their sense of self worth destroyed.

        However I would advocate certain modifications. In the ancient tradition of the Potlatch, all those who are successful at accumulating grand fortunes should be required to give it all away down to the last business suit every five years and thereby receive accolades and recognition as exemplary citizens. If they refuse they should be taken out and shot. Balanced incentives.

    2. Klassy!

      Like she said, it’s a start and really don’t we need the executives identifying with their clients and their workers rather than private sector CEOs?

  5. jake chase

    Is this guy Morse even Jewish? How did he get control of the Jewish Guild for the Blind? How does anybody get control of a non profit? They must have self perpetuating Boards of Directors.

  6. Eddie Torres

    Doubling or even tripling the size of the nonprofit and exempt organizations division (and its enforcement budget) inside the IRS is probably a far more efficient solution for rampant corruption than special new taxation rules, although all roads to reform still lead through the US Senate.

    Executives and board officers at many exempt organizations – including schools and churches – have been ignoring and openly flauting the existing Section 501 “Duty of Care” obligation and the rules against private inurement for decades, in full awareness that the IRS exempt-organizations enforcement mechanism is toothless. ( )

    The driver behind toothless oversight mechanisms? Congress (and specifically the US Senate) in deliberate abdication of its oversight responsibilies accross the board, and fully captured by the officers and executives of Corporate Conglomerates. These conglomerate multi-millionaires and billionaires are the owner-financiers of those charitable operations that are supposed to be policed by… the IRS and Congress.

    The current situation linking a deliberately toothless and under-funded CFTC to sky-rocketing gasoline prices is a good comparisson. ( )

    1. Ed

      This makes alot of sense. “Non-profit” unfortunately is increasingly coming to mean “tax loophole”.

      1. Nathanael

        Ever since the for-profit Church of Scientology managed to get total tax-exempt status from the IRS, I’ve been saying that everyone should organize EVERYTHING they do as a church, legally.

    2. Fiver

      Good comment & link. You might want to give that story re the CFTC & oil speculation in the context of Chris Cook’s several pieces here at NC over the last month or so. If they force posting of significant margin, oil will take a real hit.

      1. Fiver

        Wow. Mangled that first sentence. Should read:

        “Good comment & link. You might want to give that story re the CFTC & oil speculation some thought in the context of Chris Cook’s several pieces here at NC over the last month or so.”

  7. Eddie Torres

    See also:

    Dramitically inflated executive salaries for BCS (Bowl Championship Series) college football events which technically operate as “tax-exempt organizations” despite sharing an annual income pool (ticket sales, sponsorships, and TV contracts) in the $182 million range.

    ( )

    An excellent series of articles on the topic by journalists like Craig Harris, packed with data and stats.

  8. charles leseau

    Respectfully, suggesting the simple solution of an implementation of maximum wage is great, but it’s like suggesting that the only way for us to travel faster than light is to build a faster than light spaceship. Not so simple. I often hear things like this (“repeal/reinstate such and so,” or “we just have to use my plan to fix what’s wrong”) but let’s face it, only those with actual power get to do that, and they won’t.

    Any suggestions for how to change this would be nice, but you’ll pardon me if I groan a little bit when “voting them out” is one of them.

  9. Tom Crowl

    Its an old problem…

    And really about what ‘club’ you happen to belong to…

    Compensation and the Social Network

    Solutions, and there ARE solutions (like a defined multiple between the highest and lowest paid which the piece mentions) that can make a difference…

    How about removing tax exemptions and contribution deductibility where just such a multiple is exceeded by a bloated management?

    1. scraping_by

      #1 Damn, I hate yellow or light green text (link). Have to highlight it to read it.

      #2 Yes, mutual support at the top. A pretty much closed group keeping it all for themselves.

      This is the origin of the howl, “You’re just jealous!” since they’re operating on social criteria rather than merit. The cry of the insider against the outside. Our Kind vs. Those People.

      Most people acknowledge ability while they can sniff out privilege. Though being a CEO is mostly figurehead anyway, they should really hire an actor. AFTRA scale is a lot cheaper than the numbers we’ve seen.

  10. Eddie Torres

    The US Senate is still in charge of: (1) writing new 501 rules; and (2) voting on adequate enforcement resourcing.

