Nonprofit Executive Incentive Pay

We utilize information only recently disclosed on Form 990 to examine the use, and consequences of, incentive pay at nonprofit organizations. Bonuses are common in nonprofits, as we observe that approximately 45 percent of the forty-four thousand organization-year observations in our sample reported paying CEO bonuses. We find that the bonuses are positively associated with profitability, competition from other nonprofits, firm size, available cash, and use of compensation consultants and committees; while negatively related to board oversight, donations, and grants. Our results also suggest that donors look unfavorably at the payment of bonuses, i.e., bonuses are associated with lower future donations. Nonetheless, we find evidence consistent with the payment of bonuses incentivizing nonprofit executives as, despite reduced fundraising, future profitability and program services are positively associated with current bonus compensation