Ultimate Guide to Nonprofit Executive Director Compensation
One of the most common questions nonprofit organizations face, especially when they are new or small, is how much to pay their executive director.
Yes, you can find plenty of reports on the average salaries of nonprofit executive directors online.
However, most salary studies out there still are void of nuance and special considerations – which leaves hiring committees and job applicants struggling to find the right balance.
In this article, we’re going to dig into how much executive directors make, the factors that influence nonprofit executive director salaries, and how to apply these in your own decision-making.
We’ll also cover additional elements of compensation that executive directors and hiring committees can use in negotiations.
If you want a headstart, you can jump straight to my free Executive Director Salary Calculator.
What Factors Influence Executive Director Salary and Compensation?
Like any other role, compensation for nonprofit executive directors is determined by a mix of factors.
1) How an organization's budget affects executive director salaries
The first factor is the budget of the organization.
For most nonprofits, this means the organization’s annual income and expenses. For example, foundations don’t set salary based on endowment size, but rather on the annual grantmaking and operating budget. For groups that have a 501(c)(3) and a 501(c)4, it would be your combined c3 and c4 budgets!
In general, an organization with a larger annual operating budget will pay a higher salary to its executive director (who may also be called the CEO and/or president). An organization with a smaller budget will usually pay a lower salary to its executive director.
With some exceptions, this trend in executive director salaries generally holds true across sectors, organizational size, scope, and profile. I have multiple clients right now who are founders and executive directors. They have never paid themselves a salary because they have been waiting to get big enough to pay a full-time salary, severely limiting their compensation for the work.
2) The importance of peer benchmarking
The next significant factor in executive director compensation is benchmarking it with peers in your geographic region. For this, you need data or a loose survey of five or more executive directors of similar-sized organizations in your region.
Whether you are part of the hiring committee or negotiating for a new job, I recommend reaching out directly to peers (rather than simply relying on summarized reports).
This is because there may be other elements of compensation – such as paid time off – that are not captured by traditional salary reports. I recommend using my Executive Director Salary Calculator to set salary ranges for your organization.
3) How organizational values influence salaries
Finally, every organization places a different “value” on four key factors:
Education
Experience
Skill level
Level of responsibility
Some organizations value degrees and formal education more than other factors. Others care more about real-world experience or skill/talent in the necessary tasks of the role. If candidates meet all of an organization’s criteria, they will be at the top of the salary range and even a bit higher.
For both parties, however, it’s essential to understand the full scope of the role and expectations. This is one of the areas that seems obvious at first (an executive director runs the organization) but can become an incredible pain point down the road.
I recommend starting by understanding the core responsibilities of an executive director. If you’re creating or reading a job description that doesn’t include these core responsibilities (such as a small foundation that really just wants administrative support), it’s worth taking a step back and reconsidering.
When a board hires an executive director, it decides to delegate the day-to-day execution, implementation, and decision-making to a chief executive.
To make crafting or updating a job description easier, grab my Sample Executive Director Job Description.
4) Organizational payscales and compensation policies
Some nonprofit organizations have compensation policies that will dictate a salary range for the executive director. A “compensation policy” is a fancy term for an agreed-upon and transparent decision about how and why the organization pays what it does.
Compensation policies are constructed by human resources experts to help the organization decide what it values when setting compensation (e.g. experience over education or credentials over seniority).
Once the organization sets its priorities, it conducts research on comparable organizations and roles. Finally, the organization sets pay bands that create transparency and consistency.
A pay band is a range of money that can be paid to any set of roles. For example, frontline organizers or helpline staff may be paid between $35K-$40K annually, depending on credentials, education, etc. Program directors may be paid $60K-$70K based on the same criteria. The executive director would then be paid between $95K-$105K based on similar criteria.
Organizations should treat all employees equally in how you apply your compensation philosophy and you should have an HR professional and an attorney evaluate it annually.
5) Other internal organizational factors that affect executive director pay
Every organization and situation is different, which means additional factors may affect an executive director’s pay. The most obvious factors are the salary of the previous executive director, the salary of the next highest-paid employee, and internal compensation policies.
But executive director salaries can also be affected by operational challenges or dynamics. For example, an organization with few reserves may pay less than an organization with strong reserves, even if their annual operating budget is the same. Or there may be unique circumstances for the role.
For example, a board may decide to pay an executive director more or less if it plans to close in a year, merge with another organization in a year, or transition to fiscal sponsorship.
Diversity, equity, and inclusion are also important considerations for many organizations. For example, if an organization is trying to right past wrongs regarding equitable pay, it may bump the salary up if it has hired a woman or BIPOC leader.
Finally, some believe nonprofit professionals should be paid less than their private sector counterparts because of outdated and ill-advised assumptions. I believe that nonprofit compensation must be higher, fair, and not determined based on a scarcity mindset.
We must tell the story that our nonprofit organizations are changing the world, so we should treat these leaders with respect…in the form of compensation when possible.
How to Calculate Executive Compensation for Your Nonprofit
Even with these core factors for consideration, executive director pay scales are all over the map. I see this reflected among executive directors in my coaching programs – with salaries that range from well-compensated to severely underpaid, regardless of the job or quality of work the person is doing.
This is because every nonprofit and executive director is unique – creating unique conditions that affect the executive director’s role and compensation. For example:
An executive director may be a subject matter expert who is impossible to replace.
