Something About Non-Profit CEO Compensation

End of 2025 Teaching for Xuelin, No End in Sight for Pay Opacity

Happy Holidays!

AI-generated Song: “Numbers on Paper”

Data: Form 990

Why it matters: Regulators devote enormous attention to executive compensation at publicly traded firms. The Trump-appointed SEC has recently signaled renewed scrutiny of executive pay disclosures, which fail to deliver clear, decision-useful information about how pay relates to performance. If disclosure quality is a concern even in the heavily regulated public-company sector, the problem is an order of magnitude worse in the nonprofit economy, contributing more than 5% of the GDP and employing over one in ten American workers.

Nonprofit executive compensation is governed not by the SEC but by the IRS. Large nonprofits are required to disclose top officers’ compensation in Schedule J of Form 990, and boards must certify that pay is “reasonable” under intermediate-sanctions rules. In theory, this regime is meant to substitute for shareholder oversight. In practice, it produces extensive disclosure without standardization, comparability, or narrative coherence.

My own data work makes this failure concrete. Constructing a panel of nonprofit hospital CEO compensation required more than a month of scraping Form 990 filings, parsing them with large language models, and manually proofreading multiple rounds of outputs. Hospital systems operate through complex organizational hierarchies—parent systems, regional subsidiaries, and affiliated facilities—and report executives inconsistently across levels. CEOs appear under shifting titles (president, administrator, chair, ex officio) and even the same individual’s name is often spelled differently across filings and years. What appears to be transparency on paper quickly collapses into opacity in practice.

These disclosure weaknesses reveals a deeper governance problem. Nonprofits lack residual claimants with enforceable control rights: there are no shareholders to vote out directors, discipline compensation through markets, or litigate over value diversion. As a result, traditional corporate governance mechanisms do not apply. At the same time, the objective function of nonprofit governance is inherently ambiguous. Boards of trustees are charged with balancing financial viability, mission fulfillment, political legitimacy, and stakeholder expectations, yet these goals are rarely quantified or prioritized in a way that can anchor executive incentives.

Data:

How does CEO compensation in the nonprofit hospital sector look? The figure below shows the distribution of CEO compensation in 2013 versus 2022, reported in both nominal and inflation-adjusted terms. In nominal terms (Panel A), the modal CEO in 2013 earned less than $500,000. By 2022, that peak had shifted toward $1 million. The distribution also developed a longer right tail: more CEOs now earn between $2 million and $5 million than a decade ago.

This nominal comparison, however, obscures the role of inflation. When compensation is adjusted to 2017 dollars (Panel B), the pattern becomes more nuanced. Average compensation increased from about $900,000 in 2013 to roughly $1 million in 2022. But the change is not a simple upward shift. Relative to 2013, the 2022 distribution is more dispersed. In fact, the 10th percentile in 2022 is slightly lower than in 2013. Nevertheless, the expansion of the right tail remains striking. At the top of the distribution, the 99th percentile reached approximately $7 million in 2022, compared with about $4.5 million in 2013.

This distributional shift echoes the increasingly “bipolar” structure of the nonprofit healthcare sector, discussed earlier here. On one end, financially distressed hospitals, often safety-net providers serving high-need communities, face tightening operating margins and limited access to capital, which together constrain their ability to raise executive compensation. On the other end, large, profitable systems benefit from scale economies, market power, and favorable payer mixes, allowing them to accumulate cash reserves and justify higher CEO pay through financial performance benchmarks and peer comparisons.

Another noticeable pattern is the persistent use of bonus compensation in the next figure. Panel A tracks the real (inflation-adjusted) level of bonus pay. The median bonus fluctuated between roughly $50,000 and $100,000 across most years, with substantial dispersion reflected in the interquartile range. Notably, the upper quartile frequently exceeded $200,000 and reached nearly $300,000 by 2022.

Panel B presents a more revealing metric: the share of bonuses in total compensation. Over the past decade, bonuses have consistently accounted for approximately 10–20 percent of total pay for the median CEO. The persistence and gradual increase of this share is itself noteworthy. Performance-based pay remains a meaningful component of compensation, suggesting that hospital boards continue to rely on incentive structures tied to measurable outcomes, even as the sector becomes more financially polarized.

In a traditional multitasking principal–agent framework, explicit incentives tied to imperfectly measured outcomes can backfire. When some dimensions of performance, such as patient care quality, access, or community benefit, are difficult to observe or verify, while others, such as margins, volumes, or cost reductions, are more readily measured, incentive pay naturally loads on the latter. As Holmström and Milgrom (1991) emphasize, high-powered incentives on measurable tasks can distort effort away from harder-to-measure objectives, even when those objectives are central to the organization’s mission. Against this backdrop, the persistence of performance-based bonuses in nonprofit hospital CEO compensation raises a fundamental question: which outcomes are actually being rewarded? Are bonuses tied to patient outcomes and service quality, or do they primarily reflect financial performance and operational scale?

Media coverage often attributes rising CEO compensation in healthcare to industry consolidation. This narrative is both right and incomplete. The last figure below connects executive compensation to market structure through two distinct lenses: facility concentration and organizational scale.

Panel A presents a facility-based Herfindahl–Hirschman Index (HHI) calculated annually, where each hospital system’s share of total facilities forms the basis of the concentration measure. The HHI increased steadily from roughly 0.0025 in 2013 to just over 0.003 by 2022, representing a 20 percent increase in relative terms. Although these absolute values appear small, they reflect a national market. Healthcare competition is fundamentally local, so facility-based concentration at the national level likely understates the market power that hospital systems exercise in specific metropolitan areas. Nevertheless, the upward trend is unambiguous: hospital systems have consolidated, and the largest organizations now control a growing share of healthcare infrastructure.

Panel B examines CEO pay intensity, defined as total compensation divided by net assets, across organizational size. Smaller systems, with one to four facilities, exhibit substantially higher pay intensity, exceeding 2.5% in some cases. As systems expand beyond six or seven facilities, pay intensity declines sharply and converges toward approximately 0.25%.

This inverse relationship between size and pay intensity may appear counterintuitive. Larger systems do pay CEOs more in absolute terms. However, they also command vastly larger asset bases. A CEO earning $2 million while managing $2 billion in net assets has lower pay intensity than a CEO earning $1 million overseeing $150 million. The pattern is consistent with economies of scale in executive compensation or greater operational leverage in large systems. Alternatively, smaller systems may face tighter labor markets for executive talent, bidding up relative pay to attract and retain experienced leadership.