When they are pulling down what they do, shouldn’t there be some more more controls?
Sure, they need high salaries to attract ex members of congress to head charities, and they need well connected names to get government money for their causes, but it seems to go against the main argument for non-profits getting a tax break at all.
Absolutely not. Non-profits are no different than a for-profit business in the sense that they need to run the non-profit like a business if they are going to survive. They even need to produce a “profit” in the sense that they need to bring in more money than they spend (although this money, unlike a for-profit, must be plowed back into the organization). To do this, a non-profit CEO needs the same skills as a for-profit CEO. To attract that sort of person, it needs to offer competitive salaries. In fact, it may even need to pay more, since it can’t offer stock options.
The government should not regulate what non-profit CEOs make. Let the non-profit’s board of directors and donors decide that.
The donors in this case being us, the taxpayers.
Not all non-profits take government money. I would venture to say that the vast majority of non-profits that do take government money do not get the majority of their funding from the government. Furthermore, many non-profits that do take government money do so as a fee for service.
I absolutely detest the “let the market decide” position on most issues of public policy, but here is one case where I think it is precisely on target. A NFP exec. taking too high a salary and harming the NFP’s actual program in consequence, will be penalized by the donors and by expose-type reportage in the press, which becomes a self-correcting process. And, as Renob notes, the skills a large NFP seeks in its CEO are closely correlated with those a large for-profit business might seek – and the NFP should not be penalized in that competition (or the CEO who might prefer working for something he can feel good about helping the world in doing should not be expected to give up a large percentage of his income to do so).
It’s a matter of value. A CEO should add value to the final “product” – in this case, the program which the NFP is created to put in place – by good management. If he does, he’s worth his salary; if not, replace him with someone who does.
I grant that the recent American Red Cross stories underscore the need for public watchdogging of such salaries – but that is, in part, what the press and the charitable-organization auditing bodies are for.
What high salaries are you talking about? Can you give a cite? I sincerely doubt they are as high as the private sector or even the government when compared to the amount of assets or personnel governed. Every cite I’ve seen as shown that executives take a considerable paycut when they move to the non-profit sector.
And only in the last few years has there been a substantial increase in salaries as the sector has started hiring professional managers precisely to get better returns. Paying $100,000 for a director that can generate $10M in fundraising, and save another $1M in modern management practices is worth far more than the $50K social worker who was bumped into management, but lacked the proper training for that work, and so wasted $1M without even understanding why. And that was and still is a very common situation.
Especially in the social services sector, financial management and controls tended to be the lowest priority since their finances were never that strong to worry about it. Management is focused on grant proposals, fundraising and all the issues involved in getting money in the door when you cannot sell your services at a profit, or even at cost most of the time.
And as Polycarp mentioned, there are several agencies that watch and monitor non-profits. Even spending too much on fundraising instead of program services will generate red flags. Compensation rarely occurs that cannot be justified.
Its in compensation for for-profit executives that a disparity exists and that may need adjustment, definitely not the non-profits.
You don’t get it do you? If we give them a tax break, that is identical to if we funded them for that amount with no break. Tax breaks cost the government money. They are handouts, welfare. Welfare to the poor makes sense, welfare to the greedy “stars” who are recruited to be poster boys for the charity doesn’t make sense.
You don’t get it, do you? The CEOs and employees of these organizations do not get a tax break. They pay taxes just like you and me, so your concern about the “stars” running them getting a tax break is baseless.
Furthermore, how many nonprofits are run by such “stars”? Very, very few. Most nonprofits are run by very competent people who manage multi-million dollar organizations that provide important services. To attract skilled CEOs, these nonprofits need to be able to compete with for-profit businesses. If they are hobbled by government regulations, they will not be able to effectively fulfill their mission.
This argument is ridiculous. They’re not stealing from the tax payers simply because they’re (the company) not paying taxes. Employees still pay income taxes, property taxes etc etc. You want non-profits, churches, etc to pay taxes, start a new thread and argue for that, but don’t sit there and act like someone in the system, who isn’t supposed to pay taxes, is stealing because they’re doing what they’re supposed to do.
This thread is hilarious. My wife has worked as a grant writer in the non-profit sector for 12 years and the idea that the employees, inlcuding all the way up to the top, are somehow overpaid is laughable. I guess there are some cases of it, but the truth is that if anything they are underpaid. There are rarely bonuses paid, cash flow at non-profits are so dependent on their ability to raise money and so they do not get exorbinant wiith their salaries. In fact, my wife had to change jobs or suffer a pay cut because the non-profit she worked at had lost a large grant. I am not saying this doesn’t happen everyewhere, but 95% (WAG) of all non-profits live on the razor’s edge when it comes to funding, so they can hardly be cavalier about salaries.
The problem is when you have non-profit organizations that are really just ways to raise money and funnel most of it to the people who operate the non-profit organization. I was recently solicited by such an organization, the “Police Protective Fund”.
The way to deal with them is to refuse to donate to them. There are plenty of resources out there that discuss how nonprofits spend their money and how much goes to overhead.
If donors do their homework, bad nonprofits will go out of business for lack of funds.
When the OP says “we”, does he mean “the donors” or “the government”? If the former, then I say “sometimes”. If the CEO is taking in so much $$ that it starts hurting the level of donations, then it might be time to reign things in. If the OP means the latter, then no-- why mess with something that seems to be working?
As I side note, I find this statement puzzling. If something is an issue of “pulbic policy”, haven’t we by defintion removed it from market forces-- ie, put it under government control? So, it’s really a matter of deciding which things fall under the category of “public policy” which is where **real **the debate is. No?
My husband works for the state, and this issue is discussed frequently. If he went into the private sector, my husband could easily make twice his current salary for the sort of job he does.
Working for the state doesn’t pay well in comparison to the private sector because the public deeply resents the idea of public servants making “big salaries.” (Words like "fatcats"generally come up whenever it’s discussed.) Several times, benefits have been removed or reduced because a media outlet brought attention to them and the public was outraged.*
The result of this is a “brain drain.” The best candidates go into the private sector and the state organizations suffer for it.
Like it or not, most people don’t go into state service or working for NFPs with the intention of self-sacrifice for the greater good. They’re just like anyone else and want to be able to pay their mortgage and put their kids through college. I’d be hard pressed to ask a CEO who had made millions at his previous job to take a cut-rate salary just for the symbolic principle of the thing.
- As an example, the rent at the institution-owned houses for employees was more than doubled simply because of an “outrage” piece in the local news which made people upset that state employees were paying so little for housing. (The rent goes into a maintenence fund for the houses. It already had a large surplus which is rapidly growing massive.Since the funds cannot be used for any other purpose, the money just sits there and accumulates.)
There are also examples like the use of state-owned vehicles being revoked which actually now costs the taxpayers more because the employees have to be paid milage to use their own cars for work-related travel.
The government already regulates not for profit salaries. The IRS has the power to fine exectuives at not for profits who receive excessive salaries and benefits. Here’s an article from the Wall Street Journal discussing it:
http://www.careerjournal.com/salaryhiring/industries/nonprofits/20040601-lublin.html