Southeast Michigan nonprofit CEO pay has jumped. Here's why

Between 1997 and 2017, salary and pay for the CEO of the Detroit Area Agency on Aging grew more than 175% to $303,180 a year.

And the Kresge Foundation boosted its CEO compensation by more than 140% to $855,093.

It's well known that pay raises for corporate executives have far outpaced those for ordinary workers in recent decades, contributing to rising income inequality nationwide.

A Free Press analysis shows this is often true as well in the nonprofit world of southeast Michigan-based charitable organizations and foundations — groups whose programs and financial contributions have improved the lives of many metro Detroit residents — where many top executives are now making $300,000 a year or more.

Similar to what has unfolded in the for-profit sector, many of the region's bigger nonprofits boosted compensation for their CEOs during the past 20 years to levels well beyond the income gains realized by Michigan workers in general, and well beyond inflation, according the Free Press analysis of economic data and Internal Revenue Service filings for 1997-1998 and 2017.

The analysis did not include nonprofit hospitals, universities or insurance companies — organizations that can pay top employees, including football coaches, well over $1 million a year — because of the significant differences in their operating models compared with regular charities and social service organizations.

Some policy experts attribute this executive pay trend to CEO pay practices of the business sector spilling into the nonprofit world.

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What we analyzed and what we found

The Free Press examined executive compensation at 45 of the largest nonprofit and tax-exempt 501(c)(3) organizations, based on net assets, within 25 miles of downtown Detroit.

Several of the organizations gave raises to their CEOs on the recommendation of outside compensation consultants, who found that some similarly sized organizations were paying their CEOs more. This use of compensation consultants can put upward pressure on executive pay for all nonprofits, some observers of the sector say, as organizations boost their top salaries to keep up with what others are doing.

"People do hire the consultants and look at the comparative information, and they can point to the higher salaries and say, ‘Oh, we should get to pay our person this much,' " said Daniel Borochoff, president and founder of CharityWatch, formerly known as the American Institute of Philanthropy. "And it can keep leapfrogging, assuming the organization has the funding."

In addition to Kresge and the Detroit Area Agency on Aging CEO pay, other notable gains in total yearly compensation include:

• A jump to $650,095 from $212,280 for the Community Foundation for Southeast Michigan's current president.
• A jump to $515,631 from $105,032 for the CEO position at The Henry Ford, which operates Greenfield Village and the Henry Ford Museum in Dearborn.  
• A jump to $310,076 from $129,571 for the president position at Leader Dogs for the Blind.
• A jump to $222,876 from $82,534 for the Detroit Historical Society's CEO position.
• A jump to $203,690 from $149,440 for the CEO position at the Grosse Pointe War Memorial Association.

IRS data for this analysis was obtained through GuideStar USA, which keeps a database of nonprofit organizations' financial statements to as far back as 1997 or 1998.

These nonprofit CEOs enjoyed bigger raises than the typical worker in the economy.

Nationwide, the median income for full-time, year-round workers in 2017 was $52,146 for men and $41,977 for women, according to U.S. Census Bureau data. That compares with 1997 incomes of $33,674 for men and $24,973 for women, which, if measured in 2017 dollars, would equal $51,444 and $38,152, respectively. 

Restructurings at several nonprofits in the past 20 years, including the Detroit Zoo, which switched its operations from the cash-strapped City of Detroit to the Detroit Zoological Society, made it difficult to do a pay package analysis for all the organizations.

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Still, total compensation for the zoo's long-serving Director and CEO Ron Kagan rose from $176,000 in 2005 to $457,086 in 2017, according to past Free Press articles, not including the value of his free housing. Kagan, who started at the zoo in 1992, is required by his position to live in a house on zoo grounds and be on call 24/7.

During that time, voters in Wayne, Oakland and Macomb counties approved and later renewed a 0.1 mill property tax levy to fund zoo operations. Along with the new revenue, the zoo saved money by switching employees from defined-benefit pensions to contributory 401(k) plans, a common tactic imported from the private sector to reduce benefit costs.

A zoo spokeswoman said that a survey several years ago by compensation consultants hired by the zoo found Kagan's pay to be well below that of zoo directors in Chicago, St. Louis, Columbus, Ohio, and other cities, prompting the board of directors to boost his pay.

"For many years, Mr. Kagan was significantly undercompensated in comparison with his peers nationally," spokeswoman Patricia Janeway said in an email. 

Total compensation for the heads of the Chicago (Lincoln Park), St. Louis and Columbus zoos were $519,752, $756,730 and $527,358, respectively, in 2017, according to IRS filings.

