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

Marina Saitgalina,Christopher S Reina,Andrew A Bennett,Joseph E Coombs

doi:10.20899/jpna.4.2.156-180

Abstract

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.

Highlights

Citizens and lawmakers are increasingly concerned about the growing pay gap between chief executive officers (CEOs) and employees in developed nations (Hodgson, 2015; Pinsker, 2016)
Does this have an impact on organizational performance? While there is a plethora of factors that predict nonprofit CEO compensation, what has been explored less is the impact that nonprofit CEO compensation has on organizational performance
We suggest that servant leadership theory and social comparison theory can help shed some light on these limitations, and we utilize these two theoretical frameworks to better understand nonprofit CEO compensation and explain why a nonprofit CEO may knowingly work for lower compensation than his/her peers

Summary

Introduction

Citizens and lawmakers are increasingly concerned about the growing pay gap between chief executive officers (CEOs) and employees in developed nations (Hodgson, 2015; Pinsker, 2016). The ongoing conversations about CEO pay and organizational performance in nonprofit organizations are a result of the pressure to become more effective and efficient, where both lower relative pay and higher relative performance foster a reputation of a good steward of public money This strategy can be used intentionally to boost an organization’s public profile, improve internal employee motivation, or as a sign of dedication to the mission and the sector. This paper investigates the impact of CEO compensation on organizational performance in a subsector of mutual benefit/membership nonprofits This type of nonprofit organization consists of trade and business leagues, professional associations, and membership societies that serve the interests of a specific industry or profession and provide benefits to dues-paying members (Reilly, Hull, & Braig Allen, 2003). Some describe this type of nonprofit as bordering nonprofit and for-profit sectors, in which commercial and nonprofit activities are combined to meet client or member demands (Fine, Ropa, & Jay, 2008)

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