San Francisco Considering Cap on Executive Compensation at City Funded Nonprofits

The San Francisco Chronicle (November 13, 2008) reported that Supervisor Jake McGoldrick is seeking to limit salaries and benefits for executives of San Francisco-funded nonprofits to six times the total compensation of their lowest-paid full-time employee. The proposed law would only apply to how the nonprofit uses city dollars.  There are about 300 nonprofits that receive city funding.

According to Monique Zmuda, deputy city controller, "[i]f supervisors impose the 6-to-1 pay ratio, a group that paid the city's minimum wage to a full-time employee could pay its executive director no more than $144,000 in salary, not including benefits."

S.F.-funded nonprofit execs' pay under scrutiny, The San Francisco Chronicle.


My opinion of the proposed law expressed in an interview with The Chronicle of Philanthropy follows …

I believe such proposal, if passed, would have adverse consequences to the local nonprofit community.  The more obvious impact would be on the recruitment and retention of qualified executives.  However, there may also be an impact at the other end of the employment spectrum.  Executives may forgo hiring or maintaining low salaried full-time employees because it would limit their compensation.  Instead, tasks that might be accomplished by such employees might be delegated to higher paid workers, part time employees, or outsourced.

While it may be fair to limit what an executive can make in relation to the lowest paid full-time employee, it would be unfair to impose the same percentage limitation on all executives.  There are too many variables that would be disregarded, including the executive's duties and responsibilities, the complexity of the job, the executive's qualifications, the job market for persons with the necessary qualifications, the executive's support staff, and the pay level of the lowest paid full-time employee (which might be a low-skilled position or a very high-skilled position depending on the organization) .  This type of decision is better left to the board of directors, subject to existing state and federal laws governing compensation by charitable organizations.