CEO Compensation at Big Diabetes Nonprofits. Do We Get What We Pay For?

October 22, 2024

This is the 13th annual review of executive compensation at two of the largest diabetes nonprofits: Breakthrough T1D (formerly JDRF) and the American Diabetes Association (ADA). Information regarding these two organizations is compiled from up-to-date, publicly available IRS Form 990s and nonprofit Audited Financials.

Chief executive officers at diabetes charities are among the highest-paid in the nonprofit arena. In a comprehensive list of seventy-five US nonprofits addressing chronic disease, the Breakthrough T1D CEO, Aaron Kowalski, is the 11th highest paid. ADA’s CEO, Charles Henderson, is the 6th highest, taking home over $1 million per year.

In general, competitive and generous executive compensation is appropriate to attract and retain exceptional leaders. CEOs influence an organization’s strategic direction, priorities, and culture more than any other position, with the ability to push forward the nonprofit’s mission to new heights or set it back a decade. High compensation for leading the organization to deliver material progress is a good thing. Paying a CEO high compensation for weak or mediocre performance is destructive.

JDCA supports competitive pay, but we believe sizable paychecks should be directly tied to exemplary performance. In the case of diabetes nonprofits, the main component of performance should be measurable progress toward a T1D cure, the number one priority of donors.

Donors, the biggest drivers of revenue for these nonprofits, do not have any input on executive compensation. This is a stark contrast to many for-profit companies who have implemented ‘Say on Pay’ measures, giving company shareholders the right to vote on how much top executives and directors are paid based on performance. Instead, Breakthrough T1D and ADA's CEO pay is decided by a small group of directors behind closed doors. We believe this should change. 
 

T1D Nonprofit Executive Compensation

Breakthrough T1D 
The top five executives collectively earned $3.3 million in FY23, about 1.5% of the organization’s total annual revenue (see Appendix A). The majority of this compensation—65%—is fixed base pay, given independently of performance. 27% of total compensation for the top five was based on performance, mostly due to T1D Fund-related bonuses.

The top positions are similar to prior years. The highest-paid executive was CEO Aaron Kowalski, who earned $880,000 in FY23, making him the 11th highest-paid leader of a chronic disease nonprofit (see Appendix B). Stephen St. Peter, a T1D fund managing director, was the second highest paid. Peter earned $743,000, 41% from a performance bonus.

The most noteworthy shift in executive compensation at Breakthrough T1D is a greater reliance on performance compensation, a good thing that can and should be utilized further. A decade ago, it was unusual to see performance-based compensation in double digits. Over the past several years, this has become the norm. Moving forward, there is an opportunity to push this further by linking a greater percentage of pay to measurable performance, particularly toward achieving Practical Cure milestones.

 
American Diabetes Association 
The top story when looking at ADA’s executive compensation is the pay package of CEO Charles Henderson, who took home more than $1 million in FY23, an increase of $200,000 compared to FY22. He earned more than CEOs of much larger nonprofits, including the American Cancer Society, whose annual revenue is $866 million, six times larger than the ADA’s $136 million.

The top five executives of the ADA collectively earned $3 million in FY23, about 2.2% of the organization’s annual revenue—Henderson alone earned 0.8%. The majority of total compensation (70%) was fixed, base pay given out whether or not the ADA performed well. Only 5% of the top five leaders’ compensation was performance based (Henderson is highest at 13%).

Over the past 12 years we have tracked the ADA, CEO pay has steadily risen as revenue declined. The high CEO pay is only justified if the ADA can recover lost revenue, grow its value with all diabetes communities, improve patient outcomes measurably, and drive cures. On the other hand, if the ADA does not increase its influence, is this comparatively massive CEO pay package sustainable? 
 

Why We Need Paradigm Change in Executive Compensation

Two fundamental changes are needed to link CEO compensation to real performance and the priorities of the donor community. The first change is to reverse the long-held belief that nonprofit executives receiving a large portion of their compensation based on performance is morally wrong. The second change is to give donors—the people who give hard-earned money to these organizations—a direct way to influence executive pay. Both changes follow tried and true practices established in for-profit businesses.
 

Lean into Performance Pay 
Many for-profit CEOs receive most of their compensation from performance-based pay. Often called ‘incentive pay,’ the purpose is to do exactly that: To provide material, personal ‘incentive’ to executives to deliver real performance. This compensation strategy has been proven to help align and hold leaders accountable for their business performance. The best incentives are based on achieving a set of thoughtful and measurable goals. The leaders of some of our most revered and continuously high-performing corporations are compensated in this manner.

Nonprofits, on the other hand, formed a point of view that performance pay is inappropriate. There is a long-held belief that nonprofit executives should do their work out of altruism and passion for the cause rather than personal gain. We believe this is a false binary. It is not one or the other, compensation or passion, it is both. Talented nonprofit executives do this work because they are passionate about the cause and earn enough to provide for their families.

If T1D nonprofits adopted this shift in pay, to fully utilize the incentive benefit of performance pay, we would see greater alignment and, we believe, sharper performance from their organizations.
 

Give Donors ‘Say on Pay’ 
Over the past few decades, many commercial entities have successfully adopted a ‘Say on Pay’ measure, giving shareholders and other constituents the right to vote on executive compensation. The big benefit of this policy is that executives know their compensation is, in part, tied to fulfilling the priorities and objectives of the stockholders who have the power to demand pay be correlated directly to performance. This gives shareholders a voice and aligns them with management.

By comparison, most nonprofits actively resist adopting a ‘Say on Pay’ approach. As a result, the Voice of the Donor carries much less weight than the voice of the shareholder. Yet, donors are the lifeblood of nonprofits, contributing millions of dollars of fundraising revenue each year to diabetes nonprofits, providing a generous portion of the organizations’ revenue.

Adopting a ‘Say on Pay’ measure would strengthen the relationship between donors and their diabetes nonprofit of choice, creating a solid structure where fulfilled donor interests are reflected in executive compensation. We believe this structure would motivate and incentivize CEOs to align their strategies with what donors want most: More for a T1D Cure.

Appendix A: Compensation of the Top Five ADA and Breakthrough T1D Executives

Appendix B: 75 Chronic Disease Nonprofit CEOs Ranked by Total Compensation