CEOs beat inflation

The majority of nonprofits in the Free Press analysis boosted their CEO position pay above the nationwide inflation rate, which was 53% between 1997 and 2017, according to the U.S. Consumer Price Index.

It is not only the big nonprofits that have handed out big raises to those at the top.

A survey last fall by the Michigan Nonprofit Association with a sample of 270 nonprofits of all sizes found that average CEO salaries had increased nearly 30% since the association's 2010 compensation report, with the biggest gains — about 60% — occurring at organizations with budgets of less than $100,000 per year.

Some economic policy analysts theorize that the high CEO pay practices of the for-profit world have been adopted in the nonprofit sector, compelling the boards of directors of nonprofits — often composed of area business leaders — to pay more.

Higher pay for CEOs at some nonprofits can then result in loftier pay across the sector, as boards of other nonprofits boost their own CEO's compensation to keep up and "stay competitive." This is sometimes done at the recommendation of hired compensation consultants, who warn nonprofits if their executive pay falls below similar organizations.

"Executive pay in the nonprofit world has escalated quite a bit, and is happening at the same time, or kind of following, what’s happened with CEOs and top private-sector executives," said Larry Mishel, a fellow and former president of the Economic Policy Institute, a left-leaning think tank.

The institute published a paper in June asserting that the high pay for those at the top of an organization can, to some extent, come at the expense of pay for those at the middle or bottom of the wage ladder.

The institute's paper, which included nonprofits but focused on for-profit companies, cautioned against paying big salaries to CEOs just because they hold the title of CEO.

"The issue is not how valuable having a CEO is to shareholders relative to having the company operate aimlessly; the question is how valuable a specific CEO is relative to the other people who could fill the position," the paper says. "If the people who are next in line, or who could be hired from other companies, are as capable as the current CEO, then the value of the CEO to the company is only as high as what they would have to pay to replace them."

Other employee pay hard to trace

Concerns about rising income inequality across the U.S. economy led to the recent requirement for publicly traded companies to calculate and report the ratio of their CEO's pay to that of their median employee. The disclosure was mandated by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, although it took effect only last year.

Nonprofits face no such requirements, and must report only the pay of their five highest-compensated employees on their annual Form 990 tax returns.

The 2017 federal tax overhaul set a new 21% excise tax for nonprofits on yearly compensation over $1 million for their top-paid employees.

Nonprofits traditionally have paid their employees lower salaries than businesses in the for-profit sector, an offshoot of their charitable missions and sometimes-constrained finances.

Nonprofit 501(c)(3) organizations are exempt from property taxes, federal and state and city income taxes, as well as sales taxes in many instances. They are still responsible for employee payroll taxes including Social Security and Medicare.

Another benefit: Donations to these nonprofits are tax-deductible, allowing donors to reduce their own tax liability by giving.

How one organization determines CEO pay 

Most of the nonprofits in the analysis grew in asset size since the late 1990s, which can partly account for their higher CEO pay. Studies into executive compensation at nonprofits have found that bigger organizations with greater "free cash flows" typically pay their CEOs more.

For instance, the Kresge Foundation. one of the nation's top 20 private foundations,    nearly doubled its net assets to $3.8 billion between 1998 and 2017 as compensation for its top executive position soared 143% to $855,093, making CEO Rip Rapson the best-paid nonprofit executive in the Free Press survey.

Rapson's compensation is in the top 1% of all U.S. earners, and breaks down as a $742,107 salary, plus $104,354 in benefits contributions and a $8,632 expense account. The foundation, which does not solicit money from donors, reported handing out over $149 million in gifts and grants in 2017.

A Kresge spokeswoman said a committee of the foundation's board of trustees sets Rapson's compensation by surveying what a dozen or so other private, national foundations of similar size pay their CEOs. The foundation has 105 full-time employees.

"Mr. Rapson’s 2017 base and total compensation were almost identical to the peer group medians," spokeswoman Jennifer Kulczycki said in an email. "Also, over the past 30 years, median compensation for the CEO role across the sector has consistently surpassed the inflation rate."

Rapson is not the best-paid person on the Kresge Foundation payroll. The foundation paid more  to three investment managers whose compensation ranged from $912,288 to $1.1 million in 2017, according to its IRS filings.

Kulczycki said Rapson wasn't available for an interview about the value he has brought to the foundation.

"Rip has helped create an organization filled with diverse, passionate and talented people working to improve life opportunities for marginalized people in cities throughout America," she said.

A different kind of work

Nationwide, executive compensation at nonprofits is not considered a pressing issue among the sector's insiders and observers, according to Borochoff, the CharityWatch president.

