Question: While doing some research on charities, I noticed that the Shriners, who fund a hospital for children, have a vice president making $386,000 per year. And it has four people with the title of chief of staff who each make $522,000 per year. Does this sound like a proper charity? 

Ric: The philosophy surrounding compensation in the world of nonprofits has shifted in recent years. Historically, the people operating charities were selfless (often religious leaders working under vows of poverty). They worked for free or for room and board. That trend persisted for hundreds of years; in recent decades, as workers shifted from volunteers to paid staff, salaries tended to be much lower than those for people doing comparable jobs in government agencies or for private-sector employers. To help compensate for the lower pay, benefits were often better (such as more vacation time or better health insurance).

As nonprofits grew, their need for funding grew as well. This caused many to ask wealthy people for donations, and eventually organizations invited business executives and wealthy patrons to join their boards. These folks soon noticed that the charity staffs often were not of the caliber of those in the private sector. It became a bias — an attitude developed (fairly or not) that the only reason people go to work for nonprofits is that they can’t get hired by for-profit companies.

(Yeah, I know that’s deeply offensive; I’m not defending the attitude but merely noting it. Having worked with hundreds of nonprofits over the years, especially during my tenure as chair of our local United Way, I saw this attitude frequently.)

Fortunately, many who had that attitude used their views to initiate positive change in how nonprofits think about the way they handle HR. Operating on the attitude that “you get what you pay for,” many nonprofits began to offer salaries matching those offered by large private-sector employers. The theory: if you want your nonprofit to be as successful as IBM, you need to hire a CEO as good as IBM’s. And the only way to do that is to pay your CEO as much as IBM would pay its CEO.

The result has been a significant increase in salaries at leading nonprofits (and, many argue, a commensurate increase in staff performance). Thus, the CEO of the Red Cross earns a base salary of $500,000; the head of the American Cancer Society earns $1.38 million. Sound crazy? Let’s keep in mind that the Red Cross’s annual budget is about $3 billion; the ACS’s exceeds $1 billion.

Attitudes about fundraising expenses have similarly changed. Previously, nonprofits were chastised for spending money on anything other than programming. But boards now realize that you can’t raise money without devoting effort to doing so. The result: the rise of the “chief development officer,” supported by several full-time staff members, whose job is to raise money for the organization. Consequently, you now see organizations devoting larger sums of their budgets to fundraising than before. On that basis, charities no longer are expected to spend 95 percent of their budgets on programs — and some that do are chastised for not spending enough on fundraising!

You asked about the Shriners. It has $10 billion in assets and an annual budget of nearly $1 billion, so it doesn’t surprise me that it has a number of highly paid staff. In your research, as you seek to decide which charities are worthy of your support, focus on impact and outcomes — not just spending. That might help you decide which nonprofit is worthy of your donations.

I’m glad you’re working so hard to make sure your hard-earned money is put to best use!