While the Massachusetts Attorney General is questioning the entire process by which nonprofit executive compensation is set under the IRS Intermediate Sanctions rules, Dan Pallotta, in his blog at Harvard Business Publishing, argues that there is a “culture of martyrdom” around nonprofit salaries that may work against getting the best talent, and calls for “open[ing] the gates of financial incentive” at nonprofits so that data can be obtained on how this would affect the “quality of talent” of nonprofit leadership and workers. Thought-provoking whether or not one agrees.
We continue to remark on how press reports of nonprofit CEO compensation can focus on the sensational. Any prominent nonprofit should be prepared for at least local press coverage of its CEO’s compensation when its 990 is filed. A recent variation is a story in the Boston Globe about the housing for Boston-area university presidents; the web version of the story comes complete with a slide show of the various houses and estimates of their market value. Lost in the fine print, or not covered at all, are some key issues: The university, not the President, owns the house, and while some money might be raised by selling the house, this is hardly the best market for that. Second, as the story acknowledges, the Presidents have significant social obligations best met in a home setting, not a conference room. And third, until the recent downturn in the housing market (which in some regions, including Boston, seems to have only a limited effect on the value of high-end houses), living in employer-provided housing could have some negative effects, because it meant the President was not participating in the run-up in real-esate prices, making it much harder to buy a new house when done with the presidency post.
In our June 30, 2009 post, we noted that key people at the IRS were suggesting that nonprofit hospital CEO compensation was too high, even though the hospitals were following the IRS’s own rules for setting compensation. And we noted in our July 1 post that every year, press reports appear reviewing hospital Form 990s and suggesting that the reported hospital CEO compensation is somehow out of line for running a charity. A concise review of the press coverage issue was recently posted at Nonprofit Law Blog, and astutely sums up the recurring issues with press coverage. Once again, this points up that part of the job of the compensation committee must be preparing for and dealing with press coverage.
The FTC’s action against a major trade association serves as a reminder of the perils of exchanges of information among members of associations. The FTC announced a consent order regarding the National Association of Music Merchants (NAMM) due to discussions of pricing policies that took place at NAMM meetings. In its announcement, the FTC noticed that associations “may find it appropriate to update and bolster their antitrust compliance practices and, in particular, ensure that any meetings at which sensitive discussions are discussed are properly planned and monitored.” Since the FTC and the Justice Department have issued detailed guidelines about the conducting of salary surveys because of the potential for exchange of competitive information, the FTC’s concerns about the exchange of pricing information at association meetings should apply equally strongly to compensation information.
There’s an interesting article in LocalTechWire about Section 409A of Internal Revenue Code, which imposes detailed requirements – and serious penalities for noncompliance – on deferred compensation plans. Section 409A applies to many forms of compensation that aren’t always thought of as “deferred” and so holds many traps. The effective date of the section was delayed for several years due to the complexity of the issues involved (the final IRS regulations run more than 300 pages). The article notes that proposed IRS regulations may offer some relief from errors in documents implementing the plans.
With all the focus on executive compensation (which we’ve addressed in our recent posts), the Blue Avocado blog has some interesting thoughts on the problems of the low wage workers at nonprofits, and what can be done when there isn’t money available for meaningful salary increases.
Writing in today’s Wall Street Journal, Mort Zuckerman, Chairman of U.S. News and World Report, notes that “[t]he average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That’s 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity.” He goes on to say that “[t]he average worker saw no wage gains in June, with average compensation running flat at $18.53 an hour.”
The NonProfit Law Prof blog (see Our Blog List on the right side of the screen) calls attention to a recent survey of nonprofit groups in Central Florida that shows a pay gap of around 30% between male and female nonprofit CEOs. This appears in line with a recent nationwide study by Guidestar. An article on the subject in the Chronicle of Philanthropy suggests that at least part of the reason for the difference is that men tend to lead larger organizations – but that a discrepancy exists even among organizations of similar sizes.
In our post on June 30, 2009, we discussed how the IRS seemed to be taking the position that the executive compensation levels found in its recent study of nonprofit hospitals were set in accordance with law and regulation but were still too high, a view that seemed to reflect the Service’s take on public opinion about executive compensation generally. Will colleges and universities be next? Keep in mind that in February, the IRS completed collecting questionnaires from schools for its Colleges and Universities Compliance Project, and that these questionnaires asked for extensive details of executive compensation. We’ll be waiting to see the report on this project, but also watching for speeches and articles by IRS officials on the subject which, if the nonprofit hospital project is any indication, may be issued before the formal report.
No question that the furor over bonuses and high salaries on Wall Street is creating attention for the subject in the nonprofit world – without any clear reason for it. Over at the blog Createquity, Ian David Moss, a recent Yale B-school grad, has some interesting posts about compensation in non-profits. As we see it, he may have gone overboard with what seems to be a suggestion that the fix for excessive salaries (a problem which will be news to the executives of many non-profits) is that all organizations should unite to offer lower salaries. Indeed, to pick one example, having been deeply involved with hospital CEO compensation for many years, we’d argue that these are some of the world’s hardest jobs, juggling limited resources, community and local political demands, and criticism from the press and politicians each year when the Form 990 reveals the CEO’s compensation which someone will claim is too much for a “charity.” But Ian is generating some interesting discussions, and so we’ve listed his blog in our Blog List on the right hand column of this page.
And for a contrary view, also check out Dan Pallotta’s post at Harvard Publishing where he argues that “charity” shouldn’t mean “deprivation” for those who work for charities, and that people should be compensated for the value they produce – and must be, by any organization that wants the best person for the job.
