Local newspapers are crucial for keeping people in the loop about community affairs. New research from the University at Buffalo School of Management shows that when a local newspaper shuts down, the salaries of nonprofit leaders go up by an average of over $38,000, a jump of almost 32%. This suggests that the fear of negative media attention helps keep nonprofit executive pay in check.
“Donors and volunteers expect their contributions to go to the execution of the nonprofits’ mission, rather than leadership salaries, so unreasonably high compensation represents a serious problem for these organizations,” the researchers explain. “Newspaper closures exacerbate problems within these agencies, particularly when they lack internal governance and auditing.”
Influencing pay
To thoroughly examine the link between the shutdown of local newspapers and the pay of nonprofit leaders, the researchers conducted a series of tests. They analyzed financial data from nonprofits between 2008 and 2017, sourced from the IRS. Additionally, they utilized information on local newspaper closures from earlier studies and the University of North Carolina’s Center for Innovation and Sustainability in Local Media.
Their results indicate that nonprofit executive pay goes up in the year a local newspaper closes, and this trend persists for the next three years. They also noticed a drop in available cash and donations during this period. Importantly, there were no changes in program spending or long-term investments, suggesting that the increased compensation is not tied to improved performance but rather stems from the absence of oversight due to the shuttering of the monitoring newspaper.
“We found declines in both endowments and donor contributions at nonprofits after a local paper closes,” the authors conclude. “This suggests that the executives’ pay increases are funded by spending down endowments, and that donors react to the loss of external monitoring by withholding their donations—which is consistent with the findings of previous studies.”
