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Do nonprofits have to pay big bucks for CEOs?

Should nonprofit executives be paid as highly as their peers in the private sector?

Some Charlotte-area nonprofit leaders and consultants say no.

That question was raised last week when Charlotte's United Way board chairman defended the pay package provided to the group's president, Gloria Pace King.

“Increasingly, our consultants tell us you can't look in the nonprofit sector in isolation,” Graham Denton told WCNC-TV, the Observer's news partner.

King's compensation, which topped $1.2 million in the fiscal year ending June 2007, included more than $822,000 in retirement benefits, six-times more than the previous year. Denton said the board failed to adequately fund King's retirement beginning around 2000, so last year's and future years' payments must be larger than normal to make up the shortfall.

Denton has said the agency must offer competitive compensation to attract and retain top talent.

Calls to United Way requesting comment from King were referred to Denton.

At Goodwill Industries of the Southern Piedmont, president and chief executive Michael Elder said he considers for-profit salaries when hiring middle management and front-line positions. But such comparisons are “inappropriate” when considering executive pay, he said.

“I think it's a balancing act,” said Elder, who's been the agency's CEO for 31 years. Goodwill Industries reported $25.1 million in revenues in 2006 and employs 530 full-time workers. Elder's total compensation that year, the most current available, was more than $224,000.

“We've got to try to attract the best and brightest folks, but at the same time, we have to be good stewards of the resources that are entrusted to us,” he said.

“I would say the folks that report to me, with their set of talent skills, would be able to earn a lot more out in the for-profit arena,” he said. “But you don't come into this solely for financial reasons. If that's what's most important to you, then the social service sector, particularly the executive level, is not where you need to be.”

Tom Temple, a board member of Thompson Child & Family Focus, which serves North Carolina's needy children and families, said he believes nonprofits need not match private-industry pay to attract talent.

“I'm actually in the optimist camp in terms of the generosity of capable people to devote their time to nonprofits,” he said. He believes people dedicated to nonprofits will always be willing to work for lower pay and benefits.

“(Many) of the senior executives of nonprofits are intentionally forgoing economic rewards to be a part of the nonprofits they choose to work with,” he said. Thompson Child & Family Focus pays its leader, President Virginia Amendum, more than $153,000 in salary and other compensation a year.

News of big-dollar pay for nonprofit executives occasionally roils communities and outrages donors.

In 1992, scandal rocked United Way of America, the national umbrella group, when reports surfaced that former President William Aramony received $463,000 a year in salary and benefits while charging off limousines and supersonic air travel. Local United Way agencies reported trouble raising funds the following year because of the news.

More recently, former New York Stock Exchange Chairman Richard Grasso was forced out in 2003 after his pay package was made public.

He was paid $140 million over eight years and was owed $48 million more. The exchange was a nonprofit institution at the time.

Executive pay seems to have grown fastest in recent years among the largest nonprofits, said John Hewett, a Charlotte-based consultant who advises mostly faith-based and arts-related groups. He believes the growing gap stems from an increased number of for-profit executives serving on agency boards.

He said the trend worries him.

“I think there are knee-jerk reactions, a ‘Let's get somebody good and pay whatever it takes,'” Hewett said. “If all board members are making million-dollar salaries, it's going to seem usual to them to offer the person they're going to hire a salary at the level they're making.”

Dan Farrell, a Michigan-based consultant and professor who advises Fortune 500 companies on compensation and benefits issues, said there's a reason nonprofit executive pay tends to be lower than the market rate.

“The difference in training and the career path is considerably different,” than that required for for-profits, he said. “Executives can go from a for-profit to a nonprofit rather easily, but a move the other way is rare.”

Lee Keesler joined Charlotte's Arts & Science Council as president and CEO in 2004 after retiring from Bank of America, where he'd worked for 24 years. A longtime volunteer, Keesler had always known he wanted to one day “focus on one particular organization and mission.”

He declined to comment about pay for nonprofit executives, saying such decisions are made by board members. But, he said, he sees more blurring between the nonprofit and for-profit sectors, which he believes is a “very positive thing.”

For example, he said, many daily challenges are the same, such as hiring and retaining staff, providing excellent customer service and raising money. His agency, which reported revenues of $18.1 million in fiscal 2006, supports area cultural groups through grants and other services. Keesler earned $261,000 in compensation in fiscal 2006.

“Increasingly, the professionalism and the complexity of skills required to get the jobs done required great talent, whatever the environment, public or private,” he said.

“It's one big talent pool,” he said.

Janet Fortner, CEO and president of Hospice and Palliative Care, said a company's status should be irrelevant when considering compensation.

“I think it's more important to look at the talent that you need and to recruit for that talent than to worry if it is a for-profit or a nonprofit,” she said.

Ultimately, directors must decide what's appropriate, said Hewett, the consultant.

He urged board members to consider two things when determining pay: First, what will it cost to attract the right talent? Second, how does a group pay that amount while keeping faith with both the people who support the agency and the constituency the agency was granted nonprofit status to serve.

In the case of Charlotte's United Way, Hewett said, people should consider what King was promised before criticizing her.

“If they made a promise to her and she took the job accepting certain compensation, then you don't blame her,” he said.

“(The board) could have said no.”

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