Central NY Nonprofit News: How much is "too much" depends on ...

By Blake Jones
From industry groups to boards of directors to the Internal Revenue Service, most nonprofit stakeholders believe executive pay should be fair and reasonable.

Agreeing on a definition of ?reasonable,? however, has proven challenging, if not impossible.

?If you?re running a $400 million enterprise, can you say how much that person should be making?? said Doug Sauer, CEO of the New York Council of Nonprofits Inc.

Even the IRS, which grants charities their tax-exempt status, doesn?t have a formula or threshold for salaries, Sauer noted. Instead, the agency asks nonprofits to list on their Form 990 employees earning more than $100,000, as well as pay for key officers, directors and trustees. The IRS wants to see board policies and procedures on setting compensation, no conflicts of interest, that comparable salary data is taken into consideration, and that pay decisions are documented.

Sauer, who testified before a state Senate committee hearing in February on nonprofit

executive compensation, acknowledged it?s difficult to establish a cutoff, given the diversity of nonprofits. Still, he suggested salaries above $500,000 a year merit a closer look and anything over $1 million is excessive.

Charity Navigator, a website that specializes in ranking nonprofits? effectiveness, agrees that $1 million is a fair cutoff.

?We don?t think people should be in the business of running a nonprofit to be a millionaire,? said Sandra Miniutti, Charity Navigator?s chief financial officer. ?That?s where we draw a line in the sand.?

The website uses public information about a nonprofit?s financials, transparency and accountability to rank charities by how efficiently they use donations. Miniutti said salary isn?t factored into the ranking system because it?s so subjective, but the number is disclosed so donors can ask questions and make their own judgements.

Other industry experts caution against emotional reactions to numbers without proper context.

Michael Clark, executive director of the Nonprofit Coordinating Committee of New York Inc., stressed the public can?t gauge what?s fair based on instinct because there are too many variables that go into pay, such as the size of the organization?s budget, cost of living and the employee?s experience.

?What is an astronomical salary in one part of the nonprofit world is not astronomical in others,? Clark said. ?Either you believe in the market system or you don?t.?

Salary may be the most sensational number on a charity?s Form 990, but it?s not the only indicator donors should study.

At Charity Navigator, Miniutti said many donors hone in on the percentage of expenses that goes to programs or services as a solid indicator of performance.

Charity Navigator says a good benchmark is 75 percent for programs and 25 percent for administration and overheard.

The New York Council of Nonprofits aims a little higher, saying overhead should be less than 20 percent, while the Better Business Bureau?s standards for charity accountability say 35 percent overhead is reasonable.

Clark, of the Nonprofit Coordinating Committee, rejects the idea of measuring nonprofits by their overhead. He said administrative expenses go up and down based on projects, investments and growth.

?Never make a decision about whether to give money based on the ratio of administrative costs,? Clark said, adding it?s the tip of the iceberg for the questions donors should ask.

A better measure of a nonprofit?s performance, according to Clark, is whether it takes in more than it spends and has a rainy-day fund to draw on during tough times. Donors should also ask if the charity is making a difference in its community.

?It?s hard and ill-advised to apply any sort of one-size fits all rule to any nonprofit,? he said.

For his part, Sauer said larger organizations with more sophisticated accounting can figure out how to allocate time and resources to reduce overhead, while smaller groups can?t. He also believes other metrics deserve more attention than executive compensation or administrative expenses,.

The best, approach, he said, is to weigh as much information as possible.

?It?s not about executive compensation,? Sauer said. ?It?s more about are people reasonably paid? Are they competent and able to show on their website that they are providing services you think should provide? Are there indications the board is functioning well and will continue to be around??

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