Tag Archives: executive directors

Nonprofit executive directors have to be paid market rate salaries

I was talking to a friend and mentioned that nonprofit executive directors routinely make six figures—and sometimes well into the six figures. My friend was outraged: Aren’t the executive directors working for charitable organizations? Shouldn’t they make less money?

Maybe he’s right in some virtue-filled alternative universe, but, in the real world, nonprofit executive directors have lots of responsibilities and need diverse skill sets. When you say “nonprofit” to most civilians, they imagine a relatively small organization like the local Boys and Girls Club or afternoon program for at-risk youth, usually run by a true believer executive director who only needs local knowledge and maybe some common sense (whatever that is). In reality, many nonprofits are large, with hundreds of highly trained and specialized staff delivering complex services. For example, a Federally Qualified Health Center (FQHC) might easily have an annual operating budget north of $50M, with tens of thousands of patients and hundreds of employees. In effect, larger FQHCs resemble small HMOs and provide about the same services, except for inpatient care. Large substance use disorder (SUD) treatment providers can be similarly large and complex. In both cases, the lives of the patients/clients literally depend on the quality of the services provided. So, executive director salaries mirror those of CEOs of for-profit health care providers and can easily be over $300K—which they should be, given the advanced degrees, years of experience, technical skills needed, along with the heavy responsibilities.

Many civilians also don’t understand how even simple human services are delivered: through good organizational skills and hard work. Some of the skills nonprofit executive directors increasingly need are not easily mastered:

  • Sufficient technological expertise to supervise IT staff, vendors, etc. Just about every enterprise today is also a tech business, whether we want it to be or not. At S + A, tech-related stuff probably accounts for about 25% of management time.
  • Managerial expertise (good management looks invisible when it’s done well and is all too visible when it’s done poorly) in both supervising the management team and line staff, as well as wrangling the Board of Directors. In a nonprofit, there are no “shareholders” and the Board sets policy, including hiring and firing the executive director. Over the years, we’ve discovered variations on the following nonprofit “coup” all too often: True believer sets up a new nonprofit and hand-picks the board; as grants and donations grow to support ever-expanding operations, the board begins to morph from true believers to professionals without a direct connect to the executive director (you can call them “competent experts” or “mercenaries” depending on how you want to shade the situation). Tensions mount, and the executive director is booted out of their own nonprofit, sometimes in a public and professionally humiliating way.
  • Ability to connect with diverse stakeholders. Many nonprofits mostly serve the poorest and most marginalized persons in our society, and ideally all staff in a given organization will be able to connect with and understand such persons. But executive directors must also frequently connect with and understand white-collar donors, funders, board members, etc.
  • Ability to get things done. We have all worked with people who are better at meetings than execution, or who seem not to really do much of anything, and that can’t be true of effective executive directors.
  • Ability to cultivate donor relationships.
  • Grant management expertise, including tracking funds, submitting timely and complete reports, and keeping the funder Program Officers happy.
  • Accounting expertise.

There are probably other skills, beyond these, which are just from me thinking about the problem domain at the moment—I’m not trying to be comprehensive here, but the point is that modern nonprofit executive directors need a wide range of skills and abilities that only rarely exist in a single individual. When a set of skills is rare, the market rate for it rises. Most nonprofits, with the exception of nonprofit hospital chains, aren’t as large as even mid-size corporations, but they have become large and complex enough that the solo charismatics of an untrained and inexperienced person usually aren’t sufficient to manage a staff of dozens or hundreds of people and to maintain complex service delivery systems.

Today, small sole-proprietor shops are much less common than small or large chain stores, and something similar and analogous is happening to nonprofits. You may not like that it’s happening, but it’s happening for many reasons. Similar things are happening in business as a whole, as Tyler Cowen describes in Big Business: A Love Letter to an American Anti-Hero—a book that nonprofit leaders should be reading, even if they’re not engaged in profit-taking and -distributing enterprises. Nonprofits are more like businesses than is commonly realized, although I’m sure most regular GWC readers get this.

