The Price of Doing Good: Executive Compensation in Nonprofit Organizations

39 Pages Posted: 29 Nov 2001

See all articles by Peter Frumkin

Peter Frumkin

University of Texas at Austin - Lyndon B. Johnson School of Public Affairs

Elizabeth K. Keating

Harvard University - John F. Kennedy School of Government

Date Written: October 2001

Abstract

This article examines whether nonprofit executive pay patterns are consistent with the espoused social mission of these organizations. We find that nonprofit CEOs are paid a significant fixed component, and many CEOs also receive additional pay associated with managing larger sized organizations. Our analysis indicates that nonprofit executive compensation is not significantly related to CEO performance, as measured either by improved fund-raising results or better administrative efficiency. This weak pay-for-performance link may be due in part to nonprofits' concern about violating the non-distribution constraint in the sector, which prohibits the distribution of excess earnings. While nonprofits may not be breaching the letter of the law, some organizations appear to challenge its spirit: We present evidence that CEO compensation is significantly higher in organizations where free cash flows is present, as measured by commercial revenues, liquid assets and investment portfolios.

Suggested Citation

Frumkin, Peter and Keating, Elizabeth K., The Price of Doing Good: Executive Compensation in Nonprofit Organizations (October 2001). Hauser Center for Nonprofit Orgs. Working Paper No. 8. Available at SSRN: https://ssrn.com/abstract=292253 or http://dx.doi.org/10.2139/ssrn.292253

Peter Frumkin (Contact Author)

University of Texas at Austin - Lyndon B. Johnson School of Public Affairs ( email )

2300 Red River St., Stop E2700
PO Box Y
Austin, TX 78713
United States

Elizabeth K. Keating

Harvard University - John F. Kennedy School of Government ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-9856 (Phone)
617-495-8963 (Fax)

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