Abstract
Recent data show a significant rise in nonprofit CEO compensation (Candid, 2024). This article reviews ethical issues around excess CEO pay, distinguishing between justified, fair, and just compensation schemas, including equity issues that can arise when compensation schemas are not properly systematized. The article concludes by reviewing a restorative approach to compensation, which includes exploring salaries for all forms of labor, both visible and invisible, within a nonprofit context.
“Nonprofit” is often a misnomer. While a nonprofit organization may not be profitable for any external shareholders, individuals within the organization (especially upper-level administrators) can still have opportunities to earn large salaries. While estimates vary by state, organization size, and technical requirements, nonprofit directors in the United States, on average, can make over $100,000 per year. This is about 1.6 times the median individual salary for 2024 (Maryland Nonprofits, n.d.; United States Bureau of Labor Statistics, 2025).
Compensation in nonprofits is a contentious topic (Greg McRay, 2024). On one side, there are those who decry high salaries for nonprofit directors as diverting resources from the communities they serve. Some consider high compensation in nonprofits as a moral or philosophical issue, which manifests as a problem of justice and fairness. Others view it as an economic issue, as it can lead to inefficiency and financial waste (Rhode & Packel, 2009; Frumkin & Keating, 2010). These viewpoints are not mutually-exclusive: poor compensation practices can be both immoral and bad for business.
Conversely, there are market pragmatists who argue that a high salary is necessary to attract a competitive candidate; the complex and demanding responsibilities of being the CEO of a large nonprofit organization necessitates higher compensation than both the average nonprofit employee and the average employee more generally (Garry, 2016; Manzo, 2004). This debate poses the following question: how much is too much (Candid, 2024)?
I am primarily interested in compensation as a moral or philosophical issue, rather than an economic one. Recent evidence suggests that nonprofit CEO pay is not tied in any meaningful way to performance, so justifying high salaries on the basis of added value or improved outcomes cannot be done in good faith (Frumkin & and Keating, 2010). If excess pay is not strictly necessary under “market conditions” and does not improve organizational outcomes, then I believe we can safely jettison the idea that nonprofit director salaries are somehow justified by an economic reality.
Here I want to distinguish between three related but distinct terms: just, fair, and justified.
Compensation is just when there is a non-arbitrary, systematic, and reasonable method for assigning value to labor (what the market says or what someone else is willing to pay doesn’t count). Compensation is fair when it is distributed evenly among individuals performing the same kind of labor. Compensation can be fair without being just. For example, if two people who perform the same role are awarded the same compensation, but that compensation has no reasonable basis or is largely arbitrary, then compensation has been awarded fairly, but neither person’s compensation is just.
Compensation is justified when there is an explanation for how it is awarded (it doesn’t have to be good, reasonable, or systematic). For example, paying an employee more because they’re white is justified compensation (there’s a reason) but it is neither just (the rationale is unreasonable or arbitrary) nor fair (Black and white employees who perform the same labor are paid differently). Just compensation is inherently both fair and justified. Fair compensation is not necessarily justified or just. Justified compensation is not necessarily fair or just.
Let’s begin our analysis with the premise that everyone is entitled to a living wage (Amnesty International, 2025). How should we evaluate how much pay to provide the people who lead nonprofits if excess pay yields neither a better candidate nor a better result? (Kelly, 2024)
Perhaps the simplest answer to this question is that nonprofit directors should get no excess pay at all. Beyond providing a living wage and offering the amount needed to successfully obtain a minimally-competent candidate, excess CEO pay serves no real organizational or distributive purpose. Nonprofits could pay the minimum living wage to someone who successfully completes the work. This maximizes the capital available for other endeavors and will almost certainly increase the amount of money spent on the organization’s clients, either through increased services or direct aid. While this makes a lot of sense in theory, it’s perhaps pragmatically unfeasible or unpalatable in our current sociopolitical climate.
An alternative perspective suggests that people deserve to be rewarded for doing good. This argument points to the fact that nonprofit salaries are well below corporate ones, so when someone chooses to work for a nonprofit, they’re making a personal sacrifice that deserves compensation. Excess pay might not equate to a corporate salary, but it’s an incentive that recognizes someone is making a personal sacrifice for the collective good. I want to reject this argument on the basis that choosing the lower of two compensation offers when both are unjustified does not mean that the lower amount is somehow earned or deserved. Being overpaid is being overpaid; we should not reward people simply for accepting the lesser of two evils. While this might be how certain proponents of excess pay argue for its legitimacy, the rationale is not sustained under good-faith scrutiny.
There are many sets of compensation guidelines available for people trying to decide how much to pay a nonprofit director (or in another horrifying but all-too-common scenario, for nonprofit directors deciding how much to pay themselves). The National Council of Nonprofits, for instance, suggests largely relying on the market rate for similar positions, but also emphasizes the need for compensation determinations to be conducted by an independent body with attention to the nonprofit’s mission (National Council of Nonprofits, n.d.). An independent body largely clears up the worst conflicts of interest that can occur in these scenarios, but compensation committees are often made up of board members or other similarly-experienced (but legally disinterested) leadership (Johnson, 2006). As we are well-aware, leadership in nonprofits seldom mirrors the communities served by that nonprofit (Kyoko Uchida, 2024). One must wonder if a board made up exclusively of underserved individuals would feel differently about CEO compensation than a board made up of nonprofit professionals or other elites who occupy social positions similar to the executives whose pay they adjudicate.
