Blogs & Comment

Why salary caps for non-profit executives aren't appropriate.

Bill C-470,introduced by Albina Guarnieri, proposes to introduce a salary cap of $250,000 on executive salaries at charitable organizations. Earlier this week, the Globe and Mail published a piece by author Dan Pallotta that calls the proposed bill a “deprivation strategy” that would prohibit charities from “seeking out the world’s greatest talents, paying them whatever the for-profit sector is paying to lure them away to the more pressing needs of humanity”. (see: Salary caps would cripple Canada’s charities). The proposed Bill and Mr. Pallotta’s response miss three important considerations:
First, a sector-wide cap of $250,000 doesn’t take into account the differences in leadership training, experience, and ability required to run organizations of different sizes. For example, for large hospital foundations or universities, paying executives salaries that are competitive with the private sector is necessary and appropriate. On the other hand, it is clearly inappropriate for a smaller group to be paying an executive at this level. Consideration should be given to scaled approach that is based on the budget of the organization and the skills required to lead organizations of very different degrees of complexity.
Second, compensation in all sectors should be based on quantitative and qualitative results. Executives who are able to help their groups operate more efficiently and raise more money from the private sector deserve to be paid appropriately. Executives that help charitable organizations address the most pressing needs of humanity may deserve much more than $250,000. Executives that don’t get results aren’t worth the money – at any level. Like the private sector, compensation packages ought to include incentives and bonuses that drive and recognize results.
Third, as in public companies, the board of directors of every charitable organization in Canada has the responsibility to ensure that the executives they have chosen to run their organizations are worthy of the compensation they receive. Anything less isn’t acceptable and is a misuse of the public’s money. Board’s need to be more accountable for the performance of executives that they hire.
It isn’t appropriate to cap compensation for executives in charitable organizations. It is appropriate to ensure that the right person is hired for each position and is paid accordingly, to focus more on the financial and social results, and to put more responsibility on the board members who are ultimately accountable.