How Do Nonprofits Determine CEOs’ Productivity?

How Do Nonprofits Determine A CEOs’ Productivity?

By: Eugene Fram         Free Digital Image

Nonprofit organizations can’t have bottom line profits. If they did, CEO productivity determination could be less complicated. Determining a fair CEO benefit, based on productivity, can be a complex issue for a nonprofit board. Providing too little or too much can be dangerous for the organization and possibly the board members. Although the spadework for benefits needs to be done by a small committee, the entire board needs to fully agree on the rationale for the final decision.

Following are some of significant challenges that I have noted nonprofit boards face when determining CEO benefits.

Evaluation Failure: Some CEOs might receive high benefits because a series of boards have not effectively evaluated her/h performance. It is not unusual to find CEOs who have not been formally and effectively evaluated for years. They are held in position because they are “minding the store,” not being professional managers.

Market Forces: Nonprofit organizations are restricted by law from providing their CEOs with excess benefits. (Section 4958 – IRS Code) As a result, the benefits offered the CEO must reflect a market level found in the geographic area and/or the person’s professional qualifications. For example, nonprofit health insurance organizations have to compensate CEO at levels that are competitive with for-profit organizations. In my opinion, unusual CEO benefits that are hard to justify market-wise are invitations for an IRS inquiry

Board Relationships: Obviously having a good, not perfect, interrelationship with the constantly changing board membership is critical to support a reasonable benefit level. It is especially important in association type nonprofits where the person holding the board chair position changes annually. I recently encountered one board chair who, although being very pleased with the CEO’s performance, expressed a concern that the CEO did not have good communications with board members. The chair welcomed a suggestion that the board might engage a professional coach to help the CEO work on the issue.

Additional Benefits: Although not usual in the nonprofit environment, special benefits can be offered the CEO, especially if they relate to job performance. These can range from special insurance coverage to extensive travel benefits , educational opportunities. or even housing and entertainment allowances. If involved with fundraising, like a college president, housing and entertainment benefits may be appropriate. In some unusual instances the person’s spouse or significant other may also receive compensation for time spent to benefit the nonprofit.

Nonprofit CEO: It is not unusual for the CEO to undervalue his/h own worth, especially when associated with a human services type of organization. This then keeps a cap on the whole salary scale and can make it difficult to hire capable people. Example: I encountered one CEO with degrees in human services and management areas plus 30 years of excellent experiences. Admired for his performance by peers in a nearby university, he refused to use that leverage to seek equitable compensation.

Personality: Now doubt a positive CEO personality can be an attribute in working with boards and staffs. But some nonprofit boards continue to support well-liked CEOs, even after they have been found to be involved with fraud. The board then has to be removed by state attorneys’ actions.

Nonprofit boards can do a poor job of determining CEO benefits because of inherent challenges. Evaluating critical qualitative outcomes and impacts, like improving life quality and successful advocacy, can be daunting. But it can be done in a fair manner.*  CEO benefits must in line with market levels and professional qualifications, or the directors can have a personal liability if they provide a excess ones. In the face of these challenges, some nonprofit board members simply pay lip service to the task and then follow a decision of the board chair.





  1. Excellent points! Executive compensation is an incredibly challenging topic and you have identified five of the most significant issues. I have noted two additional items.

    Boards are wary of public scrutiny of their compensation decisions and act conservatively as a result. There are many articles in the NFP press about executive compensation excesses and staff compensation inadequacies. While this is true in a number of cases, it serves as a pounding drum for some comp committees, clouding their judgement.

    I have also found that comp committees have little by way of compensation expertise. Committees have learned to buy salary surveys as supporting documentation, but when it comes to crafting a compensation strategy, they tend to spurn the aid of trained/experiences compensation specialists, presumably to avoid the expense.

    There are so many clear organizational measures for organizations in the NFP sector that it amazes me that executive compensation is such a hard story to craft. Solutions include adding compensation expertise to the Board and taking the effort to craft a compensation strategy that aligns to the organization’s short and long-term goals and objectives.

    This is an important topic, I hope others share their thoughts. –mike


  2. It is my understanding that the percentage of funds of a nonprofit for administration determines
    the productivity of the board and COO. Boards I have been on didn’t want to use in excess of
    20 percent of gross for administration.


    1. John: A good guideline, but the percentage can vary widely. Example: the nonprofit board on which I currently serve had a 19% result last year. This year the management and board have planned a deficit budget to take advantage of some fund development opportunities. (We have nice reserve to cover) Wouldn’t be surprised if it went to 25 or 30%–development programs take a while to percolate. Alsop remember, what is included in “administration” can vary upon accounting advice!!!
      Best wishes to you and your family for the holiday season.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.