As two local organizations hire new chiefs, nonprofit pay is getting a closer look

Grace Beahm
The Post and Courier

Like other local nonprofit tourist attractions, the Gibbes Museum of Art on Meeting Street must compete with other nonprofits as well as for-profit companies to attract executive talent. The Internal Revenue Service has been taking a closer look at nonprofit organization executives' salaries in recent years.

The Post and Courier

The Post and Courier

Charleston tourism, a $6 billion industry, is built largely on 10 nonprofit organizations, groups that run museums, produce festivals and preserve the city's historic allure. These institutions cajole, scrape and save to survive, while their chief executives invariably draw handsome salaries.

Not salaries that would blink an eye on Wall Street. Not private-jet salaries. But quite a bit more than the rest of us. Those who direct the 10 or so tourism-related nonprofits in the Charleston area, from Spoleto Festival USA to the Cooper River Bridge Run, make $128,242 a year on average, almost as much as the average Charleston physician and almost four times more than the typical worker here, according to U.S. Department of Labor statistics and a Post and Courier review of tax filings.

"You don't want to pay peanuts and get monkeys," explained Eric Friberg, a retired businessman who has led the boards of the Gibbes Museum of Art, Spoleto Festival USA, the High Museum of Art in Atlanta and the Atlanta Opera. "If you start down that road, it's a long, slippery slide."

However, at three of those organizations — the Gibbes Museum, the Charleston Food + Wine Festival and the Charleston Museum — about one out of every $14 spent last year went to the top boss, about 7 percent of the groups' outlays. In comparison, 3.4 percent of the budget at the average U.S. nonprofit is spent on the chief executive, according to Charity Navigator, a New Jersey-based research organization.

Two local nonprofits — the Gibbes and the Patriots Point Development Authority — are in the midst of grappling with salaries. The Gibbes just hired a new chief executive for an as-yet-undisclosed sum. And state-run Patriots Point, which oversees one of the biggest tourist attractions in South Carolina, is interviewing prospects for its executive director slot.

Any deal they strike will have to win approval from their boards and the federal government, which is paying more attention to what nonprofit bosses make. Starting this year, the Internal Revenue Service is requiring tax-exempt organizations to provide more thorough breakdowns of executive pay, including details on housing stipends, car payments and other perks.

Mason Hardy, chief executive of the South Carolina Association of Nonprofit Organizations, said compensation is becoming an increasingly tricky issue for boards of directors.

"It's a Catch-22," he said. "If they set it too high, the IRS may take notice. If they set it too low, they're going to lose their CEO."

Human capital

If IRS auditors rule that an organization's chief executive is overpaid, they can levy fines against both the organization and the individual, or yank the group's tax-exempt status.

And Uncle Sam is taking a closer look these days. In 2004 and 2005, the IRS reviewed executive compensation at 2,000 organizations and slammed 25 nonprofits with $21 million in fines for lavish salaries and unreported benefits. The government also found that 15 percent of public charities improperly reported executive pay on their tax forms.

But value is a notoriously tricky thing to measure, and some nonprofits successfully defend huge salaries. Economists call a person's potential to earn "human capital." A 99-mile-per-hour fastball represents a huge amount of human capital, as does the ability to lead a staff and coax a hefty check from a donor.

Ultimately, a top executive is worth what an organization is willing to pay, like everything else in a free market. Thus, most salary offers are based on compensation at similar organizations.

David Wise, a consultant with the Hay Group, a human resources firm, said nonprofits must also consider private-sector salaries as they search.

"There's really one big recruitment market out there," Wise said. "And as any organization becomes more complex, you're going to see the pay increase, regardless of for-profit or not-for-profit."

Top salaries at nonprofits don't come close to those of a public company. The typical CEO at a publicly traded company now makes 180 times what an average worker earns, according to the Congressional Research Service. Locally, Blackbaud Inc. CEO Marc Chardon collected $3.5 million last year, while Bill Timmerman, the top boss at Scana Corp., brought home $3.9 million.

Dana Beach, who draws $103,100 a year as executive director of the Coastal Conservation League, has an MBA from the University of Pennsylvania's prestigious Wharton School. Most of his classmates are now in the corporate world. "I think they stopped sending me alumni surverys, because I was dragging the salary curve down," he explained.

But nonprofit chiefs deal in heady figures as well. Of the 1.5 million or so U.S. nonprofits, about 25 pay their top employees more than $1 million a year. That list is dominated by health-care CEOs and university presidents.

Bill Finn, a local textile executive and chairman of Trident United Way, noted that most nonprofit chiefs are far from average employees. With impressive educations and business acumen, they possess the same skills as corporate managers and thus can at least make a case for similar compensation.

