Wednesday, December 19, 2007

How Much Is Too Much: Executive Comp in the News Again

The Atlanta Journal-Constitution reports today that the chief executive of the Atlanta United Way, Mark O'Donnell, received a supplemental retirement payment of nearly $1.6 million.  This amount is in addition to his annual pension payment of $106,000.  In addition, O'Connell's salary nearly doubled in the last decade, and he earned bout $466,700 in his final year before retirement.  O'Connell's salary and the supplemental payment are legal, but the amounts raise a number of questions.

Should a nonprofit pay that much to retain an executive who's doing a good job?  The board chair says the money was needed to make sure that O'Connell didn't leave.  The CEO had overseen a substantial increase in fundraising for the United Way and had many supporters.  But in 2003, one of the years in which a committee increased the value of the retirement supplement, the Atlanta United Way laid off 24 workers and reduced grants by as much as 30%.

Who should make decisions about executive compensation?  The full board approved setting up the retirement supplement in 1995, but increases in 2000 and 2003 were approved by committees.  The increases were reported to the board, but six directors said they didn't realize that O'Connell was due to receive more than $1,000,000 in the supplemental payment.  The Panel on the Nonprofit Sector advocates board approval for decisions on executive compensation.

Does a board's private sector experience affect their thoughts about nonprofit compensation?  The article quotes Aaron Dorfman of the National Committee for Responsive Philanthropy in connection with this point.  Private sector directors may assume that a CEO of a nonprofit will expect compensation comparable to private sector compensation, but in Dorfman's view good people will be willing to work for less because they care about the nonprofit's mission.  A director who is a senior executive at a major corporation (and many are) may have a skewed view of "reasonable compensation."

IRS probes and its assessment of penalties in the area of executive compensation are likely to continue.  It behooves charities to be careful - and to be mindful of their donors and those they serve.


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