Executive payback

Few topics in the social sector are as ludicrous as the allegedly excessive compensation of non-profit executives. Not only is it a comical thought that anyone truly wanting to enrich themselves would go into the poverty business, it is painfully beside the point.

The debate over nonprofit executive compensation has little to do with increasing social impact. Rather, such arguments underscore the antiquated view still held by some that charity is about personal sacrifice rather than public benefit. Moreover, the controversy surrounding appropriate levels of executive compensation cannot be satisfactorily resolved until we establish metrics that allow us to meaningfully measure executive output against the only standard that matters, social outcomes.

Until recently, charity has been almost exclusively viewed as a personal sacrafice, a gift to the public realized as an economic loss rather than an investment in the greater good. In this misconcieving of charity, charity workers themselves are also assumed to be in the social sector with an expectation of personal sacrifice, generally viewed as paid volunteers rather than seasoned, well trained professionals.

Charity as sacrifice is a deprecated concept for a reason, it is a model that yields no discernible social impact. In the new era of social investing, and professional social entrepreneurs, working in the social sector is not about self-sacrifice, it is about professionalizing and innovating on the ways we help hurting people.

Debating executive compensation, in and of itself, is a pointless exercise. Compensation in any sector should be commensurate with performance. The problem is that as a sector we lack any real ability to measure social progress. So long as we fail to measure social outcomes, we will lack the sole, bottom-line metric we need to evaluate executive compensation.

Outrage over executive compensation is simply an extension of the same line of illogic used in evaluating charities by their overhead ratios (in fact, executive compensation is an overhead expense). Like overhead ratios, the brouhaha over executive compensation in the social sector underscores our inability to measure social progress, recently illustrated in a post on the Chronicle of Philanthropy by non-profit consultant Rosetta Thurman.

Rosetta, commenting on a recent controversy over the total annual compensation package of the Boys and Girls Club Chief Executive Officer (about $900,000) writes

I absolutely believe that nonprofit CEO’s should earn good pay. But there’s a big difference between good pay and excessive pay. While an organization can use any number of formulas to set compensation, it’s clear that many a reasonable person would deem Ms. Spillett’s salary excessive. I’m certainly not saying that nonprofit CEO’s should take a vow of poverty but that it may be problematic to have leaders in our sector who could be deemed “rich.”

Indeed, if we sent the message to the general public that helping poor people as a career choice was not only morally righteous, but economically rewarding, where would we be? Perhaps we would have attracted the talent we need to establish proper outcomes metrics so we would not feel the need to assess executive compensation packages by the same standard the Supreme Court uses to differentiate art from porn.

Executive compensation should be based on social outcomes. Just as for-profit executives are evaluated on their performance relative to profits, and are compensated accordingly, so too should we in the social sector reward our executives based on their creation of social profit.

Until we establish better social outcomes metrics, and mechanisms for regularly, and rigorously, evaluating organizational output, we cannot have an honest discussion about executive compensation.