We attended a presentation last Friday at the 2009 MNN/AGM Fall Conference, by David Spackman, Chief of the Non-Profit Organizations/Public Charities Division of the Massachusetts Office of the Attorney General.  Mr. Spackman expressed some views that should be noted by nonprofits.  In line with positions taken by some key IRS figures recently (see our earlier posts on this subject), he said he was convinced that the Intermediate Sanctions rules are causing escalation of executive compensation in nonprofits.  Essentially, everyone knows what everyone else is being paid, and most boards consider their executives to be above average; thus the average continually rises and actual compensation with it.  Saying this another way, he said the IRS rebuttable presumption process has set a floor.  Spackman went on to say that for some organizations, meeting the requirements for the IRS Rebuttable Presumption won’t be enough to demonstrate that compensation is reasonable.

 Spackman seemed to indicate that the AG would be affirmatively seeking out and examining only the largest nonprofits in the state, starting with the recently-announced review of some major healthcare organizations.  But boards that want to be well-positioned in case of a review by the AG, which can occur even for smaller organizations in particular circumstances, should take note of his statement that his office wants to see boards and compensation committees get more deeply into decision-making about compensation; in particular, not simply sign off on survey-based numbers, but consider, for example, why an executive’s performance is “above average” and why numbers submitted by a compensation consultant are comparable to the executive’s position.

 See our earlier posts in this blog for a series of discussions on the operation of the IRS Rebuttable Presumption rules and the examination of large Massachusetts healthcare organizations by the Attorney General.