News flash: Managing a non-profit organization is real business

After many years of working in a non-profit organization I became convinced that the main difference between for-profit business and non-profit business is in the availability (or lack thereof) of dividends. Plus for-profit companies prefer not to pay dividends and markets pressure corporations to act in stakeholder’s interests (not just shareholder’s) … I leave the math to you.
Given these premises I’m not surprised that Mitchell Baker, CEO of Mozilla Foundation, was paid good money in 2006 (see Mozilla Financial FAQ for a breakdown of her $500,000 salary). Charity Navigator’s FAQ (a site that helps US-based donors evaluate non-profit organizations) comment on non-profit’s CEO salaries:

it is important to consider that it takes a certain level of professionalism to effectively run a charity and charities must offer a competitive salary if they want to attract and retain that level of leadership.

And that’s the important bit. According to Charity Navigator, average salary for a charity CEO is $145,000 per year. That’s peanuts, compared to the $14 million compensation received by the average CEO of a S&P company.

Of course, if you pay peanuts you get monkeys, as my father-in-law says, and you don’t want monkeys running your charity. Mitchell has done a good job at Mozilla Foundation and she deserves recognition and an incentive to keep it up. Not only I don’t see a problem but I hope salaries for non-profit CEOs will get higher to attract the best managers.

The problems start if non-profit CEOs compensation is very high compared to total expenses. Peter Brown, FSF’s Executive Director, received about $70k in 2006 (9% of expenses) while Shari Steele, EFF’s Executive Director, received about $150k in 2005 (5% of expenses). Salaries are proportional to the size of the organization: EFF’s income is $2.7 million, compared to a mere $800k for FSF.

Unfortunately this level of transparency is non-existent in comparable non-profit organizations in Europe. I don’t feel comfortable donating without knowing exactly how my money will be spent in detail, especially regarding compensation for the executives.