    The agency responsible for enforcing any change to current rules would still be the IRS tax-exempt orgs division. And it is still being deliberately under-resourced by the Senate.


  11. Middle Seaman

    The problem is wider than one suspects. NPR news anchors are making about $500,000 a year. Why? The same goes to NPR talk show hosts. When they ask me for money, why would I enrich a person who could, in most cases, be easily replaced by a younger, more interesting and lower paid person.

    Most CEOs are inept. That is the basic behavior in most professions. Of a randomly selected 10 physicians, one should expect one to be totally incompetent, one excellent and 8 the can do average jobs but not more. The is true invariably of the profession.

    Why pay so much for crap?

    1. jake chase

      Executive compensation is about power, not competence. The idea that these guys are special is purely an invention of public relations. Public relations has a dazzling 2,000 year old history which began with the gospels. Economics is merely the latest chapter. The recipe is to repeat nonsense over and over and over and over and over and ….

  12. Justin

    Another, more empowering model is to ensure that at least half of a non-profit board be comprised of the people the organization is intended to serve. The minority half of the board could be financial, legal, policy and legal experts that can help the organization is run well and effectively.

    Who better to ensure that the organization is spending its money to serve the public good and not line the pockets of the executives than the people who benefit from the work?

    This obviously wouldn’t work for organizations like the NFL or lobbying groups, but they only serve to enrich the 1% anyway, and should never be given tax-exempt status in the first place.

  13. Hugh

    I think especially with charities and public advocacy groups high pay leads to poorer results. The big salary earners are there for the big salaries. And they actually have a negative incentive to push hard for reforms their groups advocate since if they won and solved the problems their group was focused on, the reason for their position and salary would be lost. From their point of view, it is much better to keep a problem brewing. That way they can send out regular appeals and alerts to their membership about how they need more money to fight the newest threat. And of course given their lack of effective advocacy, there always is another threat.

  14. Eddie Torres

    The tax code (Section 501) clearly needs upgraded rules adapting it to a more diverse and modern ecosystem of legitimate nonprofit and tax-exempt activities. Entities that serve a true social benefit deserve the opportunity to operate successfully and lawfully in an enhanced enforcement environment.

    But any reform of the nonprofit environment starts with a broader overhaul of the financial regulatory system, a responsibility which Congress has simultaneously abdicated and stealthily transferred to the Supreme Court. Eliminating corporate personhood and Corporatism in Congress is task #1.

  15. IF

    One can search before donating and check the salaries of execs:

    Problem with the examples that Yves listed of course is that these places collect their money from indirect sources (like the government). I considered donating a car a few months ago and was followed by Google ads. It turns out that one of the breast cancer foundations pays the female CEO 600k+. (I think it was this one, the data is a bit outdated: – page 7 – Hey, life in NY is expensive, unlike the larger competition who is headquartered in Texas!)

  16. Fiver

    This is a huge subject. From my eco-socialist position:

    As with much else there is a large and growing gulf between stated principles/objectives/policies/practices and results. Obviously lots of instances of excellent work performed by fantastic people in a broad range of efforts. And may we hope to count on such quality people in future. But I’d venture:

    1)The ballooning of tax exempt status guaranteed all manner of abuse from the petty to the perverse. Review and revoke on the basis of demonstrable (no more time or money for BS) benefit to the public interest.

    2) Transfer to Government the responsibility for a large portion of what is now done by a host of charities and similar “good works” organizations. We do not need hundreds of smaller and a few giant groups aimed at, for instance, money for cancer (or other “major killer”) research or care.

    Immense amounts of money have been spent on cancer research each and every year for many decades. It is no more likely to yield to 1 silver bullet solution, or set of solutions, now than it ever was, perhaps because just about anything you look at in our artificial world has been linked to cancer by someone, while paradoxically, we’re all living longer and have a shot at breaking down in a non-fatal sequence over a good long while doin’ our bit to keep bumping up those numbers.

    Surely it is more sensible to have the Government and universities spend a reasonable amount of public money on the best bets for this and other population-wide health-centred public goods. You could allow some specific research the Government won’t back for legitimate reasons (a dicey idea, for example)to proceed, but must be monitored and meet solid standards to keep the exemption.

