Feb 22, 2023
We would like to revisit a Wise Giving Wednesday topic from several years ago that continues to be relevant: the compensation of executives at charitable organizations. Unfortunately, some donors believe that all charities should be run by volunteers. And of those who support paying a staff to run things, they argue the amount should be relatively low. Of course, this is neither fair, practical, or realistic. Charities need to have paid staff to carry out their operations and to deliver the services and activities for which they are created.
Are salaries just “overhead” expenses?
There is a serious misperception that the amount that charities pay in salaries is part of the organization’s “administrative expenses” also known by the lay term “overhead.” The reality is that charity financial statements appropriately allocate salary expenses among three major expense categories: program services, fundraising and management and general expenses. These allocations are usually based on the actual or estimated portion of staff time spent in carrying out various activities. For example, conducting research on environmental issues (program services), calling on major donors (fundraising), and meeting expenses for the board of directors (management and general.) Sometimes a single individual will carry out multiple functions and have a portion of his/her compensation recognized in each of these expense categories. In other cases, a staff member will have all his/her salary allocated to just one expense category, such as an accounting staff member’s salary recognized as management and general expense.
Is executive compensation of charity staff members considered public information?
Compensation information of the charity’s officers and key employees is routinely included as part of the IRS Form 990, the annual financial form completed by charities (other than houses of worship.) This transparency of compensation information has been a fact of life for charities for decades. While this openness is sometimes a challenging concept for former business executives who join the paid staff of a charity, most executives recognize this transparency as a routine aspect of philanthropy that is different than the private sector. In response to donor interest in this area, BBB Wise Giving Alliance routinely includes the total compensation of the charity’s CEO in its evaluative reports on soliciting charities.
Who is responsible for setting charity executive compensation?
Determining the compensation of the charity’s chief executive officer is one of the basic responsibilities of an organization’s board of directors. The governing board usually considers a variety of factors, including but not limited to: information gathered from nonprofit salary surveys, the geographic location of the charity’s offices, and the size of the organization finances and staff. One would not expect the CE0 of a $100 million charity to be paid the same wage as the CEO of a charity that brings in $1 million. In any event, solely considering compensation will not provide a complete picture of a charity’s trustworthiness. Refer to the BBB Standards for Charity Accountability to better understand key factors that help verify trust.
For this week’s Heart of Giving Podcast, BBB WGA continues with Part 2 of its conversation with Bob Johansen about his recent book, “Office Shock,” which reimagines the office and shows how we can plan for more sustainable ways of working. Mr. Johansen is affiliated with the Institute for the Future and has authored or co-authored various books and articles.
We are always working with charities to publish or update reports for donors. Visit Give.org or local BBBs to check out any charity before giving. Our recently evaluated charities include:
Finally, remember to let us know by going to give.org/charity-inquiry if you are interested in seeing a report on a charity not on the list and we will do our best to produce one.
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BBB Wise Giving Alliance provides charity reports, which help donors review charities and find a trustworthy charity to support. We also conduct charity assessments to help charities improve their practices and demonstrate trust.
BBB Wise Giving Alliance provides charity reports, which help donors review charities and find a trustworthy charity to support. We also conduct charity assessments to help charities improve their practices and demonstrate trust.
