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Paying Enough but not Paying too Much When There is no Third-Party Endorsement: Executive Compensation and Individual Donations for Nonprofit Organizations

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Abstract

We examine whether third-party endorsement and institutional trust can mitigate the potential negative effects of higher levels of executive compensation on the likelihood of future donations to a nonprofit organization. Using an experimental design, we find support for prior expectations that paying higher executive compensation reduces the likelihood of future individual donations. We also find that this negative effect is only significant in the absence of a third-party endorsement so that individual donations significantly decrease when the nonprofit pay is high relative to moderate executive compensation levels. Finally, the likelihood of future individual donations is higher when institutional trust is high. However, high institutional trust does not validate the payment of higher levels of executive compensation. Our results have theoretical and practical implications by showing that nonprofits are better off paying moderate executive compensation levels but not paying too much if they have not attracted respectable third-party endorsers.

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Notes

  1. We informed the participants that they would receive an endowment of $10 (Brazilian currency) in cash for their participation in the study. Further, we informed them that over the course of the experiment, they could choose one of three alternatives: (1) keep the total amount received, (2) donate the total amount to the nonprofit organization described in the study, or (3) donate a partial amount to the nonprofit organization and keep the difference. The participants decided to donate a total amount of $1,259.90 in Brazilian currency, which we deposited in the nonprofit’s bank account. The participants could have access to the deposit receipt to confirm that the total amount collected during the experimental sessions had been donated to the organization.

  2. We also asked the participants to indicate the percentage of their last-year income donated to nonprofits, according to their tax-return file. We use this information to capture the participants’ prior experience with donations.

  3. Only one participant (0.7%) reported that he/she knew the organization (AFECE). Our main results remained the same after we excluded this participant. We then opted to keep the participant.

  4. A total of 122 (87.1%) participants donated the total amount; six (4.3%) donated half of the amount; 11 (7.9%) participants kept the total amount; and one participant donated $0.1 (in Brazilian currency) of his/her endowment. Given the low level of variation in this variable, we decided not include it in our main analyses and will not refer to this variable again in the sequence of our discussion. We speculate that most of the participants donated the total amount of their endowment following the rule of reciprocity (Alpizar et al. 2005); that is, they reciprocated with the researchers for the endowment they were not actually expecting to receive by donating a high amount to the nonprofit organization.

  5. Three participants indicated that neither did they remember the executive compensation nor did they pay attention to this information. Two participants were in the high level of executive compensation/absence of information about third-party endorsement, while the third one was in the low level of executive compensation/absence of information about third-party endorsement. The results did not substantially differ when we excluded the three participants who failed in the manipulation check of level of compensation. We report all the results, including the totality of our participants.

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Funding

Funding was provided by Coordenação de Aperfeiçoamento de Pessoal de Nível Superior.

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Authors and Affiliations

  1. Federal University of Parana, Av. Lothario Meissner 632, Applied Social Building, Curitiba, PR, 80210170, Brazil

    Sayuri Unoki de Azevedo

  2. University of Sao Paulo, Av. Prof. Luciano Gualberto 908, FEA3 Building, São Paulo, SP, 05508010, Brazil

    Andson Braga de Aguiar

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  1. Sayuri Unoki de Azevedo
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  2. Andson Braga de Aguiar
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Correspondence to Sayuri Unoki de Azevedo.

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de Azevedo, S.U., Braga de Aguiar, A. Paying Enough but not Paying too Much When There is no Third-Party Endorsement: Executive Compensation and Individual Donations for Nonprofit Organizations. Voluntas 32, 477–487 (2021). https://doi.org/10.1007/s11266-020-00225-6

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