Untangling the Web: How Executive Pay, Performance, and Trust Shape Nonprofit Donations

Executive compensation is a double-edged sword for nonprofit organizations. On one hand, above-market salaries might be required to attract and retain individuals with the talent and skills required to effectively run these complex organizations. On the other hand, higher executive salaries might be at odds with normative notions and expectations that donors and the broader public have regarding the nonprofit sector. Research shows that this incongruence and the presence of higher executive compensation may undermine trust and, critically, donor engagement with the organization. In this study, we use an experimental design to disentangle the impacts of executive compensation on public trust and donations to the organization. Our results indicate that above-market executive compensation reduces trust and actual donations, whereas strong organizational performance increases donations and trust but does not attenuate donors’ aversion to above-market executive pay. Theoretically, trust plays an important role in understanding these relationships.