Changing Charity: The Great CEO Compensation Debate

By Myles Dannhausen

Last year, when Roxanne Spillett came under fire for receiving $988,591 in total compensation as the CEO of the Boys & Girls Club of America in 2008, Dan Pallotta decided enough was enough. The Boys & Girls Club, which receives millions in federal funds, was attacked first by the media, then by Congress when Senator Chuck Grassley launched an investigation into the organization’s compensation practices.

Pallotta was incensed by the controversy. The firestorm focused solely on Spillett’s compensation with nary a discussion of whether or not Spillett was actually worth it.

Most reports neglected to mention that the Boys & Girls Clubs brought in $107 million in 2008. During Spillet’s 16-year tenure, the organization grew from 800 clubs to 4,000, and the combined revenue of the national office and local clubs grew from $438 million to $1.4 billion, according to a New York Times report.

Such compensation at a for-profit entity of the same size as the Boys and Girls Club would never be questioned, Pallotta argued. He cited Lockheed Martin, the defense contractor that receives nearly all of its revenues from federal contracts and compensated its CEO to the tune of $30 million in 2010.

Spillett was forced to resign even though the Boys & Girls Clubs were ranked among the nation’s best and most efficient charities for years.

In 2010 Pallotta ignited a firestorm in the nonprofit world with his book, Uncharitable, in which he scolded the sector and its critics for spending too much time begging, putting too much focus on administrative costs, and for not thinking big enough.

“We preach the power of capitalism” Pallotta says, “but we refuse to let the tools of capitalism rectify the inequities of society.”

This argument have been scrutinized by the nonprofit community, particularly by charity watchdog groups like Charity Navigator. Its president, Ken Berger, argues that nonprofits simply shouldn’t operate like for-profit entities.

“To assume that you’re going to become a millionaire or a multimillionaire, running a public charity that’s supposed to provide a public benefit, is just absurd as far as we’re concerned,” Berger told Bloomberg Businessweek in September.

Pallotta is unbowed by such arguments. He released another controversial book, Charity Case, this year, and has now formed the Charity Defense Council, an organization aiming to “change the way people think about changing the world.”

How do you do that? At his first Change Course conference held in Boston in October, Pallotta outlined the five pillars of the council:

  1. Form a Charity Anti-Defamation League:  To respond and correct inaccurate reporting on the sector and individual charities
  2. Launch a daring ad campaign:  To change the way the public thinks about charity
  3. Create a Legal Defense Fund:  To challenge counterproductive regulations and laws that constrain the ability of charities to make an impact
  4. National Civil Rights Act for Charity and Social Enterprise:  To create a thoughtful statutory code designed to help charities change the world
  5. Organize the sector:  to do grassroots organizing to bring the nonprofit sector together as one powerful voice

Pallotta argues that these steps are necessary to change the conversation about charity from one focused on overhead percentages and an ethic of martyrdom to one that talks of impact and moon-shot goals, like curing breast cancer by 2020.

Pallotta, who is much more measured in person than his impassioned, often angry writing would suggest, believes that a massive educational effort can change our idea of charity the way ad campaigns changed the impression of pork, eggs, and milk.

“These are not bad people,” he says of those who argue against the idea of competitive compensation in the nonprofit sector. “They just don’t know.”

What do you think can be done to help change mindset around charity for the better?

Myles Dannhausen is a freelance writer and digital content strategist who has served on the boards of several non-profit organizations and municipal committees. He lives in Chicago’s Lincoln Square neighborhood, where he writes frequently about the nonprofit sector.

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