Many people will take some pay cut to work in and around nonprofits, but few people will take a 50% pay cut, relative to the salaries in their industry. Somewhere between 5% and 50%, the ability to acquire and retain functional people drops off. Nonprofits are competing against other kinds of organizations for qualified people.

This is a bit like people who bemoan the lack of computer science and other qualified teachers: in most districts, teachers in high-demand subjects like computer science can’t be paid any more than teachers in lower-demand subjects, like art or PE. As a result, there are major shortages of computer science teachers, and, arguably, surpluses of teachers in areas like art. Unless computer science teachers can be paid something that approaches their market values, most qualified computer science teachers will go work for software companies instead of school districts. (Incidentally, I’ve thought about teaching high school at various points, but I haven’t, in part due to the income ceiling.)

Some callers have also argued that Seliger + Associates charges too much, and, while this is a fine view, when prospective clients tell us this we always respond the same way: they can hire us; they can hire someone else; they can write it themselves; or they can not submit the proposal. Each of these outcomes has costs and benefits, and any given organization should choose the best outcome for them. But when there hundreds of thousands or millions of grant dollars are on the line, as is frequently the case for proposals we write, we begin to look like a bargain by comparison, since our fees range between $5,000 and $15,000 for typical proposals, regardless of the grant amount being sought. Paying $8,000 to us to write a million-dollar grant is a very good cost versus potential benefit analysis. And, if we’re hired, the executive director frees up time that can be deployed to other tasks.

In terms of executive director salaries, it’s important to remember that a bunch of stakeholders must be satisfied, including Boards of Directors, donors, grant-making entities, and others. If donors become overly obsessed with how much an executive director (or other senior managers) makes, they may wind up with organizations that are less effective than donors who are less obsessed with that exact issue. Many grant-making entities want functional organizations above all else, and are more likely to make grants to organizations with better executive directors. In the real world, better usually included higher paid.

Right now, many high-quality nonprofit management professionals also face the same toxic mix of rising costs we all do—healthcare, college education (their own student loans and the likely future student loans of their kids), and housing. The latter is really important for nonprofits in places like NYC, NY, SF, and Seattle, where the cost of even a modest housing unit can easily exceed $1M. One way to help moderate salaries in the nonprofit and public agency world is to support comprehensive zoning reform that will lower the cost of housing by increasing supply. This has (finally) become a national political issue, because costs are so outrageous that make stakeholders and voters are finally realizing that something must be done. As housing costs rise, so does pressure on every part of the US economy. Consider the crazy numbers from “Housing Constraints and Spatial Misallocation,” by Chang-Tai Hsieh and Enrico Moretti:

In particular, we calculate that increasing housing supply in New York, San Jose, and San Francisco by relaxing land use restrictions to the level of the median US city would increase the growth rate of aggregate output by 36.3 percent. In this scenario, US GDP in 2009 would be 3.7 percent higher, which translates into an additional $3,685 in average annual earnings.

If just the Bay Area and NYC removed many arbitrary building restrictions, we’d all be making the equivalent of $3,600 more per year. If all cities relaxed arbitrary zoning, “US GDP in 2009 would be 8.9 percent higher under this counterfactual, which translates into an additional $8,775 in average wages for all workers.” Imagine how labor markets, including ones for nonprofit workers like teachers and executive directors, would change with almost $9,000 in implied boosted salaries! We can do this, but we’ve chosen not to as a society.

An executive director in a given market must often choose between being able to pay the high rent/purchase price or being able to stay in the nonprofit sector. Nonprofits that want to stay alive must pay those rates. You may disagree with the “have to” in the title of this post. If you think you can run a nonprofit and pay below-market rates, go ahead and do it.

Why Clients Love and Hate Us (and Other Consultants), With An E-mail Example

As any consultant knows, some clients will hate you and some will love you. That’s certainly true of us, but the funny thing is that clients love and hate us for exactly the same reason.

It sounds counterintuitive, so let me explain using a recent “we love you!” e-mail from a client as an example:

Your assistance was truly invaluable; we could not have accomplished all of this without your excellent work. We really appreciated the Documents Memo, the specific deadline dates, the direction, advice and guidance and when you left decisions up to us, that was clear.

