Study finds that CEOs who opt for lower pay are more effective, give back more

Sarah Elson, Contributing Writer

Nonprofit CEOs who choose to have lower-paying salaries than their colleagues run organizations that serve community members more positively, according to research conducted by two professors in the VCU School of Business.

The study, co-authored by Christopher Reina and Joseph Coombs, was published in the Journal of Public and Nonprofit Affairs. Titled “Serving Others at the Expense of Self: The Relationship between Nonprofit CEO Compensation and Performance in Trade and Professional Associations,” it was co-conducted by Marina Saitgalina and Andrew Bennett, two assistant professors from Old Dominion University, the latter of whom is a VCU School of Business alumnus.

The sample for the study was taken from the 2010 Association Executive Compensation Benefits survey, conducted by the American Society of Association Executives.

“Because [the study is] observational and because we used data that was already existing, it’s hard to draw definitive conclusions of whether people who make less money actually have firms that perform less, or better,” Reina said. “But, we see a trend in that those firms in which we see a CEO that makes less money than some of their peers are performing better when it comes to the number of individuals served.”

This means a causal relationship was not established by the study, therefore it should not be assumed that all companies with CEOs who are paid less will have an increase in productivity.

Freshman business student Jake Saar said he was not surprised to hear the result.

“I guess that’s normal, [CEOs] get paid relatively the same; some are actually good people and put it back to the community,” Saar said.

Student Aisha Khalifa, also a freshman in the business school, said she had concerns regarding the fairness of lower CEO compensation.

“It’s good that [the CEOs] serve more people in the community when they earn less, but it can be unfair to them because they could be working hard,” Khalifa said. “I think they should be paid according to the amount of time and effort they dedicate to their job.”

During the study, Reina sought to answer the questions of if making information on lower CEO salaries publicly available results in social capital, and if this results in an increased desire for involvement in the organization and improved performance.

Reina said a lower income may not be a significant factor in helping an organization if the CEO truly cares about the organization’s cause more than the compensation.

“If you are knowingly making less and you go into the nonprofit sector,” Reina said, “theoretically it should be less about money and more about making a difference.”

For more information on the study, visit jpna.org.