Nonprofits Brace for Greater Scrutiny of Executive Compensation
This article was posted in Philanthropy News Digest.
The furor over bonuses at AIG and other Wall Street firms that have received government funds is prompting nonprofits to brace for more scrutiny of their executive pay practices, the Wall Street Journal reports.
While nonprofits have yet to receive taxpayer bailouts like some Wall Street firms, they benefit from billions of dollars in tax subsidies — and that, say experts, could expose nonprofit leaders to the same level of scrutiny with respect to their compensation that executives at financial firms are facing.
Last fall, for instance, controversy over a $1.2 million pay package awarded to Gloria Pace King, CEO of the United Way of Central Carolinas, led to King’s ouster. And faculty at the University of New Mexico recently delivered a vote of no confidence against the school’s president, David Schmidly, to protest what it viewed as unreasonable compensation for Schmidly and other senior executives. At the same time, some leaders in the sector argue that generous pay packages are often justified and necessary to attract and retain executive talent, and that even the best-paid nonprofit leaders don’t come close to making the seven- and eight-figure pay packages common on Wall Street.
Nevertheless, the IRS has signaled that more aggressive oversight of nonprofit compensation is in the cards. Recently, the agency completed an overhaul of the Form 990 that requires nonprofits to disclose compensation perks under certain circumstances, and it has increased its scrutiny of nonprofit hospital executive compensation.
Indeed, while Sen. Charles Grassley (R-IA) is considering legislation that would put more pressure on charities to prove that their executives are “reasonably” compensated, attorney Michael Peregrine, a partner atMcDermott Will & Emery, is advising organizations to review their pay practices sooner rather than later in light of the political environment. “The train of greater focus on nonprofit executive compensation has left the station, and charity boards better get on, or they’re going to suffer greatly for noncompliance,” said Peregrine. “It just cannot be business as usual.”
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