The executive director may have been invited by the board to leave a better-paying and more secure job in order to lead an organization in transition.
Some executive directors may be affluent and decide to work for lower pay as their form of donation. Other executive directors come out of retirement to lead and don’t need or ask for a high salary. This can affect their salary as well as future leaders’ pay and the organization’s overall salary scales.
Because there are simply too many factors to list, I recommend starting with my Free Executive Director Salary Calculator. This calculator includes actual salary ranges and guidance on how to customize them.
What is the average salary for a nonprofit executive director?
Despite what you may read online, there is no average executive director salary number that you should aim for.
Yes, there are organizations like GuideStar and others that produce salary summaries annually and this data is important. But you shouldn’t be setting a salary based on an average.
You must research relevant comparables yourself and make a values-based decision. Whether you’re hiring an executive director or becoming one, you can use the free salary calculator to get into a comfortable range.
For example, I have a client in Michigan now who founded her organization. She used data from her peers in Metro Detroit to determine if her pay was aligned with the sector and region.
Executive Director Compensation Beyond Salary
Compensation packages frequently include salary, benefits, vacation time, and, if you are lucky, retirement accounts and even life insurance. Some executive directors negotiate having their cell phones covered or even getting tuition reimbursement or guaranteed coaching support.
At a minimum, when accepting a new executive director role, you should at least have the security of an employment contract, which costs the organization zero dollars.
Another thing executive directors can do is help draft their own job descriptions after starting the job. By co-creating how you’ll be measured in your annual review, you set yourself up for success. Ironically, many executive directors don’t get annual evaluations. You should co-create your annual review as well, so you have a say in how you are measured.
To get more ideas of what to ask for in a total compensation package – beyond salary – check out my training on the 25+ ways EDs can make more money and have less stress.
Who Sets the Executive Director’s Compensation?
In nonprofit organizations, the board of directors must approve the decision to hire an executive director and approve the executive director’s salary.
However, this is of course, not a one-sided decision. For most organizations, salary is determined through a negotiation between the organization making the offer (through the board, recruiter, or search firm) and the incoming executive director.
(Note that a smart board will authorize the search firm or hiring team to negotiate salary up to a certain amount without having to come back to the board. This can streamline the hiring process for both sides.)
However, salary is not the only thing that a job candidate can negotiate. I am a huge believer that organizations and executives are well-served to have an employment contract in place.
For example, when someone accepts the role of executive director, the assumption is often that salary will go up with merit and cost of living adjustment (COLA). But if an organization is facing financial strain, it may consider reevaluating salaries, which comes with its own consequences!
|Whereas, with an employment contract, details like annual raises, performance reviews, and even severance are spelled out in advance.
Navigating differing opinions about executive director compensation
In the nonprofit sector, many people may have strong opinions about an executive director’s salary – both before and after hiring!
The board of directors, depending on the experience and values of its members, will have the strongest initial perspective. The board thinks first about what the organization can afford and what percentage of the budget should be spent on the executive.
If there are staff at the nonprofit, they will also have opinions about salary. For example, what is the gap between director/manager pay and the executive director pay? A high salary for an incoming executive director may also raise valid concerns about equity. Investing in creating a compensation policy can be especially helpful in these situations.
Major donors will sometimes have opinions about executive director pay, although I rarely recommend soliciting their opinions. However, some organizations can only afford their first executive director's salary because of seed funding from a donor.
If the organization employs a search professional, they will have an opinion, based on market research on what kind of candidate they can attract given the salary.
It is not uncommon for nonprofit leaders to have a “poverty” mindset, which means they think it is important to make less money than their private sector peers because of a belief that nonprofits must use most revenue for program expenses and that having good pay is antithetical to the sector.
One of my clients in the Midwest consistently puts her organization ahead of her own interests in terms of pay.
Do All Nonprofits Have Paid Executive Directors?
Not every nonprofit organization has an executive director. Smaller organizations may have paid staff without having an executive director. Some nonprofits may only have volunteers, or may only have an administrative assistant or a bookkeeper. Other organizations may have a “coordinator” or even “co-directors.”
To add more complexity, some organizations have executive directors that are unpaid. In these situations, the board has decided they want one executive to carry out the day-to-day work of the organization but don’t have the funds to compensate adequately.
Usually, this is mutually agreed to between the board and the executive director. However, in my experience, the vast majority of unpaid executive directors would prefer some form of compensation but the organization may not have the funds.
In other rare cases, the founder or a major donor steps in to be the executive director without compensation. If a major donor is the executive director, the organization may be at risk of failure if the donor leaves. This is a delicate situation, but thankfully rare.
A Nuanced Conversation: Nonprofit Compensation
Unlike some sectors, the nonprofit sector can feel like the wild, wild west when it comes to compensation, especially for its executives. The board and other stakeholders have a huge say in compensation.
Every organization should use fair, equitable, and consistent standards in creating and maintaining its executive compensation philosophy – but of course, not all do.
When making decisions, beware of blunt instruments like pay averages. You will always be better served to look at multiple factors and customize your executive director compensation amount.
For more on executive director responsibilities, compensation, division of labor, and more enroll in my Nonprofit Fixer Fellowship Group Coaching Program, which includes the Executive Director Boot Camp Premium training with resources and a certificate of completion.