This is also to say nothing of issues of bias or discrimination that may arise in the compensation process.For instance, consider a group of white men deciding how much to pay a Black female executive versus a white man. If nonprofits are anything like corporate America, it paints a dismal picture for fair compensation, nevermind just compensation. This too is omitting the idea that BIPOC directors (or directors from any marginalized identity) should be given excess pay in compensation for systemic inequalities as a kind of reparations or reinvestment in the community.
Turning to the second part of the National Nonprofit Council’s guidelines, it seems that mission does matter. Practically speaking, it is harder to justify excess pay in nonprofits concerned with specific causes, such as economic justice (e.g. it would be politically unfeasible for the director of a nonprofit dedicated to improving pay equity to make an outsize salary).
Along these lines, one might further argue that by taking on a directorship, one takes on the cause of that nonprofit. If the cause is just distribution of resources, then higher-level staff being overpaid is a direct affront to the nonprofit’s mission.
We might also consider the difficulty of the director’s task as it relates to the nonprofit’s mission, not in a strictly technical or professional sense, but in an emotional one. For a high-intensity cause (such as assisting survivors of sexual abuse), directors devote more of their emotional bandwidth and mental space to the task of directing than someone doing comparable work for a cause which takes less of an emotional or psychological toll (such as creating greenspace in urban areas). This is a potentially reasonable basis for additional compensation, but here too we must be wary of how an abstract task like valuing emotions can easily fall back into systemic biases. For example, a white woman talking about her struggle is likely to get more sympathy from an all-white board than a Black man. In this scenario, her emotional labor is perceived as being worth more than his (at least to the people who write the checks) and thus we still arrive at compensation which is both unfair and potentially unjust.
Another important note here is that nonprofit directors seldom do the most emotionally-taxing work, which is front-facing client services. Under this rationale, some excess pay should go to the director, but the majority of it should go to the people who are on the front lines doing the difficult tasks. However, if emotional labor is evaluated and compensated equitably across the organization (and that’s a big if), we could say emotional labor is potentially a legitimate contributor to excess director pay.
The idea that emotional labor must be recognized, uplifted, and appropriately compensated is a core tenet of yet another approach called restorative compensation. In a 2024 report, Borealis Philanthropy Fellows Richard Faithful and Mala Ngarajan propose a framework for what they term restorative compensation based on a series of pay equity pilot programs undertaken at nonprofits of different sizes, missions, and perhaps most importantly, resources (Richard Faithful & Mala Ngarajan, 2024). They suggest beginning with a shared base salary across roles (at or above a living wage) then collectively identifying which Areas of Responsibility (AORs) are key to the organization’s success. Each role is then scored on its contribution to all AORs. For example, a front-facing social work role might have a high score on an AOR related to direct emotional labor, whereas a legal professional might not. However, a legal professional might score highly on an AOR related to how the organization is exposed to liability. Someone’s salary is then calculated by taking the base salary and adding on modifiers for each AOR score, based on the relative value of the AOR to the organization as a whole. Most importantly, this process is collective and transparent, so that all employees know how their pay is being determined and have a say in the final distribution. Personal attributes, such as lived experience in the community served, can also serve as modifiers to increase compensation.
The restorative approach is perhaps the most just approach we’ve examined so far to determine how much (if any) excess compensation a nonprofit CEO should be given. It retains the Nonprofit Council’s assertion that mission does matter, i.e. that directors who perform more intensive work should be compensated accordingly. However, it also provides a systematic and democratic way to evaluate intangible contributions (which avoids biased evaluations of different individuals who perform essentially the same kind of labor). Independence is essentially guaranteed by collective participation: as the size of the organization increases, the input of lower-level employees act as a countermeasure to any attempts at a cash grab by upper-level administrators (assuming the lowest-ranked employees have actual and not merely symbolic power).
Restorative compensation replaces the whims of the market with a grounded assessment of how each individual’s contribution furthers the organization’s mission, and provides a principled yet flexible framework for determining how much everyone should be paid.
There is no magic number or formula to decide an appropriate nonprofit CEO salary. Attention must be paid to cost of living, market constraints, the organization’s mission, the organization’s resources, tangible and intangible labor, and the CEO’s compensation relative to the average or lowest-paid employee. That being said, a crucial aspect of just CEO pay is that it is justified in some systematic way (preferably through collaboration and consensus among both a diverse board and the organization’s employees). A justification for compensation (even an unsystematic one) does not entail just compensation, but it forces organizations to take a closer look at what it is they’re actually paying for. In other words, justification creates the opportunity for just compensation, if only because it starts discussions about tying pay to real labor rather than the idea of how much someone should be paid.
Illegitimate excess in compensation occurs when boards are not systematic in their evaluation of CEO pay, when, instead of deliberating on organizational values and objectives, stakeholders default to the market or a vague rationalization about someone’s “good work.”
These default rationales for CEO pay produce compensation structures that are not merely unjust, but unfair, as traditional valuation procedures often rely on white middle- or upper-class skills and signifiers. Those who know how to “speak the language” of those doing the evaluation often have an unfair advantage over candidates who, for one reason or another, were denied access to certain kinds of education, professional experience, or accreditation (or, at the most basic level, are simply BIPOC or another marginalized identity in a majority space). It is crucial that nonprofit organizations working for social justice systematically evaluate their compensation packages to ensure they are in alignment with the principles they espouse. As anyone working for social change will tell you, one of the most powerful tools in advocacy is leading by example.
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