What the Forward Could’ve Said About Not-for-Profit Salaries

We choose to study numbers like this and create rankings because they are the most accessible metrics. But do simple measures like expenditure and staff really tell us the impact of a not-for-profit or the impact of a CEO’s role at a specific not-for-profit over a specific period of time?

by David Werdiger

The Forward’s coverage of their annual survey of Jewish not-for-profit CEO salaries is quite comprehensive – from the headline grabbing who earns what to the slightly more insightful discussions about the scarcity of female leaders and the gender salary gap, and the ranking of over overpaid/underpaid CEOs.

There are a few key lessons we can learn from the Wharton report itself, which is just a click and a university-level statistics degree away. Here is the executive summary:

• On average, larger organisations pay their CEO higher salaries.
• There are two things we can easily use to measure the ‘size’ of an organisation: expenditure and number of employees.
• There is a formula that consistently relates ‘size’ of organisation to CEO salary, across a broad base of orgs: a 10% increase in expenses corresponds to a 2% increase in CEO salary.
• Women on average tend to head smaller organisations than men.
• Women are grossly under-represented in CEO roles of large Jewish orgs.
• The salary gap between men and women (for equivalent sized orgs) has been around 20%, but more recently is narrowing.
• There is a much greater variation (after adjusting for org size) in male salaries compared to female salaries. That means there are a lot of ‘overpaid’ male CEOs.
• Non-Jewish orgs are paying their CEOs less than an equivalent sized Jewish org.

There are some very important lessons here with regard to gender gaps, and general CEO remuneration policies in large Jewish orgs. Boards of these organisations should be taking note and reflecting on what this means to them. Boards must be accountable to stakeholders with respect to the performance of the org and its staff. CEO remuneration is a sensitive issue, and must always be dealt with in a way that is accountable to the public.

The issue of women in Jewish orgs sticks out like a sore thumb. It’s clear from the survey that women are under-represented in leadership positions. The question is: why? Is it because they do not apply for the positions? If not, we should again ask: why? And if women are applying in much higher proportions, why are they not being chosen? When it comes to this issue, the survey raises more questions than it answers. It behoves us to investigate the deeper causes.

The biggest headlines from this survey relate to highest-paid CEOs, with pictures of men in fine suits and ties, with phone numbers for salaries. Unsurprisingly, the reaction to these lists is as simplistic as the lists themselves, with inane comparisons between someone responsible for hundreds of millions of dollars of expenditure with a typical donor, or an average wage-earner. By necessity, these people are at the high-end of the wage scale. The bigger question, asked by very few people, is how to define “overpaid” and “underpaid”.

And at this juncture, it’s important to also note the limitations this research (which the study itself discusses). Much of the analysis is predicated on using expenditure and employees as a proxy for organisation size. However, while these things are easy to measure, they don’t go close to telling the whole story.

One important distinction especially relevant to the USA is between federations and other orgs. Federations don’t deliver services – they are centralised fundraising organisations that pass money through to others. Accordingly, just their expenditure is not a reasonable proxy for size (and their expenditure-to-staff ratio will be very different from service delivery orgs). Perhaps we should be studying fundraising orgs and service-delivery orgs separately?

More importantly, we choose to study numbers like this and create rankings because they are the most accessible metrics. But do simple measures like expenditure and staff really tell us the impact of a not-for-profit or the impact of a CEO’s role at a specific not-for-profit over a specific period of time? Some small not-for-profits have a much greater ‘bang for buck’ that far larger ones. Some CEOs are brought in to maintain an org, and others to transform, grow or save an org.

What can the philanthropic community learn from all this? To be sure, we should demand accountability and benchmarking from orgs and their boards when it comes to big-ticket items like this. But equally, we should have the sophistication and vision to look beyond headline grabbers, and recognize the value of thinking big. Perhaps we should invest in developing some more suitable metrics of not-for-profit effectiveness – something like a Gross Organisation Impact – by which orgs can be more effectively compared and benchmarked? Research like the Forward/Wharton study is an important step in improving the quality of our not-for-profits.

David Werdiger is a director of Australian Jewish Funders, a past director and current committee member of JewishCare, a technology entrepreneur, and a writer and public speaker. You can connect with David on LinkedIn, Facebook, Twitter, or Google+.