How Much Should Canadian Charities Pay Their Executives?

Welcome to a a deep dive, you know, into something that might surprise you a little bit. The sometimes kinda eyebrow raising world of charity executive compensation. We're gonna try to get to the bottom of the question that I bet has crossed your mind at some point. Like, just how much do those leaders you know, the people at the helm of our favorite charities actually get paid. You've got this, like, stack of articles and notes, and you're ready to get to the bottom of this.

So, let's dive right in.

Well, the real question isn't, you know, whether charity leaders should get paid. I think we can all agree that, you know, the work is valuable. The question is more about finding the right spot, you know, a a level of compensation that can bring in top talent, but doesn't raise red flags for donors. And we've got some good stuff here to help us figure this out. You know, we've got Canadian and US tax regulations, and we even have thoughts from groups like Charity Navigator and advice from compensation experts.

Yeah. You know, one thing that really jumped out at me right away was this idea of a rebuttable presumption test that's used by the IRS here in The US. I mean, am I picturing some charity executive, you know, sweating under a bright light, being grilled about their salary? Okay. Maybe not that dramatic.

But Right. What does this test actually involve?

Uh-huh. That's a pretty vivid image. But, honestly, it's less of an interrogation and more of a process. So let's say a charity wants to justify a CEO's salary, you know, one that's higher than average. Well, they'd have to prove to the IRS that the number came from a fair and transparent process.

You know, they might show documentation of an independent review. Maybe they use salary surveys for similar positions. They might even show minutes from board meetings that show careful consideration. It's all about showing that there's no funny business going on, just, you know, a reasoned approach to compensation.

Got it. So it's kinda like a safeguard to make sure that charities are being responsible with the money they have, especially, you know, because they rely so much on the public's trust. Speaking of safeguards, I was really surprised to learn just how specific the Canadian Revenue Agency is, you know, the CRA, when they define compensation. It's not just salary. Right?

It's the whole package. Benefits, pension contributions, even the employer share of taxes. It seems pretty thorough.

It is. And that's because the CRA is serious about undue private benefit. They basically want to prevent situations where charities are used as a way for people to just enrich themselves unfairly. So this whole, you know, total compensation approach helps to make sure that whatever payments are made, they're in line with what someone would get for similar work outside of the charity world. It's that fair market value we keep hearing about.

And there are real consequences if a charity steps out of line penalties even losing their registration. You can bet they're paying close attention.

No. I know we can't judge a book by its cover or, in this case, a charity by its CEO salary, but sometimes those numbers can be pretty shocking. Charity Navigator actually found that CEO pay can vary quite a bit depending on what the charity does and how big it is. Was there anything in their research that really stood out to you? I mean, anything particularly surprising?

You know what really got me was how much location can actually play a role. It's not just that bigger charities equal bigger salaries. Charity Navigator's study actually showed that on average, a a CEO leading an education charity in the Northeast US is probably gonna make more than someone leading a religious charity in the Midwest even if both organizations are similar in size and scope.

Yeah. It's fascinating. I guess it makes sense when you think about it. The type of expertise you need, the cost of living, even the competition for talent in different places, it all factors in. Yeah.

It's definitely not a one size fits all thing. So if just focusing on the CEO salary can be misleading, how can we better evaluate this whole compensation question when we look at a charity? Where do we even start?

Well, why don't we switch gears a little bit and talk about some practical tips for really understanding this complex issue? One of the sources, you have the book, Nonprofit Executive Compensation. It offers some really great advice for both charities and, you know, those of us who are trying to evaluate them.

So this book, Nonprofit Executive Compensation, sounds like something everyone should read.

Mhmm.

You know, if they're involved in setting or evaluating charity compensation, what are some of the key takeaways from the book that we can use when we're trying to figure out if a charity is handling this whole compensation thing the right way?

Well, one of the big things the book emphasizes is the role of the charities board. You know, they can't just, you know, sign off on whatever the executive director wants. They really need to be shaping the compensation philosophy for the whole organization.

That makes sense. It's like having some ground rules in place before you even start talking about any one person's salary. Yeah. But what does that actually look like? I mean, how would they go about doing that?

