The Exempt Organizations (EO) section of the IRS has issued its FY 2011 Implementing Guidelines, which include an annual report 2010 and a “Workplan” for 2011. On the compensation front, the annual report summarizes issues identified in the EO’s Loans Project under its Executive Compliance Initiative begun in 2004 and notes among other things that of 169 organizations singled out for “single issue” examinations, 23% of the examinations resulted in changed returns or obtaining delinquent returns, and 11% resulted in proposed revocation or termination of non-profit status.
The Workplan for FY 2011 includes a “Charitable Spending Initiative” which will among other things examine organizations previously identified as having high ratios of officer compensation in comparison to program service expenditures. Continuing a program on colleges and universities begun in 2008, over 30 entities are undergoing examinations that focus on “unrelated business income and compensation practices.”
The IRS has issued its Priority Guidance Plan for the remainder of 2010, and 2011. On the compensation front, the Plan announces the IRS’ intent to issue final regulations implementing the new Form 990. (The regulations issued September 9, 2008 to implement the new form were mostly “temporary.”) The IRS’s summary of items in the Plan of interest to nonprofits is here.
The IRS has updated an earlier incorrect announcement. The correct threshholds are here.
The Chronicle of Higher Education has released its report on college presidents’ compensation for 2008. This is the first year of data using the revised IRS Form 990, which requires calendar year reporting, and thus the report notes that for schools with non-calendar year fiscal years, some amounts overlap with last year’s report. While this makes a direct year to year comparison of the reported results difficent, the Chronicle notes that the number of presidents receiving total compensation in excess of $1M grew from 23 to 30.
Some of the largest compensation packages include significant one-time payments of deferred or retirement compensation. The Chronicle article is here.
A recent article about the Dodd-Frank law on financial industry reform notes the potential for a significant “spillover” effect on the nonprofit healthcare sector, including executive compensation. The article notes particularly the possible effects on the ratio of total CEO compensation to median employee total compensation, the relationship of executive compensaton to financial performance, compensation committee and adviser independence, disclosure, and “clawback” policies for incentive payments. While the new law does not apply to nonprofits, it may, as with Sarbanes-Oxley, set new expectations for “best practices.”
The new survey is available here. Much improved, with better regional comparisons and size breakouts.
Across many fronts, but particularly in executive compensation, nonprofit healthcare can be expected to feel the impact of a changing perspective on corporate social responsibility and sustainability (CSR). A good discussion of this was developed by the Society for Human Resource Management’s Future Insights, Top Trends by Special Expertise Panel in its release for 2010. External pressures have been documented in the media and regulation, but the Panel believes that internal pressure to embrace CSR will increase as an increasing number of Generation Y employees weigh an organization’s CSR commitment as a factor in accepting employment and remaining employed in an organization.
Trends across for-profit and across healthcare, higher ed and other nonprofit sectors seem to be mirroring each other. For example, when Lawrence Associates was quoted in the BNA Daily Tax Report, IRS Audits Harvard, Other Universities in Probe of Exempt Purpose Rules by Diane Freda, March 26, 2010, the former IRS Exempt Organizations Director Marcus Owens, now an attorney with Caplin & Drysdale, said that a review of compensation has now become a staple of every audit of an exempt organization.
Most recently, Dodd-Frank, legislation enacted July 21, 2010, in response to market excesses and regulatory inadequacy, is expected to have a spillover effect on nonprofits much like the spillover effects of Sarbanes-Oxley. This is described in an interesting article by Michael W. Peregrine, McDermott Will & Emery, LLP and Timothy J. Cotter, Sullivan, Cotter and Associates, Inc.: Dodd-Frank: The Spillover Impact on Nonprofit Healthcare. These legislative initiatives, enhancing board independence, reducing potential conflicts of interest, increasing “say-on-pay,” requiring disclosure of the ratios of CEO to median employee total compensation and CEO to executive pay, along with clawback provisions on incentive pay; attention to conflicted advisors; and documentation of pay for performance all reflect a sea change in governance of both for-profit and nonprofit organizations.
Please join us for Lawrence Associates’ free webinar on 8/25/2010, 1pm EST on Nonprofit Executive Compensation, Wage & Incentive Design in the New Economy http://bit.ly/ccm50m
The New York Times reports (link to article is here) that the Labor Department is investigating overtime pay practices throughout the health care industry. The cases have involved mis-classification of nurses and other workers as “exempt employees” not entitled to overtime pay, or issues such as failing to pay overtime when employees were required to work through meal breaks. The article reports large payments by various major organizations to settle claims on this issue, along with class actions brought directly by employees.
The front page of the New York Times for August 10 carries a story about what it describes as tax-free “luxury” housing for museum chiefs. The article focuses on the question of whether the housing properly meets the tests that the housing be on the “business premises” and the employee is required to live there. According to the article, the museums say their CEO’s situations are similar to those of university presidents. The article notes that housing for the museum chiefs is generally not on the premises of the museum itself, but in separate apartment buildings, though one, the Museum of Modern Art, has a residential tower on top of the building so the CEO’s apartment is literally an elevator ride away from his office. The article further notes the wide range of practices among nonprofits – at one extreme, the Morgan Library charges its director rent on his apartment and reports the difference between market rent and what he is charged as income on his W-2. As of the time of this posting, a link to the article was not yet available at the Times’ web site but we’d expect it can be found soon at nytimes.com.
