If all you knew about nonprofitscame from the media, youmight think scandalous overpaymentof nonprofitemployees is rampant. If youinstead relied on nothing butacademic studies of nonprofit compensation,you might think nonprofitemployees don’t make significant sacrificescompared to their for-profitpeers. But if you’ve worked for orwith a nonprofit organization, youknow neither assertion is true.
Ask virtually any nonprofitemployee and they’ll tell you they’reunderpaid. So why do someresearchers conclude that nonprofitwages are similar to those of for-profitemployees doing comparable work?The reason nonprofit employees arepaid less, according to researchersChristopher Ruhm and CareyBorkoski, is simply because nonprofitorganizations are disproportionatelyconcentrated in low-paying industries.(“A Fair Wage,” Stanford Social InnovationReview, Summer ’04.)
Their analysis, however, is too simplistic.First, concentration in lower-payingindustries does not explaingaps in compensation between high-rankingnonprofit executives and theirprivate-sector counterparts. NonprofitCEOs, lawyers, marketing directors,finance officers, and other top-levelemployees are paid substantially lessthan they would be in the for-profitworld. Media stories obscure this byfocusing on the highest-paid nonprofitexecutives or excessive payment scandals.In fact, the median salary forchief executives at California nonprofitsis only $88,005, according to arecent survey by the Center for NonprofitManagement, which I head.And nonprofit leaders are sharplyunderpaid compared to CEOs of forprofitbusinesses of similar size. Forinstance, while the average pay for achief executive of a Southern Californianonprofit with a budget between$5 million and $9 million is $124,437,the average compensation for CEOsof for-profit firms with similar budgetsis $200,295 – not including equitystakes, stock options, and other goodiesnonprofits can’t offer.
Moreover, this pay gulf for managementpositions is increasing.When I left private law practice for apublic interest firm in 1993, I took a 50percent pay cut. With the salariesjunior attorneys are getting now, they’d have to accept 60 percent to 75percent less, if not more, to make asimilar move. I often meet young professionalslooking to leave top consultingfirms and other for-profit businessesto go into the nonprofit sector.And I see their hesitation when theyrealize how difficult it may be to earnenough simply to cover their studentloans and housing costs.
“Psychic Income” Doesn’t Paythe Rent
When people choose a nonprofitcareer, they forego opportunities tomake much more money in the forprofitsector. Those who could havepursued a career in business or at aprivate law, accounting, or consultingfirm easily forsake millions of dollarsover the span of their work lives. Thishas significant consequences for themand their families: No matter howmuch “psychic income” a nonprofitworker gets from doing work he orshe loves, it doesn’t pay the rent. Economicresearch studies overlook thesacrifice that many nonprofit employeeswillingly make. At worst, theresearchers may assume that nonprofitemployees simply aren’t smartenough or industrious enough to pursuemore lucrative jobs.
Researchers also fail to address possibleunderlying reasons, such as genderbias, for what may be endemicunderpayment in nonprofits. Womenhave long dominated the sector, andnow make up about 70 percent of itsemployees. Oddly, Ruhm and Borkoskidiscounted the gender factor. Afterobserving that nonprofit workers arehighly educated (79 percent are collegegraduates), they concluded that lowerpay at nonprofits cannot be explainedby a heavy concentration of disadvantagedgroups in the labor force. Unfortunately,just because women are welleducated doesn’t mean they don’t sufferfrom sex discrimination.
Gender-based differences in payfor similar work are well documentedin the overall labor market, and thenonprofit sector is no exception. Myorganization has seen this consistentlyin more than a decade of nonprofitsalary surveys. A multiple regressionanalysis of our 2002 compensationdata showed that male CEOs werepaid more than similarly situatedfemale CEOs, and that this gap couldnot be explained by any nondiscriminatoryfactors in our survey: budgetsize, number of employees, servicefield, or longevity in the position. Infact, we’ve seen over the years thatexecutive directors of smaller-budgetorganizations are disproportionatelywomen, and that as budget sizeincreases, so does the likelihood thatan organization will be run by a man.Nonprofit boards must begin to takethis into account when setting salariesfor female executives. When negotiatingthe pay of a current chief executiveor a new hire who is a woman, forexample, they should rely more onvalid compensation survey data thanon her past salary history, if that indicatesher pay should be adjustedupward. (My organization is consideringpublishing an adjustment factor forfemale CEO salaries for this purpose.)
