This article develops an executive compensation model focusing on board governance structure in nonprofit organizations. Drawn from a panel of nonprofits in three Upstate New York cities from 1998 to 2014, the analysis shows that chief executive officers (CEOs) compensation is positively associated with interlocking directorships of CEOs and boards of directors. The results reveal that the executives enjoy more compensation when they serve on the boards of other nonprofit organizations, hold more power in a leadership position with CEO duality and longer tenure, and when the organizations are led by busy boards where a majority of members in the boardroom sit on the boards of multiple other nonprofits. The analysis further shows that financial rewards offered to the executives are contingent upon women’s representation in the boardroom. These findings suggest board governance composition plays a critical role in executive compensation. Implications for practice and future research are discussed.
AbzugR.DiMaggioP.GrayB. H.UseemM.KangC. H. (1993). Variations in trusteeship: Cases from Boston and Cleveland, 1925–1985. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 4(3), 271–300.
2.
AbzugR.SimonoffJ. S. (2004). Nonprofit trusteeship in different contexts. Ashgate.
3.
AdamsR. B.FerreiraD. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), 291–309.
4.
AkingbolaK.Van den BergH. A. (2019). Antecedents, consequences, and context of employee engagement in nonprofit organizations. Review of Public Personnel Administration, 39(1), 46–74.
BallouJ. P.WeisbrodB. A. (2003). Managerial rewards and the behavior of for-profit, governmental, and nonprofit organizations: Evidence from the hospital industry. Journal of Public Economics, 87(9–10), 1895–1920.
9.
BalsamS.HarrisE. E. (2018). Nonprofit executive incentive pay. Review of Accounting Studies, 23(4), 1665–1714.
10.
BeislandL. A.Pascal NdakiD.MerslandR. (2019). Influence of ownership type and CEO power on residual loss: Evidence from the global microfinance industry. Nonprofit and Voluntary Sector Quarterly, 48(5), 998–1022.
11.
BenkraiemR.HamrouniA.LakhalF.ToumiN. (2017). Board independence, gender diversity and CEO compensation. Corporate Governance: The International Journal of Business in Society, 17(5), 845–860.
12.
BittschiB.PennerstorferA.SchneiderU. (2019). The effect of volunteers on paid workers’ excess turnover in nonprofit and public organizations. Review of Public Personnel Administration, 39(2), 256–275.
13.
BlochR. I.HarrisE. E.PetersonA. N. (2020). Interlocking boards in nonprofit organizations. Accounting Horizons, 34(2), 1–17.
14.
BoardSource. (2021). Leading with intent: BoardSource index of nonprofit board practices. Retrieved January 30, 2023, from https://leadingwithintent.org/
15.
BowenW. G. (1994). When a business leader joins a nonprofit board. Harvard Business Review, 72(5), 38.
16.
BoydB. K. (1994). Board control and CEO compensation. Strategic Management Journal, 15(5), 335–344.
17.
BradshawP. (2009). A contingency approach to nonprofit governance. Nonprofit Management and Leadership, 20(1), 61–81.
18.
BradshawP.MurrayV.WolpinJ. (1996). Women on boards of nonprofits: What difference do they make?Nonprofit Management and Leadership, 6(3), 241–254.
19.
BrickI. E.PalmonO.WaldJ. K. (2006). CEO compensation, director compensation, and firm performance: Evidence of cronyism?Journal of Corporate Finance, 12(3), 403–423.
20.
BrickleyJ. A.Van HornR. L.WedigG. J. (2010). Board composition and nonprofit conduct: Evidence from hospitals. Journal of Economic Behavior & Organization, 76(2), 196–208.
21.
BrownW. A.HillmanA. J.OkunM. A. (2012). Factors that influence monitoring and resource provision among nonprofit board members. Nonprofit and Voluntary Sector Quarterly, 41(1), 145–156.
22.
BuseK.BernsteinR. S.BilimoriaD. (2016). The influence of board diversity, board diversity policies and practices, and board inclusion behaviors on nonprofit governance practices. Journal of Business Ethics, 133(1), 179–191.
23.
CarrollT.HughesP.LuksetichW. (2005). Managers of nonprofit organizations are rewarded for performance. Nonprofit Management and Leadership, 16(1), 19–41.
24.
ChangC. F.TuckmanH. P. (1994). Revenue diversification among non-profits. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 5(3), 273–290.
25.
ChatterjeeS.HadiA. S. (2006). Regression analysis by example. John Wiley & Sons.
26.