Please use us as a reference any time and any comments I’ve written here. Whether we get the funding or not, you provided us the opportunity to present the best package possible and best opportunity for funding.

We get attaboys like this regularly, and we like reading them because we take pride in our work.* Clients are often surprised when we do what we say and say what we do, which tells us something about other would-be grant writers.

We also treat all of our clients more or less the same way, which means that we produce complete and technically accurate proposals and minimize the amount of work our clients have to do. This means that we tell clients exactly what they need to do, how they need to do it, and when we need every piece of an individual proposal, which makes many of them love us.

But some clients hate us because we tell them exactly what they need to do, how they need to do it, and when we need every piece of an individual proposal. This thoroughness and lack of ambiguity actually makes them unhappy if they don’t really want to submit the application or want someone to blame if the application is rejected for reasons outside anyone’s control (which we’ve discussed previously here and in “True Tales of a Department of Education Grant Reviewer“).

A certain number of clients hire us, as far as we can tell, because they want to be able to tell others that they’re Doing Something. “Doing Something” is separate from wanting to turn in a complete proposal. An attitude like this doesn’t bother us, but when we first came across it it did surprise us. Usually these clients don’t hate us, but they rarely love us.

Then there are the clients who hate us, most often for things outside of our control. They don’t like that yes, in fact, they do need every single item listed in the documents memo if they want to be funded; they don’t like that we must have comments on the first draft within, say, a week, otherwise there’s not going to be adequate time for the second draft; they don’t like that we’re honest and direct; and so forth. We don’t make the deadlines. We only conform to them.

Our work is similar across clients: we read the RFP, deliver the documents memo (or “doc memo”), write the drafts of the proposal, prepare the budget, and assemble the final submission package. What’s interesting to us is the wide array of reactions we get from our clients. One of our challenges is to maintain our equilibrium regardless of our clients’ reactions. This is probably a problem universal to consultants.

Some are like the client quoted above. A small but real number of others aren’t. But we see our job as maximizing our clients’ probability of getting funded, and we do this by turning in complete and technically accurate proposals without missing a deadline. How our clients treat and feel about us varies widely for reasons largely outside our control.

On another note, grant writers are not miracle workers, although we sometimes resemble them, and we’re not True Believers (hence Isaac’s post, “Does Seliger + Associates ‘Care’ About Our Clients?“). Neither are other consultants, though they may pretend to be True Believers. We sometimes look like we are, but that most often happens when clients do as much as they can to help themselves too.


* In my other life, I’m a grad student in English Lit at the University of Arizona, which means I teach two sections of English Composition per semester. Usually I get a couple of “this class changed my life” e-mails after finals week. One of my favorite began this way:

I just wanted to thank you again for this semester. Although I enjoyed the material of the course, what I will keep with me for the rest of my life is what the course made me think about. Like I said, I am always one to (over…)-analyze and question things but doing a lot of the “why” exercises really helped me organize my thoughts in all areas of my life.

These messages give me hope during the inevitable experiences with apathetic or indifferent students, and the positive e-mails from students and clients are often pretty similar. Here’s a recent example from a client: “Your comments are good, helpful, and easy to understand.”

The Ups and Downs of Using a Fiscal Agent to Apply for Grants

We sometimes write proposals, usually for foundation grants, when the applicant is not tax exempt under Section 501(c)(3) of the Internal Revenue Code (IRC). Most government grant programs and almost all foundations require that the applicant be a public benefit, tax exempt organization, but one can also use a fiscal agent/fiscal sponsor. A fiscal agent can enable an individual (e.g., artist, researcher, inventor, explorer looking for the The Lost City of Z,* etc.) or unincorporated associations (e.g., Citizens for a Better Owatonna, Residents United Against Everything, etc.) to be considered for grants. The ineligible individual or entity has to make a deal with the 501(c)(3) organization to, in effect, borrow their tax exempt status and be responsible for the grant funds received.

