Hawaii's Best Paid Executives
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“In reality, I think the general public’s view of nonprofits is that it’s charity work, so instead of having a salary comparable to your counterparts in the private sector, you get these intrinsic rewards to make up for the money you’re (not earning),” says Kelvin Taketa, president and CEO of the Hawaii Community Foundation. “But that’s not a good thing to believe, because executives of nonprofits who have very, very challenging jobs are leaving the sector, partly because of burnout, but partly over financial considerations.”
Taketa strongly advocates that, when determining executive compensation for nonprofits, peer-group comparisons should also include for-profit companies.
“Sarbanes made it clear for the first time that when a nonprofit is seeking salary comparisons, it doesn’t have to be limited to the non-profit sector, but can look to similar for-profit entities to establish reasonableness,” says Taketa. “This is so important because when you’re hiring an executive, you’re not competing in the job market with only other nonprofits. You’re competing with the private sector, too. You want to look for the best people out there and pay according to the job responsibilities whether it’s for-profit or not-for-profit.”
Taketa adds that most nonprofit organizations do not have separate compensation committees, since they tend to be smaller and don’t have the same scale as publicly traded companies. Instead, the executive board on a nonprofit often serves as a personnel committee overseeing executive compensation. Also, nonprofit boards rarely hire outside compensation experts. Although the Hawaii Community Foundation has used an independent compensation consultant for specific situations in the past, it does not regularly use one.
Nonprofits face more challenges than for-profit companies when trying to base compensation on “pay for performance.” In the private sector, clear and immediate metrics often can be identified, but the impact of nonprofit work sometimes cannot be measured for years.
“For instance, organizations like the Boys & Girls Club that are trying to keep kids in school by working with them from middle school, will not see measurable results until years later, when the students graduate from high school,” says Taketa. “Pay-for-performance metrics typically don’t work really well in the nonprofit sector because, often times, the impact or results of the mission are not things that are going to be felt immediately and sometimes are difficult to measure, unlike measuring profit and loss.”
But, Lloyd says, changes are being made in the area of incentive compensation.
“The IRS has made it clear that incentive compensation for nonprofits is OK. You can set the metric that you’re going to expand your program into five different communities in 18 months and if you do, then you’ll get extra pay,” she says.
Taketa adds that incentive compensation and cash bonuses are much more acceptable now and are helping blur the lines between the private and nonprofit sectors.
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