“In the nonprofit field, people getting underpaid at the lower levels is probably a bigger problem than people getting overpaid at the higher levels," he said.

In an often-cited 2013 TED talk, activist and fundraiser Dan Pallotta criticized the notion that nonprofits should always have low overhead and modest salaries.

“In the for-profit sector, the more value you produce the more money you can make," Pallotta said. "But we don’t like nonprofits to use money to incentivize people to produce more in social service. We have a visceral reaction to the idea that anyone would make very much money helping other people."

He continued, “Interesting that we don’t have a visceral reaction to the notion that people would make a lot of money not helping other people. You want to make $50 million selling violent video games to kids, go for it, we’ll put you on the cover of Wired magazine. But you want to make $500,000 trying to cure kids of malaria, and you’re considered a parasite yourself.”

Financial savvy, hobnobbing skills 

Borochoff,  and several nonprofit compensation consultants interviewed for this article, said some groups have been paying more to their top leaders because nonprofit organizations in general have grown bigger and more complex. That growth requires organizations to hire executives with commensurate skills who can command higher salaries.

“Some of these organizations are very sophisticated, complex groups that require a very sophisticated background in order to run well," Borochoff said. "I always ask the question, if they were to pay less, could they (get) an equally qualified individual for that position.”

Additionally, more organizations are hiring CEO candidates from the business sector, which raises the bar for nonprofit compensation because of the traditionally higher salaries in business.

"A lot of the (nonprofit) CEO talent will come out of the corporate sector," said Gary Dembs, CEO of Southfield-based Non-Profit Personnel Network.

In some cases, nonprofits compete to snatch up promising CEOs, and landing a talented executive may require upping the position's salary.

"In the for-profit world, there’s more opportunity for bonuses and long-term incentive pay like options and stock grants," said Jeff Rahmberg, co-owner of Birmingham-based Rahmberg Stover & Associates, a compensation consultant for many nonprofits. "And those kind of equity vehicles and compensation you don’t have in the not-for-profit world. So they can’t compete entirely. ... The for-profits, as a general rule, always pay more."

For nonprofits that rely on fundraising, their boards are often willing to pay top dollar for executives who can hobnob with wealthy prospective donors and convince them to reach for their purse or wallet. Those donations can dwarf whatever salaries the nonprofit executives are paid, he said.

“A lot of what’s happening is the people at the top, the execs, they have a lot of connections to big money," Borochoff said. “So if somebody has these great connections with wealthy people or funders or foundations, they may be able to ask for a lot more money.”

Susan Daniels, CEO of Rochester Hills-based Leader Dogs for the Blind, said in an interview that she splits the majority of her time between fundraising and governance for her nonprofit organization, which trains 400 to 450 dogs a year for individuals who are blind or visually impaired. 

In the tax period 1997-98, Leader Dogs' president at the time earned $129,571. Daniels' compensation in 2017-18 was $310,076, a nearly 140% jump. 

A certified accountant, Daniels worked as the group's chief financial officer before becoming president and CEO in 2011. She oversaw a $14.5-million fundraising campaign for Leader Dogs' largest-ever capital improvement project, a canine kennel and care center renovation and expansion that finished in December 2016

"We’re funded solely by philanthropic dollars, and it’s really important to make sure we’re good stewards of those dollars," she said. “You want to be very well run, you want to have all of the right procedures and processes and controls in place so that you operate like a business, but at the same time, you have to be warm and inviting.”

On a mission to give

Borochoff said he does question the high salaries of some CEOs at large private foundations that obtained their initial funding from one individual or family and do not publicly fund raise.

"These are like no-brainer grants, and they’re getting paid like $350,000 to do that," he said.

Still, foundation grants and programs provide major assistance and support to residents and community groups in metro Detroit, often with the aim of addressing deep societal problems.

For instance, the Skillman Foundation's 10-year Good Neighborhoods Initiative spent $120 million on improving the lives of young people in six Detroit neighborhoods from 2006 to 2016.

The Kresge Foundation spent tens of millions in recent years supporting neighborhood revitalization efforts in the city, including a $100-million commitment toward the so-called "grand bargain" during Detroit's 2013-14 municipal bankruptcy. 

Big foundations have a lot of assets and tend to pay their CEOs a lot. And because some of them, like the Kresge and Skillman foundations, do not rely on public fundraising, their boards of trustees can be less worried about perception issues related to high executive salaries.

“At a big foundation they really don’t need to justify their compensation to, say, a small donor or even a large donor. They’ve already got their money," Borochoff said. So they can pay well "and don’t need to worry about that appearance, (unlike) a group that is constantly with their hand out to the public for support."