CombsJ. G.KetchenD. J.Jr.PerrymanA. A.DonahueM. S. (2007). The moderating effect of CEO power on the board composition–firm performance relationship. Journal of Management Studies, 44(8), 1299–1323.
27.
CombsJ. G.SkillM. S. (2003). Managerialist and human capital explanations for key executive pay premiums: A contingency perspective. Academy of Management Journal, 46(1), 63–73.
28.
ConyonM. J.PeckS. I. (1998). Board control, remuneration committees, and top management compensation. Academy of Management Journal, 41(2), 146–157.
29.
CoreJ. E.HolthausenR. W.LarckerD. F. (1999). Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics, 51(3), 371–406.
30.
CornforthC.SimpsonC. (2003). The changing face of charity governance: The impact of organizational size. In Chris Cornforth The governance of public and non-profit organizations (pp. 199–218). Routledge.
31.
CyertR. M.MarchJ. G. (1963). A behavioral theory of the firm. Prentice Hall/Pearson Education.
32.
DailyC. M.DaltonD. R. (2003). Women in the boardroom: A business imperative. Journal of Business Strategy, 24(5), 8–9.
33.
DailyC. M.JohnsonJ. L. (1997). Sources of CEO power and firm financial performance: A longitudinal assessment. Journal of Management, 23(2), 97–117.
34.
DaltonD. R.HittM. A.CertoS. T.DaltonC. M. (2007). The fundamental agency problem and its mitigation: Independence, equity, and the market for corporate control. Academy of Management Annals, 1(1), 1–64.
35.
DulaL.Nicholson-CrottyJ.GazleyB. (2020). Female leaders and board performance in member-serving nonprofit organizations. Nonprofit Management and Leadership, 30(4), 655–676.
36.
EisenhardtK. M. (1989). Agency theory: An assessment and review. Academy of Management Review, 14(1), 57–74.
37.
FamaE. F.JensenM. C. (1983). Separation of ownership and control. The Journal of Law and Economics, 26(2), 301–325.
38.
FaulkL.EdwardsL. H.LewisG. B.McGinnisJ. (2013). An analysis of gender pay disparity in the nonprofit sector: An outcome of labor motivation or gendered jobs?Nonprofit and Voluntary Sector Quarterly, 42(6), 1268–1287.
39.
FaulkL.McGinnis JohnsonJ.LecyJ. D. (2017). Competitive advantage in nonprofit grant markets: Implications of network embeddedness and status. International Public Management Journal, 20(2), 261–293.
40.
FaulkL.WillemsJ.McGinnis JohnsonJ.StewartA. J. (2016). Network connections and competitively awarded funding: The impacts of board network structures and status interlocks on nonprofit organizations’ foundation grant acquisition. Public Management Review, 18(10), 1425–1455.
41.
FinkelsteinS.D’aveniR. A. (1994). CEO duality as a double-edged sword: How boards of directors balance entrenchment avoidance and unity of command. Academy of Management Journal, 37(5), 1079–1108.
42.
FinkelsteinS.HambrickD. C.CannellaA. A. (2009). Strategic leadership: Theory and research on executives, top management teams, and boards. Oxford University Press.
43.
FredetteC.BradshawP. (2012). Social capital and nonprofit governance effectiveness. Nonprofit Management and Leadership, 22(4), 391–409.
44.
FrumkinP.KeatingE. K. (2010). The price of doing good: Executive compensation in nonprofit organizations. Policy and Society, 29(3), 269–282.
45.
Garcia-RodriguezI.Romero-MerinoM. E.Santamaria-MariscalM. (2021). The role of boards in the financial vulnerability of nonprofit organizations. Financial Accountability & Management, 37(3), 237–261.
46.
GarnerJ. L.HarrisonT. D. (2013). Boards, executive excess compensation, and shared power: Evidence from nonprofit firms. Financial Review, 48(4), 617–643.
47.
GeletkanyczM. A.BoydB. K.FinkelsteinS. (2001). The strategic value of CEO external directorate networks: Implications for CEO compensation. Strategic Management Journal, 22(9), 889–898.
48.
GordonR. A. (2015). Regression analysis for the social sciences. Routledge.
49.
GuoC.BrownW. A.AshcraftR. F.YoshiokaC. F.DongH.-K. D. (2011). Strategic human resources management in nonprofit organizations. Review of Public Personnel Administration, 31(3), 248–269.
50.
HaiderA.SchneiderU. (2010). The influence of volunteers, donations and public subsidies on the wage level of nonprofit workers: Evidence from Austrian matched data. Annals of Public and Cooperative Economics, 81(1), 1–20
51.
HallockK. F. (2002). Managerial pay and governance in American nonprofits. Industrial Relations: A Journal of Economy and Society, 41(3), 377–406.