"If you're going to hire a leader, you don't want the second-class person," Finn said. "I would hate to see us involved in a situation where we can't attract people to nonprofits because they want to stay in the private sector. That would be like the situation we have in education: As long as we keep paying our teachers poorly, our schools are going to suffer."

Rate of return

In Charleston, nonprofit chiefs are responsible for most of the region's massive tourism industry. Visitors may stay in hotels and shop in our stores, but it is the museums, events and historic-house tours that bring them here.

Nigel Redden, the chief of Spoleto Festival USA, tops the pay chart of local tourism-related nonprofits at almost $239,000 a year, roughly 3.3 percent of the organization's outlays.

Friberg, Spoleto's chairman, said the festival has flourished financially and critically under Redden's charge and noted that he is well-connected with wealthy fans of the arts worldwide. Redden draws another $195,600 a year as director of the Lincoln Center Festival in New York.

"I just hope he continues his affection for the festival, because we are certainly not overpaying him," Friberg said.

He added that Redden has been particularly valuable because he is a shrewd and thrifty money manager. "He turns that old penny over about three times before he has to spend it," Friberg said.

But high pay does not always equal healthy returns. Former Gibbes executive directors Betsy Fleming and Todd Smith boasted some of the bigger compensation packages in town; both had short tenures with debatable records of success.

The nonprofit group that operates the Gibbes paid Fleming $115,500, 6 percent of its costs, according to

to federal tax records, while Smith made $155,000 a year, or $7 of every $100 the museum spent. Although both are credited with invigorating the museum's marketing and orchestrating lucrative corporate sponsorships, attendance has plummeted 56 percent since Fleming was hired in 2002. And the association finished in the red in three of the last five years, collectively posting a $618,331 loss.

Spoleto Chairman Tom White said Fleming was a good investment and revitalized the institution. Smith had great ideas and was working on a long-term strategic plan, according to White. "As for his salary, we felt it was fully justified given the competitive market for people of his talents and experience," he said.

Nonprofit nearsightedness

Tax-exempt organizations often are too accommodating when it comes to compensation. In 2006, pay for the chief executives of the biggest U.S. charities rose 4.6 percent on average, more than twice the rate of inflation, according to an annual survey by the Chronicle of Philanthropy.

Ted Legasey, a former technology executive who serves on the boards of the Charleston Symphony Orchestra and the South Carolina Aquarium, said nonprofits generally do a poor job of making sure they get their money's worth, shying away from the metrics that dominate a corporate performance review.

"Lots of times, people who come to nonprofit boards have a passion for the mission, and they're really not signing up for hard-nosed analysis," he said. "To me, it inhibits organizations from being as good as they can be."

Trident United Way, which doles out donations to a host of area charities, takes a close and calculating look at the composition of an organization's board before stroking a check. Finn, the charity's current chairman, said the group regularly denies funding requests from nonprofits that don't actively review and question their executives.

"There's some nice folks doing some nice things, but they have horrible boards," Finn said.

Lax oversight has propagated many an Enron-style meltdown in the world of tax-exempt organizations. Five Rivers Community Development Corp., a Myrtle Beach nonprofit, shut down recently when its two top executives were charged with 15 counts of embezzlement and breach of trust. The two executives, a mother and her daughter, allegedly misspent $418,180 in federal grants, funneling most of the money to themselves and their friends in the form of huge salaries and loans with no strings attached. The Five Rivers board failed to catch the allegedly questionable spending and resigned in October.

Who cares?

Philanthropists, however, remain mostly in the dark about how much of their donation goes to a big paycheck. A number of board members at local nonprofits said supporters generally don't have any idea what the organization's chief executive is paid.

"I haven't seen anybody looking at that information locally in making a decision about whether to support the organization," Legasey said.

However, Wise, the Hays Group consultant, said that is quickly changing because of the IRS's call for more transparency and the proliferation of Web sites such as www.GuideStar.org, where nonprofit tax filings can be reviewed in an instant.

"Fundraising organizations have to be really careful these days," Wise said. "Donors are going to have a negative reaction if they see that 10 cents of every dollar they give is going to an executive salary."

As for the Gibbes and Patriots Point, both are looking to make significant changes in executive compensation. The Gibbes declined to disclose how much it is paying Angela Mack, its new executive director.

Meanwhile, the board at Patriots Point is trying to free up more dollars for its next head. David Burnette, who resigned as top executive of the attraction in October, made $84,000 a year, just 1.2 percent of that agency's outlays. Pay at Patriots Point, however, is ultimately set by the state Department of Revenue, not a board dominated by affluent professionals.

Reach Kyle Stock at 937-5763 or kstock@postandcourier.com.