Monday, April 14, 2008

Boston Herald Sees Communist Conspiracy in Mass. Bill to Cap Nonprofit Executive Compensation

The Boston Herald published a rather scathing editorial regarding the bill introduced in the Massachusetts legislature to limit nonprofit compensation.  The editorial, entitled "A Kremlin Answer to Hospital CEO's," calls the bill overly broad and the legislators who support the bill "dim bulbs" on Beacon Hill,  laughingstocks even! 

But that’s not the worst of it. While hospital CEOs are obviously Montigny’s main target, the bill is written with such a broad brush that any charitable corporation with more than $1 million in revenue would be swept up in its provisions - colleges and universities, the major nonprofit health insurers.

Executive compensation is a hot button issue in both the for-profit and nonprofit world and indeed, the excess benefit regulations allow nonprofits to consider similarly situated for-profits in setting insider compensation.  That is either a concession that nonprofits exist and must compete in a market economy, or an implicit acknowledgement that some (not all) nonprofits are really no different from for-profits when it comes right down to it.  And then, it is also probably unfair to judge all nonprofits by reference to nonprofit hospitals.  Though nonprofit hospitals have been responsible for most of the tax law relating to tax exempt organizations over the last few years, they really are lousy subjects by which to test or judge nonprofit jurisprudence.  Nonprofit hospitals are so very different from any other nonprofit species that making law for the entire sector based on nonprofit hospitals probably only leads to bad law.  Take the restrictive approach to "whole hospital joint ventures" for example.  The joint venture revenue rulings apply to all nonprofits, though they are articulated solely with nonprofit/for-profit hospitals in mind.  They make bad law, for example, with respect to a joint venture to ensure underfunded urban schools have enough computer equipment.

Anyway, the editorial makes sense in the assertion that focusing on nonprofits is unfair.  Or maybe it doesn't?  It seems unconvincing for nonprofits -- who wear the halo, after all -- to just point to for-profits occupying the executive compensation autobahn in justification for their own large salaries.  The "everybody else is speeding too" argument never works.  Maybe we expect more than that nonprofits act no better or worse than for-profits. 


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We certainly have the legal hook for limiting salary, and I'd think most of us share the intuition that overlarge salaries comprise a kind of private benefit that is or should be impermissible.

The only counter to the salary cap proposal, I think, is the consequentialist one: hospitals need the kind of administrators that only massive salaries can attract. And that kind of broad, factual inquiry is perfect grist for a legislative hearing mill.

Posted by: jpe | Apr 16, 2008 6:54:43 AM

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