I found myself in a difficult situation once. My friend told me it was like boiling a frog. I had never heard this expression, so I asked her to explain. What a great analogy.
Apparently, if you take the average frog and drop him into boiling water, he will jump out immediately to save his life. But, if you take the same frog, put him into a pot of lukewarm water and slowly heat it, the frog will stay until he is boiled alive. For the record, I HAVE NEVER TRIED THIS. (Please don’t send hate mail.) But the story is a wonderful metaphor of how slowly circumstances can sneak up on us just a bit at a time until we find ourselves in an untenable situation. We would have never started something from scratch this way, but now, well, here we are.
I was recently working with a nonprofit whose top executive was making a tremendous amount of money. She had a huge compensation package, more than three times the average amount of comparable EDs at comparable organizations. Technically, on the organization’s 990, the ED was paid about $120K, a little north of average for her peer group. Her total compensation package however, (mostly from the schedule J) was nearly $300,000. When I brought this to the attention of the board, they were confused. First, they didn’t realize she made this much. Secondly, how did this happen?
It seems that every year since the organization hired her, the ED asked for a new piece of compensation: a smallish raise, the purchase of a cell phone and calling plan (for work), a country club membership (to meet donors), subsidized truck payments (to haul nonprofit items), a discretionary spending account (so the ED doesn’t have to bother the finance committee to approve every little thing), life insurance premiums (it’s cheaper than a raise). And, each year, the board would find this compensation piece reasonable enough and would approve it.
Over time, as board members rolled off and new ones came on, the board collectively forgot that the truck payments were supposed to be temporary and that a new phone didn’t happen every year. They grandfathered in old pieces of the package (“after all, we did that last year”) and at some point, quit voting on some of the pieces at all. They just became regular expense items on the revenue statement. And, after ten years of working there, the ED had a compensation package of about 1/3 of the nonprofit’s total budget.
Is this a problem? Well maybe not. If a well-informed board truly intends to compensate the ED because she is such a gift to their nonprofit and so far ahead of others in the industry, then so be it. But, in this case, the compensation package had snuck up on the board. Collectively, they had no idea that so much of the expense structure for their organization was involved in compensating the ED. They had, it seems, boiled that frog.
