Pic by Twenty Questions

I am surprised by the number of nonprofits across the country that pay individuals in the organization above $400,000.  If I lower the bar to the average salary of $100,000 the number jumps off the charts.  Since these organizations are suppose to be charitable in their nature, it seems that paying individuals a salary that is less than 10% of the workforce seems to justify tying the wage to the lowest paid salary of the organization.

Nonprofit hospitals, colleges and universities have the highest salaries paid out to individuals.  These are the same two areas where costs have exceeded inflation every year.

I propose that salaries be tied to the lowest paid employee of an organization.  Since I stated that a living wage is $35,000 I would suggest that nonprofits start at this level as the entry-level salary.  If all management salaries were tied to this salary and limited to being no more than 5 times the salary of the lowest paid employee the individual would be limited to $175,000.  If the cap was 10 times the salary of the lowest paid employee that individual would be limited to $350,000.

I like what Massachusetts has done for capping salaries under a law they passed which limits reimbursement of state funds to salaries of a certain pay grade in government.  Yes, they have capped what the state will allow to be reimbursed with state funds. ”Effective July 1, 1998, the salaries of officers and managers as defined by OSD shall be non-reimbursable under Operational Services Division regulation 808 CMR 1.05 (24) as amended to the extent that they exceed an annual rate of $143,986.22. Please note: Due to budget constraints Commonwealth manager’s salaries have been frozen at FY ’08 rates.  Contractors must maintain documentation and justification for the selection of a salary reimbursement rate up to $143,986.22.  Where officers and managers devote less than full time to state programs, the level of reimbursement should be prorated accordingly.  See 808 CMR 1.05 (24).”

I think a similar system should be adopted by the federal government as a standard it will measure, consider in rate calculations for reimbursement and reporting to the public.

I recommend that boards of nonprofits use three measures for setting the floor and the ceiling for executive compensation.  For nonprofits $500,000 and above the floor should start at 8% of the revenues for the salaries of administrative staff.  The first ceiling for salaries should be tied to the Massachusetts salary cap with no further due diligence by the board.  If the board wishes to go beyond this cap, it should be required to show what benefit is being obtained for the additional compensation being given.  Yes, this means that the additional salary is tied to outcomes.  Under no circumstance can justification be made that any nonprofit should pay an individual more the President of the United States salary.

This entry was posted on Tuesday, December 15th, 2009 at 12:01 am and is filed under Bookkeeping, Employee's benefits. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.