The bailout salary cap and social enterprise

moneyPresident Obama's plan to place a $500,000 cap on executive pay for companies receiving bailout founds may sound familiar to people working in the nonprofit world. Proposals to cap the salary of nonprofit CEOs have been floating around for years, including a recommendation to limit executive pay to the amount of the salary of the U.S. president.

That the federal government is poised to impose a salary cap on for-profit companies highlights a key strategic issue for social enterprise: the rhetoric of venture design.

"Doing well by doing good" has long been a popular mantra among social entrepreneurs. It's a clever phrase that sounded great at the height of the economic bubble--who wouldn't want to get rich by helping people? However, now that the financial crisis has left countless people struggling, a focus on personal gain can seem unseemly. If doing well by doing business has become a ripe target for public criticism, there could be serious problems in store for those who make money from the plight of the poor.

Tax-exemption increases the potential for government intervention. The justification for imposing the new $500,000 cap is that the companies in question have received taxpayer support. In the minds of many experts--and laypeople--not being required to pay tax on income is a de facto public subsidy. In other words, by virtue of tax-exemption a charity's assets become taxpayer assets subject to public oversight.

If social ventures want to avoid federal salary caps and other new regulations, they may want consider how their actions might appear to those outside the world of social entrepreneurs. What this means for strategic planning is something that we'll be discussing in detail on this blog.

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