Thursday, March 19, 2009

Point - Counterpoint: Is Angel Food Ministries CEO Pay Excessive?

The Atlanta Journal Constitution published an instructive point-counterpoint op-ed piece yesterday regarding whether the CEO pay at Angel Food Ministries is excessive.  The counter-point is actually argued by the CEO whose pay is under scrutiny.  It seems an effective argument but I wonder whether the CEO would have been better served had his lawyer made the arguments (he or she no doubt must have reviewed it before allowing publication).  Readers may recall that we have recently posted on the troubles at Angel Food Ministries.    The counter-point raises the question whether "success" in the charitable sector ought to justify salary increases and bonuses the way such rewards are doled out in the for profit world.  Here is a snippett from the point-counterpoint:

Point:

Angel Food Ministries is an example. It joins the ever-growing list of nonprofits that feel their mission gives them reason not to subscribe to generally acceptable charitable guidelines. Their mission is not unique, but their practices are. Fat salaries, loans approved but not by an independent board and conflicts of interest — all fail to pass the trust test the public is demanding of charities.

AFM may be fulfilling its mission by delivering food, but it is not delivering on credibility. In 2006, a $2.5 million salary in executive and family compensation does not sit well with supporters, even if the agency is helping the needy. Put in perspective, the median CEO salary at the nation’s largest nonprofit organizations in 2008 was $326,500, according to The Chronicle of Philanthropy. Many of these executives lead organizations with assets many times that of Angel Food Ministries, with some as high as $4 billion. Federal tax laws prohibit heads of tax-exempt nonprofit organizations from earning “unreasonable compensation.”

A submission to the IRS indicates about $1 million in additional loans to the same ministry family members. Although not illegal, unless prohibited by state law, it is imprudent unless it furthers the mission of the agency. The IRS frequently has expressed concerns about insiders determining their own compensation and loans without approval by a governing body that has no vested interest. The ministry board did not seemingly function like a proper board by providing checks and balances and protections against abuse of power. Studies are showing that the public is getting fed up with philanthropic misdeeds. Some have revealed that as low as 14 percent of those surveyed believe that the charitable sector spends its money wisely. Headlines are screaming of billions of donor dollars stolen or wasted and thousands of agencies not fulfilling their charitable mandate. One would think that would instill a practice of transparency and accountability. It hasn’t.

Counter-point:

Nonprofit organizations battling hunger are among the worst hit. Food pantries are drying, donations are dropping and the food conglomerates have figured out that they can sell their overstock and soon-to-expire goods to developing countries for cents on the dollar rather than give it away to the needy.

One alternative lies in the ability to reinvent the way nonprofits generate capital to serve those in need. In the case of Angel Food Ministries, that ability was born in 1994; and at $140 million in revenue last year, serving over six million boxes, it continues to feed hundreds of thousands without the need for cash or food donations. It is a simple plan and simple in operation, yet complex to establish. It has a volunteer base of nearly 45,000, which it treats as valuable donated capital, and 100 percent of that donation is used toward program services. Few organizations can claim that.

At the helm of this ministry is a fairly compensated CEO. My idea to help people grew with 17-hour workdays over 15 years, five of which were wholly unpaid. An independent compensation study in April 2008 determined that my salary and compensation “falls within a reasonable range of competitive practices for like positions among like organizations providing like services and is therefore reasonable.”

Angel Food buys fresh, quality foods at discounted prices through volume purchasing and upfront payments. Then, through its volunteers who come together twice a month in over 5,000 communities or host sites across 39 states, it distributes food boxes to thankful families, and even sends cash donations to the tune of $5.2 million last year and over $19 million since inception back into each and every local community via these host sites. The axiom that guides it is, “A Food Ministry with a Servant’s Heart,” for it feeds a family of four for $30 a week while building communities and families of people. It is a “hand up, not a hand out,” and it leaves what emergency food is still out there for those who truly need it.

The CEO is essentially arguing that the more people his organization helps, the more justifiable his increasing salary becomes.  See Treas. Reg. 53.4958-4(b)(1)(ii) ("The value of services is the amount that would be paid for like services by like enterprises (whether taxable or tax exempt) under like circumstances.") I think there is regulatory support for that position but I wonder whether the implicit adoption of for-profit competitive standards is appropriate as a policy matter in the exempt world.

dkj

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