There are plenty of good reasons to move to a job in nonprofit management, but a fat paycheck may not be one of them.
By Anne Fisher, contributor
FORTUNE — Dear Annie: I’ve been having some conversations lately with a friend who is on the board of a large charity that is currently seeking a new chief of finance, and he is encouraging me to apply for the job. I’ve been in the same role as chief financial officer at a technology company for some time now, and I’d welcome the chance to try something new, especially since I believe strongly in the value of the work this nonprofit is doing.
My only reservation is that I have two kids in college and can’t afford a cut in pay right now. I’ve been looking at nonprofit job boards to get an idea of salary ranges, but the postings usually say something vague like “salary commensurate with experience.” Can you give me an idea of what kind of compensation it would be reasonable to expect? — Testing the Waters
Dear TW: You’ve picked an interesting moment to ask. Demand for management talent at the nation’s 1.7 million nonprofits is expected to accelerate over the next few years. Consider: Thanks largely to attrition brought on by a wave of Baby Boomer retirements, about two-thirds (67%) of nonprofit executives plan to leave their jobs by 2016, according to survey just published in Philanthropy Journal.
Moreover, recession-battered charities need the skills that for-profit managers can bring. “Partly because they’re trying to do more with less, the larger nonprofits are making serious efforts to operate more like businesses,” observes Paul Dorf, managing director at Compensation Resources, a consulting and research firm with both for-profit and nonprofit clients. “So they’re widening their recruiting and going after candidates from for-profit companies.”
That’s good news for folks like you, he adds, since it means “they have to offer more competitive pay than in the past.”
And that’s not all. Karen Beavor, president and CEO of Atlanta-based nonprofit job site Opportunity Knocks, says that moving from corporate management to the nonprofit world often entails a step up in rank, especially for financial managers.
“A chief financial officer at a for-profit company may well be able to step into the CEO or COO role at a nonprofit,” she says. “Nonprofit boards recognize that executives with strong financial skills bring a lot of value.”
Indeed. Dorf says that one client of his, a large foundation in the Northeast, was “limping along with about $1.5 million in annual revenues,” he says. “They brought in a new executive director with for-profit financial expertise, and they had to pay him a $450,000 salary in order to get him.”
The result: In just one year, this executive “boosted the foundation’s revenues to $10 million, so they have no regrets.” Success stories like that get around, Dorf adds, and make other nonprofits more willing to bite the bullet and offer compensation that’s close to what a for-profit company might pay.
Great, but at the same time, it’s crucial to understand that, because they are tax-exempt organizations, nonprofits face serious constraints on what they can pay executives without incurring the wrath of the Internal Revenue Service. Particularly since 2008, when the IRS added new reporting requirements, the penalties for “overpaying” people are severe — up to and including the loss of an organization’s tax-exempt status.
“Even with Sarbanes-Oxley and similar laws in place, boards of directors at for-profit companies have far greater leeway in executive pay decisions than nonprofits do,” says Dorf. “And if the IRS decides nonprofit executives are overpaid, not only the organization but board members personally are liable for penalties.”
So with all that in mind, what can you reasonably expect if and when you sit down to negotiate compensation? Anyone contemplating a move from a corporate job to a nonprofit position might want to take a look at “The 2011/2012 National Nonprofit Wage & Benefits Report,” available through Opportunity Knocks’ web site. Based on a poll of 2,249 nonprofits, the 96-page study gives pay information for 13 separate job categories.
A couple of encouraging findings: 42% of nonprofits plan to raise salaries across the board this year, with pay hikes averaging 4.5% versus 3.3% in 2010. As in the for-profit world, pay freezes are going away: 18% of nonprofits will freeze salaries this year, a big drop from 53% last year.
The study includes an analysis of what chief finance officers at nonprofits make now, broken down by geographical location and size of organization. The bigger the charity, and the more populous its hometown, the more it is likely to pay.
So determining what’s reasonable to shoot for will require you to take into account both the size of the organization and the surrounding community and job market.
For instance, in a city like New York, Los Angeles, or Chicago, where the cost of living is high and competition for management talent is especially fierce, the average nonprofit CFO salary is $113,546, although a large nonprofit with $10 million or more in annual revenues might pay its finance chief as much as $236,000. By contrast, the study says, the CFO role at a $1 million charity in a relatively small city like Indianapolis or Albuquerque pays, on average, about $68,000.
Regardless of salary levels, nonprofits in general offer fewer executive perks than for-profit companies but may compensate you in other ways that are harder to quantify. “Medical benefits at nonprofits overall are good, but you’re unlikely to get extras like bonuses or deferred compensation,” notes Karen Beavor.
“On the other hand, nonprofits are known for great work-life balance perks, like flexible hours,” she adds. “And the work may be more meaningful to you than what you’re doing now. Instead of helping to turn out one more widget, you’d be cleaning up another few miles of river or teaching 10 more kids how to read. Many people find that the satisfaction they get from that makes up for the shortfall in pay.”
Talkback: Would you consider taking a job at a nonprofit? If you work for one now, would you recommend it? Why or why not? Leave a comment below.