52.
HandschumacherF.BehrmannM.CeschinskiW.SassenR. (2019). Do board interlocks support monitoring effectiveness?Management Research Review, 42(11), 1278–1296.
53.
HandyF.KatzE. (1998). The wage differential between nonprofit institutions and corporations: Getting more by paying less?Journal of Comparative Economics, 26(2), 246–261.
54.
HarrisD.HelfatC. (1997). Specificity of CEO human capital and compensation. Strategic Management Journal, 18(11), 895–920.
55.
HarrisE. E. (2014). The impact of board diversity and expertise on nonprofit performance. Nonprofit Management and Leadership, 25(2), 113–130.
56.
HaynesK. T.HillmanA. (2010). The effect of board capital and CEO power on strategic change. Strategic Management Journal, 31(11), 1145–1163.
57.
HillC. W.PhanP. (1991). CEO tenure as a determinant of CEO pay. Academy of Management journal, 34(3), 707–717.
58.
HillmanA. J.CannellaA. A.Jr.HarrisI. C. (2002). Women and racial minorities in the boardroom: How do directors differ?Journal of Management, 28(6), 747–763.
59.
HortonJ.MilloY.SerafeimG. (2012). Resources or power? Implications of social networks on compensation and firm performance. Journal of Business Finance & Accounting, 39(3–4), 399–426.
60.
HoskissonR. E.CastletonM. W.WithersM. C. (2009). Complementarity in monitoring and bonding: More intense monitoring leads to higher executive compensation. Academy of Management Perspectives, 23(2), 57–74.
61.
IhmJ.ShumateM. (2019). How does a board of directors influence within-and cross-sector nonprofit collaboration?Nonprofit Management and Leadership, 29(4), 473–490.
62.
Internal Revenue Service. (2022). Instructions for Form 990 return of organization exempt from income tax. Retrieved January 30, 2023, from at https://www.irs.gov/pub/irs-pdf/i990.pdf
63.
JegersM. (2019). The economics of nonprofit organisations’ governance. Managerial and Decision Economics, 40(7), 862–868.
64.
KimS. E.LeeJ. W. (2007). Is mission attachment an effective management tool for employee retention? An empirical analysis of a nonprofit human services agency. Review of Public Personnel Administration, 27(3), 227–248.
65.
KonoC.PalmerD.FriedlandR.ZafonteM. (1998). Lost in space: The geography of corporate interlocking directorates. American Journal of Sociology, 103(4), 863–911.
66.
KonradA. M.KramerV.ErkutS. (2008). The impact of three or more women on corporate boards. Organizational Dynamics, 37(2), 145–164.
67.
KramerV. W.KonradA. M.ErkutS.HooperM. J. (2006). Critical mass on corporate boards: Why three or more women enhance governance (pp. 2–4). Wellesley Centers for Women.
68.
KrauseR.SemadeniM.CannellaA. A.Jr. (2014). CEO duality: A review and research agenda. Journal of Management, 40(1), 256–286.
69.
KrauseR.WuZ.BrutonG. D.CarterS. M. (2019). The coercive isomorphism ripple effect: An investigation of nonprofit interlocks on corporate boards. Academy of Management Journal, 62(1), 283–308.
70.
LeeY. J. (2019). Scarce as hen’s teeth: Women CEOs in large nonprofit organizations. Nonprofit Management and Leadership, 29(4), 601–610.
71.
LeeY. J.LeeC. K. (2021). The roots of the gender pay gap for nonprofit CEOs. Nonprofit Management and Leadership, 32(1), 155–167.
72.
LeeY.SuhJ. (2018). Managerial development programs for executive directors and accountability practices in nonprofit organizations. Review of Public Personnel Administration, 38(4), 431–450.
73.
LincolnJ. R.GerlachM. L.TakahashiP. (1992). Keiretsu networks in the Japanese economy: A dyad analysis of intercorporate ties. American Sociological Review, 57(5), 561–585.
74.
LorschJ.YoungJ. (1990). Pawns or potentates: The reality of America's corporate boards. Academy of Management Perspectives, 4(4), 85–87.
75.
Lucas-PérezM. E.Mínguez-VeraA.Baixauli-SolerJ. S.Martín-UgedoJ. F.Sánchez-MarínG. (2015). Women on the board and managers’ pay: Evidence from Spain. Journal of Business Ethics, 129, 265–280.
76.
MaceM. L. (1971). Directors: Myth and reality. Harvard Business School Press.
