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Posted by Joe Giso on Thu, Jun 21, 2012 @ 09:14 AM
Author: Joe Giso, CPA, MST    

Would imposing pay limits make it difficult for non-profits to hold onto top-tier executives?

All over the country, state legislatures are putting forth proposed regulations to limit the salaries of CEOs of non-profits. Though states differ on the caps they are trying to impose, they agree on the message that non-profits are “charitable” organizations and therefore non-profit executives should “volunteer” a portion of their compensation via discounted salaries.

non-profitConsider the example in New York State: Governor Cuomo has proposed a limit of $199,000 on the amount of state money that can be used by contractors to pay their executives, not just at non-profits but in the commercial sector as well. The idea here is that the cap would help prevent the few unscrupulous CEOs from pocketing the state money and instead use those taxpayer dollars to serve the public.

Nearby in New Jersey, Governor Christie issued "Amendment to Third-Party Contract Language" in 2010, capping state reimbursement for salaries of executives at certain non-profits at $141,000. In 2009, more than 30 CEOS at non-profits surveyed earned more than the cap.

Proponents of the non-profit executive salary caps contend that such legislation will help cash-strapped states trying to cut costs. Advocates also maintain that the salary limits are in the best interests of taxpayers and the less compensated employees at the non-profit organizations.

However, lawmakers in Florida and Massachusetts are seeing resistance to these types of measures, indicating that the road to capping salaries is less than smooth. Critics maintain that imposing pay limits would make it difficult for non-profits to hold onto top-tier executives and recruit new, qualified staff.

So is there an effective solution? The salary caps are supposed to favor budget makers and taxpayers, but possibly at the expense of the organization itself. Consider this: Is compensation reform a necessary evil and a way to help budget strapped states, or will it lead to a talent drain that will hurt the organization?  Whatever happens, it seems the chorus of salary cap-proponents is growing louder and some form of compensation reform may be inevitable.

Stay tuned for more … the compensation reform debate is just getting warmed up!

Contact us for more information about this debate or any other issue facing your non-profit organization.

Tags: Non-profits, CEO, pay cap, salary cap, pay ceiling

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