Should Nonprofit Admins Have Salary Caps?

It’s an interesting question for the nonprofit world, particularly considering that the bulk of individuals working in nonprofits are expected to take a dramatic pay cut compared to the for-profit world. Yet implementing salary caps was one response to the idea of nonprofits creating earned revenue systems.


“I think that nonprofits generating revenue should have administrative salary caps or some type of structure that allocates profits to the purpose and not to admin expenses. Donors are contributing to the cause, not to increase admin pay.”


Should no money in a nonprofit ever be allocated to administration costs? More and more donors are requesting their money be diverted from overhead toward impact. In fact, this constant bypassing of essential operating costs is igniting the need for organizations to create revenue-generating components. The irony of the comment was that I proposed the idea of developing earned revenue systems as a way to fund operating costs, including salaries.


Do donors not realize that without individuals running the organization, there is no way to achieve the “purpose” that the commenter alluded to?


Let’s break down what that reluctance to support salaries or overhead says to the individuals putting their hearts and souls into the nonprofit. First, it implies that employees are expected to volunteer their time or barely make ends meet. That struggle to meet their basic needs detracts from their ability to funnel all their talents and energy into the cause. Second, it’s hard to attract and keep top-rate talent with a pay scale at the bottom of the market. Don’t we want the best and brightest at the forefront of the most pressing issues facing our communities?


As someone who worked in the nonprofit world, and took a salary well below industry averages, this implication of salary caps frustrates me to the core. It implies several things about the individuals working at the organization, none of which are pleasant.


Not to go into a detailed list, but it almost suggests that individuals working at a nonprofit are stealing from the mission rather than working to achieve it.


Now there’s always a bad apple in the bunch. I know that occasionally a nonprofit garners headlines for overpaying their top executives. This probably helped fuel the movement of donors diverting funds from operating expenses. In fact, The Balance spotlighted the issue of overpaid CEO’s or Executive Directors in nonprofits but noted that typically it was limited to large institutions such as universities or medical facilities. In those cases, the IRS can step in and penalize an organization if their salary reaches the excessive level.


At some point though, we need to realize that this isn’t the status quo. In fact, I bet if you spend time talking to individuals working in the organizations you support, you’ll find that they live off of well below the industry average for their role. Additionally, they are expected to far outperform their private industry peers, not to mention they wear several hats within an organization.


About 99% of individuals working in nonprofits I’ve met operate off of meager salaries while doubling down on their commitment to the organizations. I know several whom the idea of a 40 hour work week is a mythical thing. Instead, they log far beyond the standard number of hours to move their cause forward. Some even donate to their organization, which is effectively giving some of their salaries back.


What traditional employee do you know of does that?


Alas, this conversation of salary caps will still permeate the nonprofit sector, as will the continued directing of funds away from operating costs. I’m curious though. To those individuals supporting salary caps, who would determine the caps? What is the motivation behind salary caps? How should those be monitored? Additionally, if those caps keep getting whittled down farther and father, how does an organization attract and keep top talent with even more constraints on pay?


The board of directors always approved admin salaries in the organization I worked in. Even increasing hours for part-time team members paid hourly had to be voted on. Did I mention that all of the board meetings were open to the public? Talk about an awkward scenario where community members can weigh in on pay raises, hourly rates, and meager bumps in hours while you’re sitting right there.


If that isn’t enough, organizations are required to post their financials and annual reports. If you feel that the organization you’re supporting is bloating staff salaries, check it out. Dig through their numbers to see. Websites like Charity Navigator also increase transparency about where the money goes in a nonprofit.


Between these measures and the potential of IRS penalties, don’t we have several checks and balances already in place?


As you can tell, I’m not on the side of implementing salary caps. Too many organizations have the deck stacked against them as it is. Adding another component or restriction isn’t going to achieve the best results.


If your nonprofit, or one you love, is finding themselves in this crossfire, it’s might be time to consider exploring other ways to bring in revenue. The one I’m most vocal about right now is nonprofits created earned revenue streams. This innovative trend is sweeping the nonprofit sector, creating more stable and effective organizations as it goes.


Skeptical? Check out three case studies of innovative nonprofits spearheading the movement for earned income systems that deepen the impact of the organization.


Download the case studies here.

Stay tuned. Next up I’ll debunk the idea that you shouldn’t donate to administrative fees. Teaser: when I donate to my favorite nonprofit, I know that at most of my check is going straight to operating expenses. And I’m more than thrilled with that fact.