Big Job, Little Help
Lower pay is not the only burden fornonprofit workers, and it’s often noteven the most onerous one. Nonprofitemployees also give up a good deal interms of work environment and nonwagebenefits. As New York Universityprofessor Paul Light observes, “[Nonprofit]employees are members of afirst-rate workforce often employed insecond-rate organizations with third-rateequipment.” This is surely one ofthe biggest frustrations for professionalsin the sector: Not only aren’t theypaid as much as they would be elsewhere,they also don’t have adequatesupport and resources to do theirwork the way they want.
Meanwhile, it is more difficultthan ever for nonprofits to competefor talented people. They face increasingcompetition from governmentand the private sector for a shrinkinglabor pool. And they must prepare fora generational transfer of leadershipas many baby boom executives prepareto retire.
The key question for the future ofleadership in the nonprofit sector iswhy people choose to come into thesector – and to stay in it. While nonprofitleaders may never be paid whattheir for-profit peers earn, making iteasier to enter or remain in the field iscritical. Rather than crunching salaryfigures, we need to do more researchinto why people choose nonprofitcareers, and think about ways to bettersupport them when they do.
While businesses have much morematerial compensation to offer, evengovernment seems to be ahead ofnonprofits in terms of wages and benefits.Government employers can provideloan forgiveness, pension plansthat far outstrip even what privateemployers offer, and other benefitsthat most nonprofits can’t yet match.The city of Claremont, Calif., forinstance, offers employees $850 permonth to cover health and otherinsurance premiums; any money leftover goes into a retirement account.In contrast, the average cafeteria plancontribution reported by Californianonprofits was $313 a month.
What more can the nonprofit sectordo to compete for the best futureleaders? One important step would befor the government to cancel studentloans in exchange for an ROTC-stylepublic service commitment. Most privatelyfunded loan-forgiveness programs are severely undercapitalized,and offer benefits too meager to makea real difference.
Another step would be to developprivately funded fellowships so forprofitexecutives could leave their jobsfor a year or two to work at a nonprofit.One model for this is the SkaddenFellowship for public interest law,sponsored by one of the nation’slargest private law firms. Unfortunately,large consulting and professionalservices firms don’t seem tohave the same pro bono commitment.While some may be encouraged to seefirms like Bain spin off Bridgespan toprovide consulting to nonprofits, I betmost nonprofits would much prefer tohave a talented professional graduateon their staff for a couple of yearsinstead of an outside consultant availablepart time for a couple of months.
Building a better support infrastructureis important, too. If yourprimary motive for taking a nonprofitjob is to make a difference, obstaclesto that goal become more importantthan compensation in determining ifyou’re satisfied with your job, want tostay in it, or get burned out. Peoplecoming into nonprofits from forprofitfirms often experience a painfulcollision between their increased levelof social concern and the much lowerlevel of on-the-job support.
Nonprofits need to find ways torelieve this pressure. Ask any nonprofitCEO and she could probably rattle offa list of deferred investments in administrativeinfrastructure – from improvingtechnology systems (includingphone systems, copiers, and printers)to hiring additional support staff orproviding training and professionaldevelopment opportunities. Althoughit may take a miracle, what if foundationsor even government fundersoffered bonuses to nonprofits toimprove their administrative systems?
For most nonprofit employees,work is about much more thanmoney. People want to make animpact beyond themselves, to dogood. Yet our society repays their civiccommitment by paying them lessthan they’re worth and expectingthem to be satisfied. At a minimum,we need to better honor their contributionby giving them the tools theyneed to succeed.
PETER MANZO isexecutive director of theLos Angeles-based Centerfor Nonprofit Management,which helpsnonprofits recruit andretain talented people. CNM publishesNonprofit Directions, a weekly newsletteron nonprofit careers, and an annual compensationand benefits survey of Californianonprofits. Manzo can be reached at[emailprotected].
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