A Cautionary Note About Compensation Surveys

Charity Navigator has just come out with its 2009 CEO Compensation Study, a finely printed document that summarizes CEO compensation by nonprofit size, region, and category, but that unfortunately includes some misleading information and muckraking. 

The full survey can be found at 2009 Charity Navigator CEO Compensation Study.

What’s particularly misleading in this survey is the information on CEO salary increases, which Charity Navigator says was 6.1% greater than the previous year.  There are four reasons this number is wrong.  First, the survey is comparing slightly different groups of charities, not exactly the same charities from one year to the next.  Second, the survey does not exclude charities that hired new CEO’s during the year, or CEO’s who worked only part of a year, further clouding the data.  Third, the survey does not exclude organizations led by different CEO’s in the two years in question.  And finally, while the survey claims that it is measuring only cash compensation, it is well known that the 990 reporting in this column is inconsistent, and that benefits such as supplemental retirement income are sometimes included in the cash column, potentially skewing the data materially.

Since the full survey includes 5,448 organizations in Charity Navigator’s data base, these problems are diminished for the total sample – but the regional comparisons are suspect.  Based on my experience with surveys and many nonprofit clients, I would expect a more carefully done survey to report average CEO salary increases of 4.5% to 5.0% during the 2007-2008 period (which the survey covers).   And I expect that this percentage will drop in the current year, given the tough economy.   So think twice if you’re planning to use this survey to tell your board you deserve a 6% increase this year.

My greater concern about the Charity Navigator survey is its bias towards identifying egregious compensation.  Of course every survey has its purpose, and the more this survey can support Charity Navigator’s claim to be experts in mining data to point out abuses, the better for them.  But in this study, their statisticians have proved blatantly inept.

For example, the survey shows the President of the University of Delaware’s compensation in two places:  in the “Biggest Paychecks” section under the Education category, and later at the top of the list of the highest paid CEO’s.  The figure shown in both tables is $2,377,100. 

Now clearly this is a high salary for a university president.  The problem is that this number is not President David Roselle’s salary, a fact I discovered with about five minutes of checking the university’s IRS 990 forms – the same form from which Charity Navigator got its information. 

From its most recent form (for the period ending 12/31/07), it is clear that Mr. Roselle retired in 2007, meaning that much of the $2.4 million compensation reported must have been some sort of deferred compensation that vested over time but was reported in the year retired as paid.  This is even clearer when looking at the compensation of the incoming President, Patrick Harker, reported in the 990 form as $450,000.  Whether this is Mr. Harker’s full annual salary or a pro-rated portion of larger salary is not clear, but it is clear that the University of Delaware is not paying a salary of over $2 million per year for its President, as Charity Navigator claims. 

This would have been patently clear if someone at Charity Navigator also took a brief look at the University of Delaware’s prior year’s 990 form. There, Mr. Roselle’s cash compensation was reported as $629,00 – not at all unreasonable for a seasoned CEO of a large university – and further proof that the 2007 figure was an anomaly. 

If you think this is bad in print, go here: Ken Berger Fox News Interview to listen to Charity Navigator’s CEO, Ken Berger, misleading Fox Business News about overpaid CEO’s. 

Yes, there are grossly overpaid CEO’s in any sector, including nonprofits.  And yes, Charity Navigator could emerge as a strong and useful watchdog.  But to do so, they will have to strengthen their research processes considerably and avoid reckless headlines. 

Note:  GuideStar has just come out with a new service assessing reasonable compensation, the “CEO Compensation Checkpoint.” This has potential to be a very useful service and I will be reviewing it in an upcoming blog.

Pete Smith

Comments

[Donald Weber]

It would be interesting to compare top salaries by male vs. female. The glass ceiling is alive and well in nonprofit/philanthropic organizations. Yet, there is always a gaggle of women behind the male leader - hence, contributing greatly to his success. I am sure there are disparities as well when women are allowed to obtain the "gold ring". It is too bad that the outside appearance of a "leader" is as important in the nonprofit world as in corporate america. Women make the world go round and this sector is no exception.

[Rupal Shah]

glad to see that someone is watching the 'watchdog'

[Don Griesmann]

Thank you for this analysis. I am very glad you dug into the data. I have written about other problems with Charity Navigator, Beware The Nonprofit Watchdog – Charity Navigator http://dongriesmannsnonprofitblog.blogspot.com/2009/07/beware-nonprofit-watchdog-charity.html

There are others, with Charity Navigator, looking to establish standards for NPOs beyond the IRS Form 990. The task sounds daunting. The Alliance for Social Investing, www.alleffective.org, and others are looking to develop a Social Value Assessment Tool by the end of the year. It will be interesting to see how they avoid Charity Navigator's traps.

See also

The Nonprofit Quarterly’s Study on Nonprofit and Philanthropic Infrastructure

http://www.nonprofitquarterly.org/images/infrastudy.pdf

My best, Don Griesmann