    Care is a social responsibility that Government must ensure is met with the resources required for good, affordable, and timely care. Period.

    3) Similar approach re poverty. Who “owns” this one? Well, poverty has been a matter to be addressed by the State in the US or anywhere else from the time it was clear to its more perceptive citizens and leaders that the technologies and organizational structures by then developed had the capacity to eliminate the category “poor” for good if applied with any real vigour and vision – that was well over a century ago. There is simply no excuse for its continued existence in the developed world. None. When people first were forced to acquire food with stamps, or from voluntary public sources/campaigns/donor locations and the like decades ago, I was struck by the strange ease with which people accepted such a clearly hostile attitude toward the poor, beyond mere patronization or the imposition of “prudent consumer choices”, it was the deliberate “shaming” in public (and many who should’ve received help did not because of it) rather than a letter in the mail or a transfer to a bank. It was outrageously insensitive treatment of the less fortunate then, and remains so to this day. When that clanging alarm failed to alert enough in the population, you knew it was going to be a long, ugly fight in a reality that continues to implode history, culture, time, distance. Sequential memory obliterated – all of history is now alive and equally valid, claims asserted while others erased, all there for the re-living by “winners” and “losers” everywhere. Individual memory too, a mass of propaganda, advertising, unlimited, manifold diversions. Most everything left up to “Them”.

    We can’t possibly understand, let alone manage ourselves at this speed of living, on a planetary scale, and particularly so with the acceleration’s attendant disruption/skewing of value formation and ongoing compression of values and value judgments.

    4) Ditto ANY societal welfare area that makes friggin’ sense from a public interest perspective.

    5) There will still be a million ways to volunteer good acts in a future, decent society. Step back and wonder at this hugely expensive competition, even frenzy aimed at everyone other than the people with real money – instead of hittin’ the ole Reset Button, and it’s deducted at source by a reasonable Government pursuing the only reasonable goal, that being the society’s best face always being forward.

  17. Thorstein

    As much as we lament the decline in morals “news” such as this evidences, it isn’t really news. Back in the late 60s my college roommate came back from Christmas vacation and reported that he had spent the time cruising the Bahamas on the yacht of the CEO of Goodwill Industries. As he observed, even back in those halcyon days, “You don’t have to pay cripples the minimum wage.”

    1. Fiver

      Every “Golden Age” has a minority share of crud. The question now is maintaining that “minority” status.

  18. Goin' South

    An easy 5-step solution to this problem:

    1) Since our esteemed “representatives” and their hirelings in the IRS will never do anything about this, publicize the need for all of us to refuse to contribute to organizations that fail to follow Yves’s very reasonable guideline.

    2) To better organize the effort at growing this boycott, create an organization.

    3) Get 501 status for the organization. Pick the subchapter as appropriate.

    4) To really pull it off, we need a top-flight hot shot to head up the organization. We’ll need to pay the kind of salary necessary to attract such extraordinary talent. BTW, my nephew’s got great skills in this area. And my sister is tired of having him live in the basement.

    5) Send this hot shot out on speaking tours, put her/him on the talk shows, publish a book, all aimed at raising more money for the organization. Our organization’s top dog will need a bump in pay to recognize how much they’ve contributed to the cause.

    (End snark)

    The above comment from Dorothy Day about keeping the government at arms length is the real answer. Every organization that has allowed itself to become entangled with the State becomes a defender of the status quo, reflects the values of the 1% and acts as an enemy of the very people it originally set out to help. Example #1: business labor unions.

  19. Klassy!

    What is wrong with instituting a maximum wage? These organizations claim tax exempt status. What is wrong with putting some strict conditions on receiving this status? Yes, they claim to do this now, but is there any credibility to the claim when for an example, the president of a public university has a compensation package worth 1.5 million dollars?
    Well, I’m sure the idea that you must pay these exorbiant salaries for quality does not necessarily resonate here, but this is the tired axiom that is offered up time and agian.
    We are left with a class of leaders that are very much in favor of defending the status quo, that are motivated by the market, and that will cut pay (and probably even more detrimentally) on the ground workforce to protect their privilege.
    The way I see it, it is not just the dubious non profits that function as a scheme to transfer wealth upward, it is some of our most sacred liberal institutions that do too.