Yeah. Okay. So first off, they need to be super clear about what the executive director's job actually is. You know, we're talking a detailed job description that lists out their responsibilities, the skills they need, the level of experience required. And then from there, the board needs to figure out their approach to compensation in general.

Like, do they wanna be around the average salary for comparable positions higher or lower? And maybe the most important thing, why? What are the principles behind those decisions?

It sounds like a balancing act almost. You know, they have to be competitive enough to attract good people, but they also need to think about how their decisions will look to donor staff, even the public.

Exactly. You got it. The book really stresses how important stakeholder reaction is. Like, if a charity is paying its CEO a huge salary, but they're cutting programs or staff, that's gonna raise some eyebrows. Transparency is key.

If a charity can explain why they made their compensation decisions and show a fair process, it builds trust.

And this isn't a one time decision either, is it? I mean, a a CEO's performance can change, the finances can even the whole economy can change over time.

You're absolutely right. The book actually recommends regular performance reviews for executive directors just like any other employee. The board should have a way to check their performance against the goals they set and maybe adjust compensation if needed. And, of course, all of this needs to be written down officially in an employment contract to protect both the organization and the executive. No handshake deals here.

Okay. So we've covered a lot of ground, haven't we? We talked about regulations in Canada and The US, the role of watchdog groups like Charity Navigator, and even some really useful advice from those compensation experts. Yeah. It's pretty clear that deciding on the right compensation for executives in the charity world is way more complicated than just looking at one number on a tax form.

It really is. And while we've been focused on CEOs, these same ideas apply to other important positions in a charity too. You know, it's about finding that balance, bringing in and keeping talented leaders who can move the charity's mission forward while also making sure that the money from donors is being used responsibly and ethically.

And a big part of that responsibility comes down to being transparent.

Right. Definitely. When charities are open about how they handle compensation, when they explain their reasoning and are willing to answer questions, it just creates that atmosphere of trust and accountability.

So let's say you're on a charity's website and you see their CEO's compensation listed. What's the next step? I mean, how do you go beyond just reacting to that number and really dig deeper?

That's a great question, and it's one we'll get into right after this.

We're back. And before the break, we were talking about, you know, moving beyond just seeing a number on a website and really figuring out if a charity's compensation practices make sense. What if you get that gut feeling though? You know, when a CEO's salary just seems way too high even after you've looked at all the numbers in the context, how much should we trust our intuition?

That's a really good question. I think it's important to remember that we all come to this with our own ideas about what's right and wrong. What might seem like a huge amount to one person could be totally reasonable to someone else. But I actually think that gut feeling can be helpful. It can push us to dig a little deeper.

Maybe it's telling us to take a closer look at the charity's impact. Are they really as effective as they say they are? Or is that big salary coming at the cost of, you know, program funding or staff salaries?

Well, it's not about saying, like, any salary over this amount is bad. It's more about using that feeling to ask tougher questions about the charity's priorities and how well they're doing.

Yeah. Exactly. Let's say you're looking at a charity that focuses on helping people out of poverty, and you see the CEO is making a million dollars a year. You know, that might make you uncomfortable. Doesn't mean the CEO doesn't deserve it or that the charity isn't doing good work, but it's a chance to stop and think, could that money be better spent directly helping people in need?

Is there a disconnect charity says it does and how it's spending its money? These are the kinds of questions we should be asking.

And these questions apply to everything a charity does, not just compensation. Right? And when we talk about financial health program, effectiveness, transparency, It's about looking at the whole organization, not just getting stuck on one number.

Right. A charity could have perfect compensation practices. But if they're not actually achieving their mission, then what's the point? We wanna support organizations that are making a real difference, and that means looking beyond a single number or a fancy website. It means being curious and willing to ask those tough questions.

Well, this deep dive has definitely given me a whole new set of questions to ask. It's amazing how complicated this can be, you know, for something that seems so simple on the surface.

It's been great talking about this with you. And remember, this is just the beginning. Keep learning, asking questions, and really engaging with the organizations you support.

Well said. So as you continue to learn about charitable giving, just remember that compensation is only one piece of the puzzle. Keep thinking critically, keep asking those tough questions, and keep diving deep.

And that's a wrap for this episode.