CAMDEN — Nonprofit organizations with highly paid executives are losing charitable contributions from donors, according to new research by a Rutgers–Camden professor.
Erica Harris, an assistant professor of accounting at the Rutgers School of Business–Camden, is examining the link between donations and executive compensation.
“Across the board, we’ve found that donations go down when CEOs are paid more,” says Harris, who is performing the research with Steven Balsam, an accounting professor at Temple University.
Nonprofit executive pay is public information, but Harris’s research indicates that donations decline when executive salaries are published in media reports.
This summer, Harris viewed more than 900 articles on nonprofit organizations with the help of five Rutgers–Camden business students. This aspect of the research was funded by a Rutgers–Camden Summer Faculty Research Grant.
Out of those published reports, more than 400 organizations had at least one article written about its executive compensation.
“We found that when executives are paid in the top 10 percent of our sample of nonprofit organizations, donations fall off drastically,” Harris says.
Subsequent donations to those organizations declined 15 percent, she says.
“In the for-profit sector, we can easily observe stockholder reaction to a particular event,” Harris says. “When information about a CEO’s compensation comes out, we can look at stock prices for the next few days to see how stockholders reacted.”
But in the nonprofit sector, there are no stock prices, so it’s harder to gauge donor reaction.
“Instead, we look at news articles in one year and then observe donations in the following year,” she explains.
Some of the highest paid nonprofit executives are the leaders of large organizations like hospitals and universities, Harris says.
“The number one variable that determines the amount of executive compensation is the size of the organization,” she notes. “In big, complex universities or hospitals, the CEOs are getting paid more.”
However, Harris continues, “When donors catch wind of high executive compensation, regardless of size and industry, they withhold their donations or perhaps they donate to a different organization in the same industry.”
A Haddonfield resident, Harris teaches Auditing, Cost Accounting, Managerial Accounting, and Performance Management and Competitive Strategy at the Rutgers School of Business–Camden.
Harris is an expert in nonprofit accounting who has performed extensive research on how Tax Form 990 could impact a person’s decision to donate to nonprofit organizations.
She is also researching topics such as auditor reputation and its impact on nonprofit donors, transparency and nonprofit contributions, as well as the impact of celebrity endorsements on public contributions.
Harris received her bachelor’s degree from the University of Florida, her MBA from the University of Miami, and her PhD from Temple University.
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Media Contact: Ed Moorhouse