CEO Pay Slice in the Nonprofit Sector

• In Event: Current Topics in Nonprofit Accounting

Abstract

This paper introduces the construct of CEO pay slice -- the fraction of top five executive compensation captured by the CEO -- into the nonprofit sector literature. Consistent with high CEO pay slices reflecting governance failures and CEO rent extraction, we find a negative association between CEO pay slice and performance (measured in terms of program ratio). Further, we find that donors react to governance implications of CEO pay slice by reducing subsequent contributions to nonprofits with high CEO pay slices. Consistent with competition acting as a substitute for governance, we also find that the negative relationship between CEO pay slice and program ratio is significant only in settings of low competition from other nonprofits and for-profit corporations. Donors appear to understand this phenomenon as well: The negative association between CEO pay slice and contribution growth is significant only when the competition is low, but not when the competition is high.

Authors

• Yuan Ji, Hong Kong Polytechnic University

• Tharindra S Ranasinghe, University of Maryland