An Examination of Issues Surrounding Nonprofit Executive Salaries: 2010-2017

Abstract

This paper examines issues related to executive compensation in the nonprofit sector for the period since the last recession, 2010-2017. We explain why nonprofit executive compensation matters in terms of charitable giving in the United States. We discuss what is meant by the terms “nonprofit” and “tax-exempt”; the requirements that an entity must meet in order to achieve each respective designation; and why the two terms are not interchangeable. We examine different types of tax-exempt entities and how tax-exempt status aids organizations in raising funds from the donating public. We focus on the requirements for obtaining, and maintaining that status as a regulatory tool. We review the significant expenses for a tax-exempt non-profit and note how commercial entities face similar expenses. We illustrate how the particular expense of executive compensation is inherently different for a tax-exempt non-profit than for profit-making enterprises. We explain the factors that determine executive salaries in the former and the components of this compensation. We review the federal and state regulations governing tax-exempt nonprofit executive salaries and guidelines offered by non-governmental entities. We note that research (Balsam and Harris 2014) indicates a negative correlation between the level of disclosed executive compensation and the percentage of donations that a tax-exempt nonprofit receives. We discuss and analyze the compensation for chief executives at certain such nonprofits which have been highlighted by the mainstream media, the source of nonprofit information most easily accessible to the vast majority of donors to such entities. We conclude by highlighting why donors should have a voice in the determination of a tax exempt’s nonprofit executive compensation.