Nonprofit Executive Pay: The Bigger Picture

A recent article in the New York Times reported that some executives at U.S. charities are raking in a handsome income: the CEO of the Boys & Girls Clubs in the United States, for example, made nearly $1 million in 2008. As a result, some lawmakers are up in arms that donors are being defrauded. One senator who is normally critical of government intrusiveness has said that the IRS, the tax collecting agency, “is not tough enough in policing pay in the nonprofit sector.”

I’m not going to defend the compensation of nonprofit CEOs; the above-mentioned CEO makes her own defense in the article. But I would put the occasional excesses in context: average pay for nonprofit managers is about 18 percent lower than that in the private sector, and lower than that for government managers as well, according to the U.S. government’s Bureau of Labor Statistics.

More importantly, I want to address a broader issue that wasn’t discussed in the article: from a sustainability perspective, excessive pay is a problem principally when it is egregious and widespread enough to skew a society’s income distribution. In this context, excessive pay in the private sector is far more consequential than abuses in the nonprofit realm, because the excesses are greater and more common. And legislators have a much greater responsibility to address the gap in income and wealth across society than they do to harass the least affluent sector of the economy over salaries.

Excesses in the private sector are in a league of their own. The average CEO compensation in the U.S. in 2009 was $11.4 million, more than 11 times greater than the compensation of the offending CEO at Boys & Girls Clubs, and more than 306 times the salary of the average worker (calculated using BLS data), up from 30–40 times greater a generation ago. Add assets to the income picture and the skewing of wealth increases considerably.

The disparity is likely contributing to growing inequality in the United States. Census Bureau data show that the wealthiest 20 percent of the American population claimed 43.3 percent of household income in 1970, but controlled 50 percent by 2008. Meanwhile, the poorest 20 percent of Americans saw its share fall from 4.1 percent to 3.4 percent over the same period.

Income disparities are a sustainability issue because they directly affect issues of social sustainability: a more equal society is generally a happier and healthier one, argue Richard WIlkinson and Kate Pickett, authors of a terrific book published last year, The Spirit Level. The British authors use data from across the world and from the 50 U.S. states to demonstrate that the more unequal the society, the worse it tends to score on indicators like life expectancy, infant mortality, obesity, educational performance, teenage births, homicides, imprisonment rates, and mental illness. All of these social dysfunctions carry societal costs, whether in the form of taxes to address them or as a diminished quality of civic life.

As a result societies as a whole, not just donors or shareholders, have a strong interest in pay levels, and the societal dimension should occupy the thoughts of busy lawmakers. All workers, no matter the sector, and no matter the level of wealth, have a stake in narrowing the income gap.

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