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The Charities Making Inequality Worse

Executive Pay

The Charities Making Inequality Worse

A growing number of executives at America’s ‘do-good’ nonprofits are doing much too good — for themselves — at paycheck time.

By Sam Pizzigati

Not that many years ago, only corporate CEOs had the nerve to pocket paychecks over $1 million a year. But times change. Million-dollar executive pay packages have become almost routine in some corners of the nonprofit sector.

How routine? A new Wall Street Journal analysis counts about 2,700 nonprofit execs and high-powered staffers who took home at least seven digits in 2014, the most recent year with pay figures available. That total represents an increase of a third since 2011.

No exec at a U.S. nonprofit collected more compensation in 2014 than the Ascension Health Alliance’s Anthony Tersigni. Should nonprofits that pay execs lavishly be granted tax exemptions?

The nonprofit world’s most lavishly compensated execs, the Journal notes, hail from traditional charities like the United Way, major institutions like hospitals and universities, and even a religious ministry.

Anthony Tersigni, the CEO of the nonprofit Ascension Health Alliance, leads the Journal’s pay list. He collected $1.6 million in 2014 base pay and another $15.9 million in assorted add-ons. Another 30 nonprofit movers and shakers that year pocketed at least $6 million.

Our current surge in top nonprofit compensation hasn’t yet made much of a dent on America’s public consciousness. But we can safely say that average Americans in general don’t much appreciate excess in nonprofit pay. The public has come to expect greed from corporate CEOs. People expect better of executives at do-good institutions.

Why are so many of these do-good institutions letting Americans down? We don’t have far to look. The blame for pay excess in the nonprofit sector rests first and foremost in the private sector.

America’s for-profit and nonprofit sectors, we need to remember, don’t operate in separate universes. The two spheres continually interlink. Corporate execs, for instance, regularly sit on nonprofit boards of directors. They bring their ideas and values — and maybe even from time to time flash their $10,000 Rolexes.

Nonprofit boards, not surprisingly, have begun adopting corporate pay-setting procedures. Over two-thirds of the charities with million-dollar-a-year execs, the Wall Street Journal reports, hire corporate-style “compensation consultants” to aid in the executive pay-setting process. These consultants help nonprofits fashion convoluted — and lucrative — bonus and deferred compensation arrangements.

In effect, corporate executive pay practices are now poisoning the nonprofit sector.

Still, you could argue that none of this much matters. Even the highest-pay nonprofit execs, after all, are making only a fraction of what America’s highest-paid corporate CEOs take home.

Average Americans don’t much appreciate excess in nonprofit pay.

But excessive nonprofit executive pay should matter plenty. Average Americans are actually subsidizing this excess — through the tax exemptions our various levels of government grant to nonprofits.

Now, technically, these tax exemptions do come with some strings. Nonprofits are only supposed to pay their top personnel at “reasonable” levels, and the IRS has the authority to levy excise taxes on anyone on a nonprofit payroll who gobbles up “excess benefits.”

This authority seldom gets exercised. The understaffed IRS audits nonprofits less than 1 percent of the time. Few high-paying nonprofit execs ever have to worry about getting called on the carpet.

So what could we do to end nonprofit CEO pay excess? We could put in place a tough, specific standard that nonprofits couldn’t easily evade. We could, for instance, deny tax-exempt status to any nonprofits that pay their top executives more than 25 times what their lowest-paid workers are earning.

Would this place some horrible burden on otherwise worthy nonprofits? Hard to see how. Any nonprofits that can afford to pay their top executives more in a week than minimum-wage workers can make in a year ought to be able to afford to do without a free pass at tax time.

And, who knows, denying tax-exemptions to nonprofits that overpay their execs could well turn out to be a springboard for denying our tax dollars — in the form of government contracts and tax breaks — to private corporations that do a lot more overpaying.

We could deny tax exemptions to nonprofits that pay top execs over 25 times what their workers earn.

We actually do have some evidence that focusing on nonprofit executive pay excess helps stimulate interest in curbing excess in the private corporate sector.

Two decades ago, then-Representative Robert Menendez of New Jersey found himself outraged by the early signs of the emerging nonprofit executive excess phenomenon. Menendez introduced congressional legislation that would have, if passed, capped the salaries of nonprofit executives at twice the level of U.S. cabinet secretary pay, a figure that at the time totaled just a bit over $150,000 a year.

That legislation never made it into law, but Menendez, later elected to the U.S. Senate, would go on to insert into the landmark 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act a provision that requires corporations to annually disclose the ratio between their CEO and median worker compensation.

This disclosure mandate went into effect this past January, and localities and state governments have already begun to consider moves that would penalize companies with wide gaps between top execs and workers. A similar move is stirring now at the federal level, too.

Institute for Policy Studies associate fellow Sam Pizzigati co-edits Inequality.org. His most recent book: The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900–1970. Follow him on Twitter @Too_Much_Online.

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