Independent Sector's Revised Nonprofit Principles & Executive Compensation

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calendar icon Jul 17, 2020

I applaud and appreciate the work of nonprofit organizations that recognize the important role that standards play in ensuring charities are well managed and trustworthy.  It is in this shared spirit that I participated in an event on Capitol Hill last week to hail the release of Independent Sector’s revised  Principles for Good Governance and Ethical Practices . I am especially pleased that the Principles are very much in line with the BBB Standards for Charity Accountability, that we use in our charity evaluations. Congratulations go to Independent Sector’s President & CEO, Diana Aviv, and the staff at IS, as well as the Task Force, of which I was a proud member, that worked on the revision project.

During the event, several panel members spoke about different sections of the Principles. I was asked to comment on executive compensation, an issue that frequently places charities in the crosshairs of critical media stories. I started my remarks by recounting a conversation I had nearly 30 years ago with my dear mother informing her that I had taken a position with a charity. Her question to me was priceless: “no one gets paid in a charity, how are you going to make a living?” 

Her question points out one of the major challenges charities have when determining what to pay their staff.  While some very small charities have an all volunteer staff, many others do have paid employees. In fact, charities can be quite large, complex and are striving to solve, as Phil Buchannan of the Committee for Effective Philanthropy wrote: “the very ones [problems] that have defied market-based or government solutions.”  

I believe one reason Dan Pallotta’ s TED Talk generated more than 3.4 million views is that he says boldly and unabashedly that in order to accomplish great results charities need talented, skillful, dedicated and experienced staff who need and deserve to be adequately paid. Yet when it comes to staff compensation, charities can’t seem to catch a break. Every charity with paid employees can be vulnerable to criticism especially during those rare times when a case of excessive charity compensation comes to light. 

Independent Sector Principle 13 calls for “the full board to evaluate and thoroughly understand (beyond just approving) the compensation of the CEO annually.” External bench marks such as salary surveys can help charity governing boards demonstrate good judgment when determining compensation levels for their executive and other staff. 

It is unlikely charities will ever be free of this conundrum but by exercising sound processes, using data and encouraging boards to take control, we can feel confident about staff compensation decisions.  In this regard, the Independent Sector Principles are a big help.

H. Art Taylor, President & CEO
BBB Wise Giving Alliance

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