MizruchiM. S. (1996). What do interlocks do? An analysis, critique, and assessment of research on interlocking directorates. Annual Review of Sociology, 22(1), 271–298.
79.
NeelyD. G. (2011). The impact of regulation on the US nonprofit sector: Initial evidence from the nonprofit integrity act of 2004. Accounting Horizons, 25(1), 107–125.
80.
NikolovaM. (2014). Principals and agents: An investigation of executive compensation in human service nonprofits. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 25(3), 679–706.
81.
OsterS. M. (1998). Executive compensation in the nonprofit sector. Nonprofit Management and Leadership, 8(3), 207–221.
82.
OstrowerF.StoneM. M. (2010). Moving governance research forward: A contingency-based framework and data application. Nonprofit and Voluntary Sector Quarterly, 39(5), 901–924.
83.
PaarlbergL. E.HannibalB.McGinnis JohnsonJ. (2020). Examining the mediating influence of interlocking board networks on grant making in public foundations. Nonprofit and Voluntary Sector Quarterly, 49(4), 734–756.
84.
PengM. W.SunS. L.MarkóczyL. (2015). Human capital and CEO compensation during institutional transitions. Journal of Management Studies, 52(1), 117–147.
85.
PerrymanA. A.FernandoG. D.TripathyA. (2016). Do gender differences persist? An examination of gender diversity on firm performance, risk, and executive compensation. Journal of Business Research, 69(2), 579–586.
86.
PfefferJ.SalancikG. R. (1978). The external control of organizations: A resource dependence perspective. Harper & Row.
87.
RenneboogL.ZhaoY. (2011). Us knows us in the UK: On director networks and CEO compensation. Journal of Corporate Finance, 17(4), 1132–1157.
88.
RenzD. O.AnderssonF. O. (2013). Nonprofit governance. In CornforthC.BrownW. A. (Eds.), Nonprofit governance: Innovative perspectives and approaches (pp. 17–47). Routledge.
89.
RoomkinM. J.WeisbrodB. A. (1999). Managerial compensation and incentives in for-profit and nonprofit hospitals. Journal of Law, Economics, and Organization, 15(3), 750–781.
SandersW. G.CarpenterM. A. (1998). Internationalization and firm governance: The roles of CEO compensation, top team composition, and board structure. Academy of Management Journal, 41(2), 158–178.
92.
SeldenS. C. (2017). Compensation practices in nonprofit organizations: Examining practices adopted by high performing nonprofits. In Jessica Word and Jessica Sowa The nonprofit human resource management handbook: From theory to practice (pp. 142–165). Routledge.
93.
SimonH. (1990). Reason in human affairs. Stanford University Press.
94.
SimonoffJ. S.AbzugR. (2023). Using conditional inference trees to (re) explore nonprofit board composition. Nonprofit and Voluntary Sector Quarterly, 52(2), 529–543.
TosiH. L.Gomez-MejiaL. R. (1989). The decoupling of CEO pay and performance: An agency theory perspective. Administrative Science Quarterly, 34(2), 169–189.
97.
Van EesH.GabrielssonJ.HuseM. (2009). Toward a behavioral theory of boards and corporate governance. Corporate governance: An International Review, 17(3), 307–319.
98.
VidovichL.CurrieJ. (2012). Governance networks: Interlocking directorships of corporate and nonprofit boards. Nonprofit Management and Leadership, 22(4), 507—523.
99.
WaisK. (2016). Gender prediction methods based on first names with genderizeR. The R Journal, 8(1), 17–37.
100.
WalkM.ScottC.LittlepageL. (2022). It’s not all the same: Implemented and perceived HR practices in the volunteer context. Review of Public Personnel Administration, 42(3), 492–513.
101.
WeiQ. (2021). CEO power and nonprofit financial performance: Evidence from Chinese philanthropic foundations. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 32(2), 460–476.
102.
WrightB. E.MillesenJ. L. (2008). Nonprofit board role ambiguity: Investigating its prevalence, antecedents, and consequences. The American Review of Public Administration, 38(3), 322–338.
103.
YoonN. (2022). Nonprofit board governance policy adoption: Toward an integrated board interlock network and institutional perspectives. Nonprofit and Voluntary Sector Quarterly, 51(5), 1074–1094.
104.
YoonN. (2023). The antecedents of nonprofit board interlock: A longitudinal examination on network structure, homophily, and organizational attributes. Nonprofit and Voluntary Sector Quarterly, 52(1), 196–221.
105.
ZajacE. J.WestphalJ. D. (1995). Accounting for the explanations of CEO compensation: Substance and symbolism. Administrative Science Quarterly, 40(2), 283–308.
