Executive compensation in nonprofit organizations: evaluating Texas independent school districts using structural equation modellng

The purpose of this paper is to model the determinants of executive compensation of school district superintendents using structural equation models (SEM). These chief executives have unique characteristics and function in a complex environment, due in part to the political nature of the position. SEM has not been used widely to test archival data using economic theory. The complex environment of superintendent salaries is a test case for the viability of the SEM approach. The success of SEM depends on the development of a strong theoretical base. The theory developed assumes that compensation should be based, in part, on fiscal and academic performance, indicating that accounting-related information including performance measures should be important in this context. In this case, a complex theoretical structure was reduced to a relatively simple model: superintendent salary can be best explained with three direct effects (enrollment, teacher salary, and the local tax percentage) plus indirect effects by including two additional factors (white percentage and percent economically disadvantaged). Performance did not influence salary, suggesting that future superintendent compensation contracts should consider financial- and education-based performance measures.