The Public Charities division of the Massachusetts Attorney General’s office has issued a report (found here) on its review of nonprofit CEO compensation.  25 of the largest public charities in the state were asked to complete a prototype of a new form for reporting CEO compensation data, and the AG stated that it intends to include a version of this new form (to be called Schedule EC), in the Form PC annual report required for certain Massachusetts public charities.

The AG report states that the AG found that the organizations set the CEO compensation “with care and attention” to the IRS’s standards for creating a presumption that the compensation is reasonable.  However, the report expresses concern that the process does not restrain CEO compensation or its growth, and indicates that the AG’s hope is that by requiring the reporting of additional information about CEO compensation, and on a more timely manner than the IRS’s processes, the rates of increase in CEO compensation may be reduced, the disparity between CEO pay and that of the rest of the workforce may be reduced, and factors other than peer comparison will be utilized.

The report suggests, for example, that in setting CEO compensation, charities consider (a) having the compensation committee evaluate the reasonableness of compensation of workers other than executives, (b) include an analysis of the “relative magnitude” of the CEO’s total compensation in relation to the non-executive workfors, and (c) consider other public benefits the charity receives such as exemption from property taxes.

The draft Schedule EC does a “deep dive” that appears to go well beyond the IRS Form 990 questions on executive pay.  Among many factors, the AG asks for detailed information on all forms of contingent compensation, information about the CEO’s compensation from organizations that are not part of the charity (e.g. for service on corporate boards), and even detailed information about any negotiations around the CEO’s compensation.  The form asks for the organization’s “compensation philosophy,” the qualifications for the CEO position, and if there was a need to retain the CEO “in response to a competing offer.”

The AG report and the draft Schedule EC appear to thoroughly cover most of the “hot topics” around CEO compensation today, in the for-profit as well as the non-profit sector.  Whether more disclosure, and on a more timely basis, will acheive such goals of the AG as moderating increases in compensation and reducing inequality between executive and non-executive compensation remains to be seen.  Meanwhile, see our following posts about Massachusetts and New York legislative actions.