The Impact of Employee Compensation and Financial Performance on Nonprofit Organization Donations
This study focuses on the complex interaction between employee compensation and organizational financial performance. In particular, we investigate the impact of higher than median employee compensation on nonprofit donations and whether such impact is conditional on the financial performance of the organization. Using recent panel data from 10,206 nonprofit organizations across multiple tax designations, we test the hypotheses with Tobit maximum likelihood estimation that incorporates measures of employee compensation, financial performance, financial capacity, and controls for state factors and nonprofit type. Findings demonstrate that employee compensation above the median is unfavorable for donations overall; however, the negative effect is mitigated by sound financial performance. This study highlights the collective impact that exists between financial performance and employee compensation on organizational donative resources, directly speaks to an organization's internal capacity to raise private revenue, and adds subtlety to the ongoing discussions of how much is enough compensation for high quality nonprofit leadership.