Nonprofit Does Not Mean Non-Salaried

Why should a manager, whose skills could be utilized in profitable organizations, be interested at all in working for a nonprofit if she is given a glass ceiling?

By Joe Brown Leer

[eJP note: This article is in response to proposed changes affecting Israeli amutot. However, the issue of fair compensation for communal professionals is a worldwide problem.]

Over the past three or four years, much discussion has taken place in Israel in regards to passing a law that would limit the salaries of the CEO’s of nonprofit organizations (Amutot*). Having had many discussions on this issue, I found two interesting preconceptions. One is that a nonprofit belongs to the public in some way. The other is that nonprofits have to live up to higher moral standards than other organizations.

To start with the first, let me state something very simple – a nongovernmental nonprofit organization is a PRIVATELY OWNED, yet publicly licensed, organization. While they are licensed by the State and are granted a tax status by the state, this does not entail ownership. All amutot are owned by the official Amuta members – in the exact same way a publicly owned company’s shareholders are the owners, and are represented by the board of directors. These individuals are the only people to be held responsible when the Amuta folds; when legal action is taken against the organization, these members can be held liable. An Amuta is a licensed legal entity, parallel to a private business.

Questions of ownership arise when we discuss funding. Here, too, I found three issues worth mentioning:

The first is public licensing and accountability. There are stages of becoming an official Malkar (officially recognized nonprofit organization) and of attaining the Clause 46 tax status (parallel to the 501(c)3). Upon achieving any of these stages, income to the Amuta, to the degree of the tax return, is at the expense of the income of the public purse. While this does open the Amuta to public scrutiny, there are official ways of doing so. There are legal standards and bindings that have to be met every year, which have nothing to do with CEO compensation – they have to do with transparency, accountability and efficiency. While I concede fully that a registered nonprofit organization which provides tax breaks for its donors must be fully accountable and transparent, the leap to determining the way that Amuta is managed is very different. The five highest salaries of every Amuta in Israel are published every year, and one can choose whether to give to them or not. That said, the right of the public to scrutinize is not the right of the system to discriminate and to limit their salaries.

The second is governmental funding. Clearly, when it comes to governmental funding, the Amuta should be 100% accountable and 100% transparent on where the money went. All issues of pricing, tenders, contracts, etc., should be clear and specific, and the money trail should be easy to follow. These are public funds, and on these monies, the public has a right to know how they were utilized. Any NPO receiving funds from the State should display its annual reports, both narrative and financial. Guidestar.org.il has done a great job in placing these reports online. In other words, government funding means transparency; it does not imply ownership.

The third is individuals contributions. If you have given a donation to an organization, you should hold that Amuta at least as accountable for your money as governmental funding, if not more so; but that is only in regards to your own donations. Someone else’s personal choice of donation is not yours to scrutinize, nor is it your role to judge the usage thereof. Every donor makes his or her own personal value judgment. Besides the legal bindings mentioned earlier connected to the donation, donors are not owners of the Amuta.

Until now, I have presented the legal aspect; I would like to now present what I believe to be the deeper aspect – the moral one. Many people hold NPOs to a higher moral ground, and derive from this premise that they should limit themselves to lower salaries. True, many Amutot claim that they are working for a greater good. But then again, so do most organizations, whether private or public, profitable or nonprofit. Google wants “To organize the world’s information and make it universally accessible and useful”; Wal-mart – “Saving people money so they can live better”; and Coca Cola – “To refresh the world in mind, body and spirit. To inspire moments of optimism and happiness through our brands and actions.” No one expects their CEOs to take salary cuts to achieve these purposes.

I must admit that as a fundraiser, I have always based my appeals on striving for a greater good, and I am sure that all Amutot do the same. But this does not make them superheros, nor does it make them slaves. In fact, what nonprofits do is fill a gap in society which neither government nor the private (profitable) sector can or want to fill. In other words, the fact that a pile of individuals saw a NEED in society which was not being responded to, and chose to try and fill it.

Now, this may mean that the people who founded this organization or its owners are claiming to have a higher value in mind. However, when addressing what the people who WORK for this organization are like, so often a leap – a HUGE leap – is made. Why on earth must someone who has the skills to help youth make less money working for an Amuta than s/he would, working for a government agency – because a donor agrees with the vision of the owners of the organization? Why should a manager, whose skills could be utilized in profitable organizations, be interested at all in working for a nonprofit if she is given a glass ceiling?

In some discussions, the argument was stated that CEO’s of Amutot need to be ready to make a serious sacrifice; otherwise, they do not have sufficient same moral binding to the higher values the organization strives towards. This left me wondering if an NPO has more workers than a bank, or if it has an outreach wider than any parallel governmental organization, why shouldn’t the person who has to manage thousands of workers, help hundreds or thousands of service beneficiaries, oversee operations encompassing different locations, and work with many stakeholders and partners be adequately compensated?

Why on earth should there be a law to limit this? You don’t want to donate to an NPO whose CEO salary is too high in your opinion – fine, that is your opinion, but why would you enforce your view on someone else?

Amutot do not give out dividends to the owners of the organization, profitable organizations do. That is the only relevant difference between the organizations. The fact that we believe that an Amuta should be on higher moral grounds does not justify limiting someone’s salary. This is a privately-owned organization, and its board members have the fiduciary responsibilities to make sure that whatever compensation is offered to a CEO is then justified by his actions and successes – in the same way he would be judged in a for-profit business.

Moreover, the damage such a limit is significant. Talented, vibrant leaders want to be compensated appropriately. If the most talented and most able cannot be paid in a way that is parallel at all to the private market, we will be left with CEOs who are less qualified, less motivated and less capable. With no promise of an improved income, with no job horizon, I believe the individuals we need to improve society, the best and the brightest, need – at the very least – not to be limited in their salaries.

* This article does not refer to government-owned Amutot, and the definition covers public benefit companies.

Joe Brown Leer is the Director of the Resource Development Unit of the Jerusalem Academy of Music and Dance and currently is a board member of the Israeli Association of Professional Fundraisers. Thanks go to Jonny Cline for his help in editing the article.