CEO and Other Senior Management Salaries

A year ago this past spring, I was asked to lead a seminar on nonprofit governance for Cambridge College's Institute for Life Long Learning and Community Building. (Cambridge College operates in several locations in the U.S. The main location is in Cambridge, Massachusetts. See http://www.cambridgecollege.edu/.) One of the topics that we touched on was CEO's salaries. I made the comment that some CEO's salaries in the nonprofit world were escalating beyond reason. I told a story of a New England based nonprofit with an operating budget of 2.5 million dollars that hired a new CEO who had been a fundraiser for an organization in the south. (For the sake of anonymity.), I will refer to this person as a male although this person might very well be a female.) This CEO apparently was good at raising major gifts. The contract that this CEO negotiated was for a salary of $125,000 plus healthcare as well as a low interest loan of $100,000 to be used for a real estate transaction--the purchase of a home, and an annual car allowance of $5,000 plus travel expenses. As this new CEO settled in, he pushed the staff to raise more money, while he did very little fundraising. This individual's first year ended with a slight loss for the organization. During the second year, this individual put even more pressure on the staff to raise more money. This year ended with a substantial loss, and the CEO blamed the staff. In reviewing the budget, the CEO made sure the staff only got a 3% raise while he/she received a 6% raise. Health care coata had increased again, so the CEO also proposed to the board that staff pay more of their share. The CEO, fortunately, would not be effected as his health insurance was covered by his spouse. However, the CEO asked to be allowed to take the cost of his normal coverage in the form of cash. This was granted. These cuts did not help the organization. The CEO still hadn't understood the his traditional role in raising money. There was a significant loss towards the end of this fiscal year. The CEO acted responsibly by firing six key staff members. The next year began with less staff and not much effort on the part of the CEO to raise money. He was finally terminated. However through this person's genius, he managed to agree to a package of $250,000 with the forgiveness of his original real estate loan. The board began another search for a new CEO. One of the participants in the seminar commented that in order to get very good key staff, organizations need to be prepared to pay top dollar. The individual who made this comment was on the board of a local teaching hospital. My question to you dear reader is 'what is the board's responsibility in setting salaries? How should a board act with respect to negotiating a contract? Is setting the contract with a CEO or other senior staff the responsibility of the executive committee alone or does the full board have responsibility of not only voting on it, but also asking 'tough' questions regarding it? Here is another salary situation in the nonprofit sector. The Citi Performing Arts Center in Boston has been operating with a deficit for several years. However, the CEO is taking a bonus of $1.2 million. Is this appropriate? There also are many examples of trustees of private trusts and small foundations taking six figure salaries for minimal work. Don't believe me? Check through foundation 990's. You will be surprised at what you will see. (Go to http://www.guidestar.org/.)