Bills Filed to Bar Nonprofit Board Pay, Limit Exec Compensation
February 7, 2013 Several legislators have filed bills aimed at prohibiting Massachusetts nonprofits from paying their board members and limiting compensation for officers and senior managers of nonprofits, action opposed by the state's nonprofit trade association.
Sen. Mark C. Montigny (D-New Bedford) has filed a bill, which, if enacted into law, would prevent nonprofits from paying directors or trustees unless they obtained a waiver from a commission comprised of the states secretary, inspector general, and attorney general. The bill, however, permits reimbursement of expenses directly tied to board member duties and responsibilities.
His bill seeks to prevent public charities with annual gross revenues of more than $1 million from compensating officers, directors acting in an executive capacity, or senior managers more than $500,000 a year. Compensation includes salary, bonuses, incentive payments, deferred compensation, severance payments, below market rate loans, and the lease or rental of vehicles.
Related Bills Filed in the House
Rep. Martha M. Walz (D-Boston) last month filed legislation in the House, on behalf of Attorney General Martha Coakley, that would prohibit public charities from paying independent officers, directors, or trustees for their service without approval from the attorney general.
Subsequent to that filing, Walz accepted a job as president and CEO of a prominent nonprofit, Planned Parenthood League of Massachusetts. See related article.
In addition, Rep. Peter Durant (R-Spencer) in January, with six co-sponsors, filed a bill that seeks to impose compensation caps on top executives of Massachusetts nonprofits that receive at least 30% of their annual budget from state funds. He filed a budget amendment last year seeking to do the same, but it didnt survive.
Durants new bill looks to cap the salary of the executive director/CEO of nonprofits on a graduated scale, topping out at $213,165 for organizations with annual budgets of $25 million or more.
For too long, many public charities, operating much like private businesses, have lavished exorbitant salaries and compensation packages on their executives while at the same time bemoaning cuts to government reimbursements, said Montigny.
He added, "This bill will ensure that executive compensation at so-called public charities is subject to oversight and public disclosure and reflects a true value of the services provided by the executives. It is hoped that the charities will use their revenues wisely to benefit of the public rather than spend needless monies on bloated corporate compensation packages".
Coakley recently said, The practice of compensating independent directors for service on a charitable board is extraordinarily rare in Massachusetts because the purpose of nonprofit charitable organizations is to exclusively benefit the public. It is no surprise that our Supreme Judicial Court has recognized voluntary board service as an indicator that an organization is charitable and that nationally recognized governance standards for charities have expressed the view that board members are generally expected to serve without compensation.
Rick Jakious, CEO of the Massachusetts Nonprofit Network, the states nonprofit trade association, said, We remain opposed to these sorts of bills, because we believe that compensation falls under the purview of the nonprofits board. Nonprofit boards are in the best position to know what talent they need and how best to compensate the people they hire.
Noting that very few nonprofit boards compensate their directors, Jakious said, Legislation seems to be an overreach.
Nonprofit Executive, Board Pay Surfaced in 2011
The issue of executive compensation and board pay arose two years ago following disclosure that the board of Blue Cross Blue Shield of Massachusetts had committed to paying $11.3 million, including more than $4 million in severance pay, to Cleve L. Killingsworth, who abruptly resigned in March 2010 as chief executive of the nonprofit.
Following public uproar over the Killingsworth issue, Blue Cross and Fallon Community Health Plan suspended board member payments. However, Harvard Pilgrim Health Care, and Tufts Health Plan, the states other two major health insurers, said they would continue to pay their directors.
Montigny mounted an effort in 2011 aimed at preventing Massachusetts nonprofits from paying their board members. That effort failed to make it out of committee.
Recognizing the difficulty of passing such legislation, Montigny said, "Any bill that attacks special interests, especially those in the health care industries, is always targeted for defeat and insider lobbying efforts. Thus, it is invariably an uphill fight to win passage of bills that benefit the public at the expense of corporate interests.
I will continue to advocate for this bill and those like it in order to ensure that the public charities hold true to their designed missions and spend their funds for the public good rather than private interests."
Durant, through a spokesperson, expressed cautious optimism that his bill will pass, although he noted that at this time he has no indication of what support or opposition for the bill will be.