Nonprofit Health Related CEO Compensation
Health Insurance Company CEOs in the U.S. earned tens of millions in 2008, but what about nonprofits? If you guessed that nonprofit CEOs are paid less than their private sector counterparts, you are right. But the numbers are no less shocking to the average American. Below are the highest paid nonprofit workers at the largest nonprofit healthcare organizations, hospitals and medical centers in the U.S, courtesy of the Chronicle of Philanthropy.
Last year, some of the top paid nonprofit workers took pay cuts while others saw increases in compensation. Despite a global recession, many health-related nonprofits reported higher income in 2008, according to the report by The Chronicle of Philanthropy, which surveyed compensation information from the top 400 charities and foundations in the U.S.
According to the Chronicle, it asked each organization to answer a questionnaire and provide its most recent 990 tax form. This year, not every organization provided the information. In fact, most of the top paid executives from 2007 did not provide the information in 2008.
Based on 2007 data, the highest paid nonprofit worker was Herbert Padres, chief office of New York-Presbyterian Hospital. Padres earned $6,170,885 in 2007. That’s $118,671 per week. In some parts of the country, that is enough to purchase a home. Every week. It is certainly enough to purchase one of the finest cars on the market.
As we’ve noted before on this blog:
Under the strictures of 501(c)(3) nonprofits are confined to paying executives “reasonable compensation” and supplying “community benefit.” Unfortunately, neither of these terms are particularly well defined. In [this] study’s executive summary, the IRS puts it so:
“The community benefit standard is the legal standard for determining whether a nonprofit hospital is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code.”
“Observations. Both the community benefit and reasonable compensation standards have proved difficult for the IRS to administer. Both involve application of imprecise legal standards to complex, varied and evolving fact patterns.”
The varied and evolving fact pattern of nonprofit executive compensation looks something like this:
The nonprofit healthcare CEO with the highest salary in 2008 (given the incomplete response) was James J. Mongan, CEO of Partners HealthCare Systems. Mongan earned $3,376,554 in 2008.
Nonprofit executive compensation, health-related nonprofit:
New York-Presbyterian Hospital Herbert Pardes (CEO): $6,170,885
Memorial Sloan-Kettering Cancer Center Harold Varmus (CEO): $3,677,402
Partners HealthCare System James J. Mongan (CEO): $3,376,554
New York Presbyterian Hospital Steven J. Corwin (COO): $3,127,051
Mount Sinai School of Medicine Samin Sharma (Professor of Medicine and Cardiology): $2,894,580
Note: Aside from James J. Mongan, all numbers are for the 2007. Compensation amounts include deferred compensation and fringe benefits.
See Health Insurance CEO Compensation Here.
Sometimes It’s Better Not to be Ranked #1
Photo by bitzi
The Chronicle of Philanthropy lead off its annual executive compensation story with the headline that “Nearly three in 10 of the leaders of the nation’s biggest charities and foundations have taken pay cuts in the past year as the recession causes donations to drop and batters endowments”.
USA Today interpreted the annual survey results differently, with yesterday’s headline: “Non-profit execs make millions: Big organizations have highly paid leaders,” coupled with the usual USA Today chart, this one listing the leaders of the pack, compensation-wise. The accompanying article questioned why nonprofit compensation is so high.
How much is too much is a fair question, and one readers of this blog will recall that Attorney General Ann Milgram is asking about Stevens Institute’s President. The ubiquitous Senator Grassley thinks non-profit salaries are too high, and is using health care reform as an opportunity for reforming more than the health sector — one of the 500+ amendments to the Baucus healthcare reform bill comes from Grassley, who wants to eliminate the presumption of reasonableness afforded federally tax exempt organization salaries as long as boards obtain inter alia a comparability study (which unsurprisingly, most do).
According to a recent IRS hospital study, “Although high compensation amounts were found in many cases, generally they were substantiated based on appropriate comparability data”. The IRS is currently focusing on salaries at colleges and universities. Somewhat unclear is whether the comparability study may include salaries from the business sector — the IRS has waffled so far, but then-New York Attorney General Spitzer was pretty clear in his mind that it was improper for Richard Grasso’s friends on the compensation committee to have relied on for-profit numbers when it came to setting Grasso’s $187 million compensation package as head of the then-nonprofit NYSE.
Some are outraged by non-profits’ salaries, which are, after all, subsidized by donors and the tax-payer, while others think that politicians should let nonprofit boards run their own show. The argument is that nonprofits have to compete with the business-world for the best talent.
Is there any law on the subject? Yes, but it’s rarely enforced. State nonprofit corporate law contains a non-distribution constraint–that is, nonprofits can’t pay out dividends or excessively pay its employees or those with whom they do business — the money is supposed to be used to further the entity’s mission. On the tax side, federal law prohibits private inurement and excess benefit, which essentially seeks to accomplish the same goals. So, on the one hand, critics of excessive compensation do have a legal leg to stand on. On the other, all anyone seems to do about the issue is complain - neither the IRS nor state AG’s have boards particularly concerned about their compensation decisions. In fact, all boards have to do is follow the right procedure, and their CEO salaries are presumptively reasonable. So, if all non-profits essentially use the same small group of compensation consultants, and set salaries coincidentally high, then it’s a self-reinforcing system and nobody gets in trouble.
I have little hope that the real questions will be seriously considered, which include what the role of the nonprofit is in our society, and what we expect of nonprofits in exchange for their not having to pay taxes, and for their donors getting tax deductions. The IRS has begun collecting information on the revised 990 about hospital “community benefit”, but the real question is whether any real change will come out of the whole thing, and whether it will go further than health care. Nudge would suggest that merely by asking the right questions behavior will change! I’m more in the Grassley camp of being a noodge….