Natalie Fotias, communications director for the Skillman Foundation, which has about 25 employees, disagreed with that broad assessment.

"We are very conscientious of public perception ... and most importantly, we take very seriously our role as stewards of the foundation’s endowment," she said. "That’s why we consult with an outside compensation firm and analyze our executive pay every year. It can't be all about spending as little as possible; it’s also about investing in the people and the programs we believe can make the biggest difference for Detroit kids.” 

Not an easy job

Kyle Caldwell, president and CEO of the Council of Michigan Foundations, said that leaders of private foundations do not have straightforward and easy jobs.

“I think that the responsibilities of foundation CEOs are not radically different than any large multimillion-dollar operation," he said.

CEO salaries go up as foundations grow in asset size because the complexity of the job also grows, he said. Private foundations are required to pay out at least 5% of their assets each year in grants or other charity.

"When you grow your asset size, that means your payout requirement grows, that means your grant-making responsibilities grow, which means that for many foundations, the work becomes far more intense," Caldwell said. 

Operating under the IRS's watchful eyes

The IRS makes official determinations as to whether nonprofit organizations are paying excessive compensation to executives. The agency's principal test is looking at what similar nonprofits pay top staff.

The agency's penalties for excessive compensation can range from fines to forced repayment of salaries to revocation of an organization's tax-exempt status.

An IRS representative wouldn't comment to the Free Press on whether any fines, revocations or other enforcement actions for excessive compensation have ever happened to Michigan nonprofits, saying it is against the law for the agency to publicly discuss such matters.

How much a nonprofit pays its CEO is typically set by its board of directors or trustees. Some boards have a subcommittee that specifically handles executive pay.

In contrast, salaries for a nonprofit's rank-and-file workers are ordinarily set by the organization's executives, and not the board, said Dembs of the Non-Profit Personnel Network.

A 2010 article on nonprofit executive pay in the journal Policy and Society suggested that nonprofit board members may be accustomed to seeing high salaries in the for-profit world, and are unlikely to object to similarly big pay packages for leaders of the nonprofits they oversee.

"Boards of large institutions are typically made up of leaders from the business community whose judgement is less likely to be subject to questioning and critical scrutiny," the article said. "These executives may consider average nonprofit salaries to be modest in comparison to their own and be willing to compensate the nonprofit CEOs of large institutions more generously."

Local groups that have hired compensation consultants include the Detroit Zoo, Leader Dogs for the Blind, the Kresge Foundation, the Skillman Foundation, the Community Foundation for Southeast Michigan, the Detroit Area Agency on Aging and the Grosse Pointe War Memorial Association, among others.

"Usually, we are hired because there’s concerns about pay," said Rahmberg, the Birmingham-based compensation consultant. "And they normally are more on the side of 'we’re not sure we’re competitive enough,' as opposed to 'we think we’re overpaying.'

“There have certainly been occasions where our analysis and the market data will say, 'you’re paying them really well. I don’t think you need to do more,' " he added. "It would be highly unlikely, in fact I can’t recall any project, where we would come and say you need to cut someone’s pay.”

Mishel, the former Economic Policy Institute president, said that compensation consultants can contribute to rising CEO pay because the consultants' comparisons may compel boards to hand out raises. Yet he doesn't consider them as a root cause.

“The consultants definitely oversee a system that is responsible for escalating pay," Mishel said. "But you have to hold (responsible) the people who are supposed to be governing these firms — the CEOs themselves and the boards — for going along.”

Community Foundation

Mariam Noland is one of the region's longest-serving nonprofit leaders. She has filled a director role for the Community Foundation for Southeastern Michigan since the organization was started in 1984 by Joseph L. Hudson Jr. and several community leaders.

The foundation, which reported $716 million in net assets in 2017, is sort of a pool for various nonprofit projects aimed at improving quality of life in the seven-county area. It employs about 40 people.

Noland had a key role in the "grand bargain" during Detroit's 2013-14 bankruptcy that organized a roster of 10 foundations that gave more than $350 million to shore up municipal pensions and safeguard the collection of the Detroit Institute of Arts. The total size of the grand bargain, which also included state money, totaled about $820 million.

In 1998, Noland received $212,280 in compensation as the foundation's president. In 2017, her total compensation as president hit $650,095: a $567,631 base salary, plus $53,700 in retirement benefits and $28,764 in other benefits or compensation, according to the foundation's IRS filings.

During that time, the foundation's net asset grew 250% to $716 million and its yearly giving hit nearly $51 million.

