Executive Salaries and Public Trust

Can the salary of an executive director of a charity lead to an immediate and potentially very serious loss of trust? National Night Out might know the answer to this question. Check out this fascinating article in the April 4th Minneapolis Star Tribune, National Night Out Director's Pay Prompts Outrage. The founding CEO's salary was $270,000 with $44,000 in benefits, according to the 2006 990. We do not have a standard that deals directly with CEO pay. It is in fact very hard to define what is too much.

In all cases, there are important steps that charity managers should take to see that salary decisions are made by a board that is un-conflicted and truly independent, you should also check comparable using salary studies such as the one conducted by the Minnesota Council of Nonprofits.

Past studies have shown that truly excessive nonprofit salaries are rare. In fact low low salaries have made many potential leaders reluctant to become executive directors. See this study by Compasspoint.

While excessive salaries may be rare, every nonprofit must have a good process for determining executive pay that it is covered by active use of a conflict of interest policy. The IRS calls this type of salary determination process "Rebuttable Presumption." Impress your friends and colleagues while protecting your nonprofit by reading a quick explanation on the IRS Web site and then bringing it up in casual settings.