A Salary Cap for the Non-Profit Sector

Within the community investment community there’s still too much thinking about the money that goes in and not enough about what’s coming out the other end in terms of social capital.  In Canada, a good illustration is the recent debate about salaries for executives in non-profit organizations.

In today’s issue of Charity Village’s Village Vibes weekly e-newsletter there’s an excellent piece by Andy Levy-Ajzenkopf about Bill C-470, a bill introduced late last year to Canada’s House of Common that, if passed, will provide the government with the the power to “revoke the registration of a charitable organization, public foundation or private foundation if the annual compensation it pays to any single executive or employee exceeds $250,000.”

There are a few reasons why I don’t believe that salary caps are appropriate.

1. The question of how much a non-profit executive earns can’t be looked at in isolation. An executive’s salary should always be tied to performance. A non-profit who’s leaders have improved the organization’s social impact should be able to reward them accordingly and appropriately. Perhaps, bonuses or incentives are appropriate tools.

2. The public already has access to information about what executive are being paid. The Canada Revenue Agency already requires charities to disclose “the 10 highest compensated, permanent, full-time positions.” For some people. this will influence their interest in supporting a charity or not. My only suggestion here is that, similar to public corporations, charities should be more transparent with executive salaries.

3. If there was to be a cap, it should be proportional to annual revenue. It’s clearly irresponsible for a charity with a small operating budget to be overcompensating its executives.

As discussed in the Village Vibes article, large charities are complex organizations that we depend on to deliver much-needed social services. These organizations need to be run by leaders who are experienced and can get results.

In some cases, $250,000 may be a very worthwhile investment – depends on who the salary is going to and what they’re able to accomplish. What would it be worth to have people at the calibre of Richard Branson, Jim Balsille, or Jamie Oliver at the helm of your non-profit?