The upside of using a fiscal agent is that the project proponent can try to get their snout into the funding trough without going through the time consuming process of forming a corporation (e.g. finding folks willing on the board of directors, obtaining a nonprofit charter in their state, etc.) and applying for and getting a Letter of Determination of Tax Exempt Status from the IRS. While it is possible to form a new nonprofit and obtain a Letter of Determination by yourself (I first did it when I was about 21), most people use a attorney and/or accountant to do the paperwork and must pay application fees at significant expense while waiting from six to nine months for the paperwork to wind its way through the state and federal bureaucracies.

This makes using a fiscal agent attractive, particularly if the project proponent wants funding for something urgent, like, say, cleaning oil-soaked birds in the Gulf today, providing post-Hurricane Katrina disaster relief in 2005 or offering case management for those newly diagnosed HIV in 1985. It is also a good approach for artists and other individuals who want to concentrate their creative energies on outcomes, not process.

The advantages to the grant user are obvious, but what’s in it for the fiscal agent? Some established organizations genuinely are interested in expanding availability of services in their community and want to lend a hand to emerging nonprofits. Others, a cynic like myself might conclude, are looking to collect administrative fees and influence the direction of service delivery in their bailiwick. But, whatever the motivations on both sides, fiscal agency remains popular.

As a result, we occasionally accept selected grant writing assignments involving fiscal agents, but only after we explain the potential pitfalls and challenges, such as:

  • The plausibility of the fiscal agent/grant user relationship, which increases if the fiscal agent conducts activities at least vaguely similar to the grant user. It is hard, for example, to explain why a domestic violence prevention organization is serving as the fiscal agent for a documentary on the American Revolution. It is important to not give the impression to the funder that the 501(c)(3) fiscal agent is “renting” its tax exempt status.
  • It is not good if the 501(c)(3) fiscal agent appears to be a shell organization to serve only as a pass-through to the ineligible grant user. For example, for-profit medical groups sometimes set up a “captive” 501(c)(3) affiliate. While the captive may be an eligible applicant, if it has no track record and grant funds will be used to hire the medical group, or some of its docs, the relationship may be seen as a sham. There are many situations, however, in which this affiliated nonprofit relationship is perfectly innocent and accepted, such as when a school district establishes a 501(c)(3) “educational foundation” to raise money through donations or grants to supplement tax revenues. Since many foundations will not fund entities like school districts, which are taxing entities, the affiliated nonprofit structure has become quite common and accepted.
  • Even if the intentions of both parties in the fiscal agent relationship are believable, the real problem often emerges when the grant seeking effort is successful. It’s fine to contemplate the nuances of fiscal agent responsibilities in the proposal world, but the real world complicates things. To paraphrase Grandmaster Flash in one of the first rap anthems, White Lines, “The money gets divided / The fiscal agents get excited.” When grant funds start flowing, the fiscal agent will often suddenly develop a need and deep interest in what the grant user is doing. In extreme cases, the fiscal agent may simply deep-six their “partner” to run the program themselves and there will be little, if anything, the grant user can do about it.

If your idea is good enough to be grant-worthy, it is probably worth your time and money to establish a new nonprofit and obtain tax exempt status instead of using a fiscal agent. Unless there is urgency to the problem being addressed, it is best to form the new nonprofit at the start. Otherwise, you are telling the funder that you are hedging your bets by not investing in the new organization until the grants are approved, implying that you want the funder to take a risk while you are unwilling to do so.


* An explorer seeking grants for an expedition to find the Lost City of Z actually contacted us about 12 years ago. I explained that he needed a fiscal agent, but he never called back. Either he couldn’t find a fiscal agent or, like John Voight in one of my favorite “big animal” movies, Anaconda, was swallowed by a large snake on his way through the Amazon to Z.

We were also hired by a fellow seeking grants through a fiscal agent to set up a reserve for Komodo Dragons. We lost contact with our client after he left for Komodo Island in Indonesia, where he may have been eaten by a dragon. His fate is unknown, but I will leave the rest of this tale for another post.