In a statement, the foundation said that Noland's compensation, like that of all foundation staffers, is determined by factors such as job performance and what similar foundations pay.

On the question of whether the foundation could have potentially saved money by spending less on executive salaries without losing an executive to another organization or business, the foundation replied that it "aims to pay employees a competitive wage. We use benchmark data, which includes comparable nonprofits and the private sector."

For its part, the Detroit Institute of Arts pays less to its current president and CEO Salvador Salort-Pons than it did to his predecessor, Graham Beal, who made $476,131 in 2014 during his last full year at the DIA.

Agency on Aging 

Another longtime nonprofit leader, Paul Bridgewater, retired last year after 38 years with the Detroit Area Agency on Aging, a period when the agency grew from 12 to 120 employees and launched one of the country's largest Meals on Wheels programs, according to Crain's Detroit. 

What also grew was Bridgewater's total compensation, rising from $109,813 in 1997 to $303,180 in 2017. 

In a statement, the agency said it uses outside consultants that survey what comparable organizations are paying executives. If the agency "is lagging the market" and paying a staff position less than the 50th percentile of its peer group, upward adjustments could be made, according to the statement.

A farewell gift

Some nonprofits bestow farewell gifts to a retiring CEO. The Macomb-Oakland Regional Center, which assists those with developmental disabilities, reported paying $294,628 in 2017 to its former president and CEO Gerald Provencal, who retired the previous year after more than four decades with the agency.

That money was a combination of a "severance package" triggered by Provencal's voluntary retirement, plus "the payout of a substantial amount of unused vacation time," according to Lindsay Calcatera, the center's vice president of growth and communication.

That parting gift alone dwarfed Provencal's total 1997 compensation of $112,219.

The Henry Ford 

The biggest salary jump for a CEO-level position in the Free Press analysis occurred at The Henry Ford in Dearborn, which operates The Henry Ford Museum, Greenfield Village and other attractions.

In 1997, the organization paid its then-president Steven Hamp $105,032. In 2017, its current President Patricia Mooradian got $515,631 in compensation.

The Henry Ford's Chief Financial Officer Brent Ott said in a phone interview that the nearly 400% jump is explained by the organization's phenomenal growth since the late 1990s and the unique circumstances of Hamp's tenure as president, when he chose to take a below-market salary that he then donated back.

"Due to his personal finances and lifestyle, he was not working for a salary," he said of Hamp, who is the brother-in-law of Bill Ford, the current chairman of Ford Motor Co. "What it meant was that by the time he left in 2005, his salary was extremely out of market.”

The Henry Ford's operating revenue has grown by almost 85% since 2000 as the number of annual visitors rose nearly 40%, according to Ott. 

"We have transformed ourselves since the late '90s and 2000 from really a local attraction to more of a world-class national and global institution and educational force," Ott said. “It’s truly a different organization. We are entering new businesses and new areas for growth. We’ve launched two national TV shows and we’ve won two Emmys with those shows."

Salaries fall at YMCA

CEO salaries do not always go straight up. The top job at the YMCA of Metropolitan Detroit experienced compensation deflation after the 2014 retirement of longtime president and CEO Reid Thebault, who topped out at $379,124 the previous year. 

In 1997, Thebault's compensation totaled $207,534.

Thebault's replacement, Scott Landry, received $318,749 in compensation in his first full year at the YMCA's helm in 2015. His compensation fell to $307,190 the next year, then to $298,509 in 2017, according to the most recent IRS filings available. Landry himself retired last January.

The YMCA did not respond to messages for comment.

Salaries rise at Vista Maria

Vista Maria, a Dearborn Heights residential center that helps children and young women, has significantly boosted the pay for its president and CEO position.agin

In 2006, that post commanded $195,770 in compensation. In 2017, current president and CEO Angela Aufdemberge received $346,906.

Vista Maria said in a written response that each year, the organization's board of directors hires an outside consulting group, the American Society of Employers, to survey executive pay at similar nonprofits.

"Top talent is needed to focus the strategic direction of the agency on organizational sustainability, mission effectiveness and donor expansion," the statement said. "In 2006, Vista Maria had an annual budget around $16 million; today it is more than $25 million."

And asked whether staff in general at Vista Maria received similar pay increases during that time period, the organization said that "increases are made regularly," often based on the organization's financial performance and how well individual employees contribute to the mission.

Editor's note: Through partnerships with local nonprofits, the Free Press has been part of projects that have received grant funding through the Community Foundations of Southeast Michigan.

ContactJC Reindl: 313-222-6631 or jcreindl@freepress.com. Follow him on Twitter @jcreindl. Read more on business and sign up for our business newsletter.