Understanding the Compensation of Nonprofit Executive Directors: Examining the Influence of Performance and Organizational Characteristics

Grasse, Nathan; Davis, Thomas J.; Ihrke, Douglas M.

doi:10.1002/nml.21099

Cited by 21 publications

(35 citation statements)

References 28 publications

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“…Baber, Daniel, and Roberts () found that changes in executive compensation are positively associated with changes in the program ratio, and infer that the program ratio may be used to monitor managers’ performance, with managers rewarded for taking actions to increase reported program expenses. Grasse, Davis, and Ihrke () found that executive compensation is positively associated with the program ratio, which appears to support Baber et al’s () inference. In Madigan v. Telemarketing Associates, Inc .…”

Section: Incentives For Managing the Program Ratiomentioning

confidence: 68%

Playing the Numbers Game

Garven

Hofmann

McSwain

2016

Nonprofit Mgmnt & Ldrshp

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Nonprofit organizations are often evaluated using the program ratio: the proportion of mission-related program expenses to total expenses. Nonprofit managers have incentives to manipulate the reporting of financial information to enhance the program ratio. This article reviews the scholarly literature on program ratio management in nonprofit organizations. Prior research has identified several motivations for and methods of program ratio management and provided limited evidence that it occurs. Researchers have explored the consequences of program ratio management and provided a list of factors mitigating such behaviors. The emerging consensus is that the program ratio is of limited usefulness in evaluating nonprofit performance. Keywords: program ratio; program ratio management; nonprofit organizations; earnings management; nonprofit performance measures EXTANT LITERATURE PROVIDES CONSIDERABLE EVIDENCE of many publicly traded, profi t-seeking corporations manipulating reported numbers to infl uence the perceptions and decisions of fi nancial statement users (Dechow and Skinner 2000;Graham, Harvey, and Rajgopal 2005;Habib and Hansen 2008;Healy and Wahlen 1999;Schipper 1989). However, for-profi t corporations are not alone in the practice of intervening in the fi nancial reporting process to present more favorable results. Nonprofi t managers also face pressures to manipulate fi nancial results. Although their success is not measured by profi t margins or rates of return, nonprofi t organizations are evaluated using fi nancial reports.Recently, the nonprofi t sector has grown substantially and has begun to attract more attention. Advances in technology, coupled with broader disclosure requirements by regulators, have increased access to nonprofit financial information. Internal Revenue Service (IRS) Form 990 annual reports are now publicly available through various websites. Th is increased access has resulted in heightened scrutiny of how nonprofi ts spend their money, especially in light of several high-profi le scandals in recent decades (Dimsdale 2009;Shepard and Miller 1994;Simross 1992). Th e role of charity "watchdog" agencies has grown, and donors have become more discriminating when disbursing their scarce resources. Competing with thousands of other nonprofi ts for resources and knowing they are commonly judged on their Nonprofi t Management & Leadership DOI: 10.1002/nml 402 GARVEN, HOFMANN, MCSWAINfi nancial results, some nonprofi t managers may resort to playing a numbers game to make the organization look as favorable as possible. Figure 1 describes the elements of this game.Although management of fi nancial results by profi t-seeking corporations tends to focus on net income, management of fi nancial results by nonprofi ts is more likely to focus on the program ratio (Khumawala, Parsons, and Gordon 2005)-the proportion of total expenses dedicated to providing programs that fulfi ll an organization's mission. Th e program ratio is typically computed as program expenses divided by total expenses. An alt...

