Congress
needs to limit pay of executives at nonprofits
The Baltimore Sun
May 15, 2005
THE law seems clear. No profit from tax-exempt charities may
benefit "any private shareholder or individual."
Yet as The Sun's survey of nonprofit executive pay shows, plenty
of individuals are doing very well by associating themselves with
charitable organizations.
No, they're not breaking the law. The definition of what lawyers
call "private inurement" of nonprofit assets has narrowed so far as to
be practically meaningless.
But compensation for nonprofit bosses has hit levels that ought
to have donors and taxpayers asking: Remind me again -- exactly whom is
this organization supposed to be benefiting?
And the law looks like it's about to change, although
unfortunately not enough.
Led by Senate Finance Committee Chairman Charles E. Grassley, an
Iowa Republican, Congress is moving toward the biggest overhaul of
nonprofit regulation since 1969. There are plenty of targets for
reform: inflated gifts that fraudulently reduce donor taxes;
foundations that benefit donors more than any worthy cause, and
insiders vacuuming up charity dollars with rip-off vendor contracts.
And executive pay. Disturbed by reports of high nonprofit
remuneration, Grassley's committee is considering making charity boards
more accountable for justifying CEO pay. The panel also may try to
restrict what charities can spend on junkets and other perks.
"More and more, we're seeing that some people view charities and
charitable gifts as a chance to help themselves, not others," Grassley
said last month in a prepared statement. "It's time for comprehensive
reforms to shut down personal enrichment at the needy's expense."
Of course, one man's personal enrichment is another's deserved
pay for a job well done.
Mimicking corporate America, nonprofit organizations claim they
must pay lucrative executive salaries to get and retain the best
people. (They hire slick consultants to bless the packages as
"reasonable" -- and then pay the consultants with tax-exempt assets.)
But according to this logic there is no such thing as excessive
pay for nonprofit executives, no absolute level at which everybody
might agree: Yeah, this is pretty gross.
Is that the best we should demand from these organizations that
operate with extraordinary privilege and leeway?
Nonprofits pay few or no taxes while getting the same government
services as everybody else. Americans give billions to the groups, and
the donations further reduce government revenue because they are
deductible against taxable income.
All these gifts and subsidies help underwrite bigtime nonprofit
salaries. But charities want the freedom to enrich their executives
similar to that enjoyed by the for-profit, tax-paying sector. Go ahead
and complain about, say, the $1.3 million paid last year to Robert E.
Prince, CEO of Duratek, a Columbia for-profit processor of radioactive
waste. But at least Duratek writes checks to the IRS and doesn't go
around shaking a can for donations.
Unfortunately, there is no sign Congress would substantially
control pay at tax-exempt organizations. The farthest anybody has gone
has been to suggest changing legal rules to make it easier for the
government to prosecute potential salary violations.
True to history, the nonprofit lobby seems to have no interest in
substantial reform. Last week an advisory panel of nonprofit executives
working with Grassley recommended that nonprofit boards approve CEO pay
(What a concept!); that compensation consultants report to the board,
not the CEO; and that executive pay be calibrated primarily against
that of other nonprofits.
Nice ideas, but what about limiting pay as a portion of a
charity's assets or revenue, phasing out deductibility for gifts to
charities that pay CEOs over a certain level or seeking antitrust
exemptions to let nonprofits regulate compensation?
The good news is that disclosure of nonprofit pay is better than
ever and will probably improve under Grassley's reforms. Perhaps
potential donors will think twice after they learn what nonprofit
executives make.
Your local hospital chain and the homeless guy on Conway Street
are both asking for your charity. The hospital chain pays its boss $1
million. The homeless guy is homeless. Who really needs the money?
Copyright © 2005, The Baltimore Sun
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