Having held the position of Manager of Accounting and Human Resources with a nonprofit organization for several years, I feel I have a unique perspective regarding both compensation and the financial operation of a nonprofit. I will provide my insider’s view of compensation, pay structure at various levels, operation method and considerations to take into account before you support a charity. My experience was with a small nonprofit where no salary was greater than $200k annually so I have a hard time conceiving an annual salary of $500,000 let alone a million dollars.
I was employed by a California based nonprofit with fewer than 50 employees and a modest budget of several million dollars a year. During my tenure, there were two different executive directors and numerous executive staff members hired. The organization experienced a fairly rapid growth from ten to thirty employees with a budget increasing from a few million annually to over twelve million. Both of these factors are important in determining a fair compensation schedule.
It is important to recognize what exactly a charity is. Charities are a type of nonprofit organization and as such can apply for tax exempt status. Tax exempt nonprofit organizations are (501(c)(3) and that status is determined by standards set by the IRS. The Internal Revenue Service lists the following exempt purposes: charitable, educational, religious, scientific, literary, fostering national or international sports competition, preventing cruelty to children or animals, and testing for public safety (www.irs.gov).
The reality is most nonprofits are incorporated and structured as businesses. Nonprofits need to operate as businesses and remain financially sound in order to be viable and work towards fulfilling their mission. Nonprofits can and should operate with positive revenue, it’s just that the proceeds are reinvested in the organization to grow or improve their current programs rather than dispersed to shareholders. Charities are structured and operate as businesses. What sets them apart from a standard business is their mission or purpose which serves the greater good and hopefully they operate with a greater sense of integrity.
Determining how much is too much when it comes to nonprofit executive compensation is relative and should be dependent on a number of variables. There is no set number or formula that can be applied to all organizations. Following a number of embarrassing public incidents, safeguards were put in place to increase the transparency of nonprofit financial reporting. Tax returns were restructured, financial reporting requirements became more stringent and the number and depth of audits increased. Nonprofit organizations tax returns must be available to the public by law.
Nonprofit tax returns require a great deal of information to support the operation and financial dealings of the organization. Information available includes highly paid employees, board...