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Section: Incentives For Managing the Program Ratiomentioning

confidence: 68%

Playing the Numbers Game

Garven

Hofmann

McSwain

2016

Nonprofit Mgmnt & Ldrshp

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“…Previous examinations of the relationship between relative CEO compensation and organizational performance have found mixed results (Frumkin & Keating, 2010;Grasse, Davis, & Ihrke, 2014;Carroll, Hughes, & Luksetich, 2005). We believe this may be because these studies typically use a "market worth" variable comprised of multiple inputs such as 161 organizational performance.…”

Section: Hypothesesmentioning

confidence: 93%

“…Given the varying conclusions about the pay-performance relationship, Grasse et al (2014) inferred that different types of nonprofits may be sensitive to different measures of performance. On the one hand, Baber, Daniel, and Roberts (2002) noted that, despite the fact that performance oftentimes is difficult to quantify, they found a positive correlation between program spending and managers' compensation in a sample of charitable organizations in Maryland, assuming that managers are rewarded for increases in direct program spending.…”

Section: Literature Reviewmentioning

confidence: 99%

Serving Others at the Expense of Self: The Relationship between Nonprofit CEO Compensation and Performance in Trade and Professional Associations

Saitgalina

Bennett

Reina

et al. 2018

J. Public Nonprof Aff.

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This paper investigates the organizational importance of relative CEO compensation in trade associations and professional societies. It is known that there is variation in how much pay is tied to performance in different subcategories of nonprofit organizations. However, instead of looking at how performance affects pay, we investigate how CEO compensation affects organization performance when CEOs are aware of their peer compensation and are able to influence their own. We hypothesized that CEOs who knowingly earn less will be associated with both greater financial and nonfinancial organizational performance. This altruistic perspective draws on theories from leadership and psychology rather than the more typical agency perspective and focuses on the alignment between CEO and stakeholders in a nonprofit setting. We find strong support for the relationship between lower relative CEO compensation and organization performance, while results for the moderating effect of organizational size are mixed.

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“…We estimated Equations (1)-(3) on our pooled time-series data using generalized least squares (GLS) random effects models with robust standard errors, thus mitigating against omitted variables bias, autocorrelation and heteroscedasticity. GLS random effects models have been used to examine CEO compensation in prior studies (Combs et al, 2010;Grasse et al, 2014). Table V presents trends relating to executive compensation in terms of mean, median, maximum and minimum summary statistics of the independent and dependent variables.…”

Section: Description Of Variables and Their Measurementsmentioning

confidence: 99%

Relationship between gray directors and executive compensation in Indian firms

Prasad

Sankaran

Prabhu

2019

EJMBE

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Purpose The purpose of this paper is to examine the empirical relationship between gray directors (non-executive non-independent directors) and executive compensation among companies listed in India’s National Stock Exchange (NSE). The paper also examines the possible interplay of relationships between controlling shareholder duality (controlling shareholder being the CEO), ownership category and executive compensation. Design/methodology/approach A sample of 438 firms listed in the NSE of India was studied using data spanning five financial years, 2012–2013 to 2016–2017. Findings Empirical evidence suggests that there is a positive association between the proportion of gray directors on the board and executive compensation. The sensitivity of executive compensation to gray directors is found to be higher among family controlled firms. This research has also found that CEOs who belong to controlling shareholder groups received higher pay than professional CEOs. The authors conjecture that these results suggest cronyism and may contribute to lower levels of corporate governance practices in the country. Research limitations/implications The hybrid board structure, which India has adopted with the desire to bring the best of Anglo Saxon and Japanese board philosophies, has paradoxically led to self-serving boards. Exploration of alternative thinking to bring about changes in the regulatory framework is, therefore, necessary. Originality/value Serious problems are identified with the philosophy behind board composition mandated by Listing Requirements for Indian firms with empirical evidence showing how the existing rules generate cronyism and unfairness to minority shareholders.

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Understanding the Compensation of Nonprofit Executive Directors: Examining the Influence of Performance and Organizational Characteristics

Cited by 21 publications

References 28 publications

Playing the Numbers Game

Playing the Numbers Game

Serving Others at the Expense of Self: The Relationship between Nonprofit CEO Compensation and Performance in Trade and Professional Associations

Relationship between gray directors and executive compensation in Indian firms

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