    1. Capo Regime

      What is wrong with the maximum wage is that those who earn a lot tend to control lawmakers who will never institute laws against their paymasters…..

  20. rps

    Non-profit organizations tax subsidization and tax free incentives or more precisely;tax evasion should be abolished since they drain the taxpayers purse with very little given back to the communities. As an example, NPO hospitals; According to the Center for Tax and Budget Accountability(CTBA), “Illinois State and local tax exemptions accounted for 91 percent of all tax benefits granted to the Hospitals Studied.” The CTBA 2009 Press Release Report states, “Chicago area non-profit, charitable hospitals spend only one dollar on charity care for nearly every three dollars they receive in tax breaks. This suggests non-profit hospitals are not fulfilling their public obligations to provide free or discounted care to low-income, uninsured families. Reporter, Bruce Japsen of the Chicago New Cooperative wrote, “For the year 2007, Northwestern Memorial HealthCare showed charity cases as 1.85 percent of its $1.18 billion in net patient revenue.” Northwestern Medical Complex also earned in cash and investments worth $2.2 billion dollars. Japsen further illustrates the hypocrisy of charitable care of NPO’s as a drain of community resources, rather than the do-gooder’s ranking as privileged members at the taxpayers expense.

    The magnanimous taxpayer subsidies aka exemptions are directly funneled to perpetuate a set of NPO theologies and ideologies which are not in the general public’s best interest, or beneficial to the community. They serve a narrow parameter of citizenry under the guise of a “charitable” organization.

  21. Furzy Mouse

    I’ve been told by a Danish friend I work with that Denmark has a maximum wage limit of about 25X that of the lowest paid employee. Denmark’s taxes are over 50% of one’s income, however, heath care and unemployment benefits, as well as retirement bennies, are among the best in the world. Younger Danes do seem to chafe at this restriction on their earnings, though, and at least a few of them have emigrated to the Wild West to pocket more for their talents.

  22. MB

    We had an old, grizzled veteran collecting money in front of our Safeway. He was collecting money for said veterans. I did some calling around and found that they got to either keep 10% or keep 90% of what they collected. The remainder went to the “non-profit”. Something makes me think it was the keep 90% figure.

    My friend started a non-profit. When I read the articles surrounding the non-profit, I discovered that executives could pay themselves whatever they wanted, and funds could be retained to whatever percentage, as long as it was stated in advance in the original documents prior to official certification, however that happened. Ever since then, I have been extremely dubious about “non-profit” enterprises.

    My husband worked for a non-profit as well. The execs did make VERY large salaries, yet the yeoman carrying out the heavy lifting could barely live on the wages.

  23. Capo Regime

    A former Mckenzie partner once told me that a 501 (c)3 non-profit designation is just that–a tax designation not an operating strategy. That is true in part for many non-profits and just a few are nothing more than devices to enrich the pockets and egos of the very rich. As in all things, a few true miscreants will make it tough for the good actors. Shame that we have such sociopathy in our socieity. Where I part ways with Ives is that I am of the view that the sociopathy of our leaders is representative of a broader streak of this across society not just the rich but at all levels. There are of course good actors and even (gasp) some of the 1 per centers and even some of the top.001 percenters are good eggs. Its a messy world.

  24. Capo Regime

    Of course a special place in hell should be reserved for hospital adminstrators and faux non-profit lobbying shops of which there are many….

  25. Capo Regime

    One last one (just remembered)

    Ives, am surprised you have not jumped on the problems of 501(c)3’s issuing bonds guaranteed by public entitities for the purpose of developing housing (usually apartments in florida) which in turn enriches a lot of folks–developer, underwriter, bond counsel, etc..,oh, and they get property tax exemption which in turn goes in as “equity” in deals…..Small but egregious space in non profit world–some folks have made millions on this helping provide housing to the poor business.

  26. starburns

    nonprofit status should be conferred only on organizations that provide services that the market does not. let the legitimate nonprofits pay what they want, but make an effort to ensure that taxpayers are getting a return on our subsidy. if a nonprofit isn’t providing a measurable benefit, in light of executive compensation and everything else, yank the subsidy.

    also, this seems like it is ripe for a pro publica style crowd-sourcing project. IRS form 990 is a freely available document that lists the compensation of executives at every Section 501 nonprofit.

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