In recent years th
ere has been much discussion about income inequality in the United States. The pay of CEOs has increased drastically while the wages of ordinary workers have stagnated, going from a 27-to-1 ratio in 1980 to an 87-to-1 ratio in 2016 (Fortune). This kind of disparity exists in both the for-profit sector and the nonprofit sector. While nonprofit CEOs make 25% less than for-profit CEOs, there is still a massive gap between the wages of those nonprofit CEOs and the lower-level employees, who often make around $11 per hour. Many of these employees utilize public assistance (Generocity). Considering that nonprofits are generally expected to have an ethical and altruistic attitude, this disparity gives some people pause.
Why does this disparity exist in the nonprofit sector? One reason, according to Generocity writer Tony Abraham, is that competitive salaries in high positions ensure staff retainment. Executives need to have strong leadership skills. They need to make difficult decisions about the organization’s direction, and they need to be capable of increasing the organization’s net assets. High salaries ensure that highly-skilled individuals are attracted to these positions. In fact, many nonprofit executives report feeling underpaid for their work, and 64% report financial concerns about working in the sector. Without competitive salaries, nonprofits risk losing capable leaders who seek fair compensation for their labor. As Jay Hall of ExecSearches.com puts it, “Leadership in general is a critical skill, and it’s expensive. Leaders don’t just fall off trees. They develop over time and over their career. Finding the right fit is competitive” (Generocity).
Failing to provide sufficient compensation risks nonprofit CEOs taking their skills into the more lucrative for-profit sector, reducing the talent pool in the nonprofit sector. However, if this risk exists for CEOs, it also exists for lower-level workers. If workers are barely scraping by, the hopes of making a positive impact through a nonprofit might not be enough to keep them from seeking more lucrative work elsewhere. Some nonprofits recognize this issue, as demonstrated by Marco Giordano of Resources For Human Development (RHD), who said: “Our foremost challenge is figuring out how to better compensate staff who are doing incredibly important and essential work supporting people every day” (Generocity). For nonprofits to stay competitive and retain the best talent, the wage disparity issue will need to prioritized and addressed in the near future.
Donnelly, Grace. ‘Top CEOs Make More in One Day Than AnAverage Employee Does in One Year’. Fortune.com. 20 July 2017. Web. 30 January 2018. http://fortune.com/2017/07/20/ceo-pay-ratio-2016/
Abraham, Tony. ‘We’re asking the wrong questions when it comes to nonprofit executive wages’. Generocity.com. 22 January 2018. Web. 30 January 2016. https://generocity.org/philly/2018/01/22/nonprofit-executive-wages-human-services-public-assistance/
I appreciated how you stated that high salaries in the nonprofit sector are a problem. My wife plans to transfer into a nonprofit, but having read that there are 64% of that problem in that sector, we will have problems.