« Do You Ignore Behavior? | Main | CEO Pay Ratio : Unintended Consequences? »



Feed You can follow this conversation by subscribing to the comment feed for this post.

The well-meant advice is nice but would pretty difficult to impliment for many nonprofits and harder to enforce. As covered before in this post http://www.compensationcafe.com/2012/05/nonprofit-restrictions-might-affect-you.html, the IRS regulation IRC 4958 (Intermediate Sanctions) sets rather minimum standards for the boards of charities and foundations, simply requiring them to assure proper paperwork, rely on pay surveys done by professional surveyors, and guard against insider self-enrichment (termed "excess benefit transactions"). That SHOULD be second nature to most board members with corporate experience, but it's tough enough to compel statuatory compliance without going far beyond that to limit the TYPE of objectives used for rewards. Not even for-profits are bound that way.

There are more than a million non-profits in the U.S. and there are about 400 different tax-exempt “industries” (NTEE codes) assigned by the notorious Cincinnati IRS regional office according to their guess about the purpose of each charity or foundation or whatever it is. With so many official purposes, there must be at least as many missions and each organization may select a different one (or more) as a target for their executives to achieve. Having some considerable experience with IRS executive compensation rules, their enforcement practices and Tax Court trials, as well as with nonprofits, I’d say this is an extremely ambitious and probably futile crusade for anyone expecting to see changes within decades.

That said, I do agree that most people have no idea about the amount of funny business at nonprofits, even though it definitely is miniscule in scale. Unlike for-profits, they run “under the radar” with very little risk of being audited or challenged. Most of us here probably belong to at least one professional society whose reward practices are problematic if not openly opposed by members. But it would be hard to claim that many bonuses are granted without regard to the mission.


Appreciate your deep experience in this sector and your comments.

My work with nonprofits, mostly in past 18 years, leaves me with a different perspective. I can assure you that many bonus plans are designed without any reflection of mission - most often because they are put together by well-meaning but inexperienced board members and advisors who approach executive rewards with the same mindset (profits/financial sustainability first) that they are accustomed to in their other lives. It isn't that they aren't mission-conscious or sensitive, in many cases they are in their board/advisory role precisely because of their passion for the mission. I hold to the position that the dynamics surrounding executive rewards in charities are necessarily unique. This is tough stuff to do well, just as it is in any other industry.

That said, I've helped enough charities design incentives with mission metrics factored in that I can't agree it is any more difficult a design task than any other situation where you must balance multiple objectives.

Funny business? I've been fortunate not to run into much of this. Mostly it's well-meaning people trying to do a difficult job well and (sometimes) missing.

Anyway, I still think Mr. Kelly's point is a valid one - and the fact that a crusade like this might take decades to have a real impact is not a reason not to do it.

Thanks for the great conversation!

Think we pretty much agree that it isn't that different except for the inevitable effects of less experienced board "compensation committee" members. For-profits also struggle with efforts to reinforce critical mission objectives, too, even though theirs tend to focus on economic factors rather than benevolence activities or social improvement outcomes. All sectors need to improve their reward systems.

So - do you have any resources that could help the CEO of a small nfp that provides training and consulting under contract with government agencies? We are trying to design a bonus structure that considers contract sales (perhaps 5% of completed contract revenue) and travel days. In the end - this would likely put one person above my pay scale, and another close. Any resources you can point me to are appreciated.

The comments to this entry are closed.