Doing too well by doing good?

Story in Post-Standard on Nonprofit Pay. Visit here to see salary examples in the region related in the article.

In 2009, the head of Rensselaer Polytechnic Institute, Shirley Ann Jackson, earned twice as much as Harvard University’s president.

Jackson took home $1.8 million to run RPI, a nonprofit university ranked 50th in the nation by U.S. News and World Report.

Drew Faust, her counterpart at the much larger and No. 1-ranked Harvard, earned $875,000.

To some, Jackson’s seven-figure pay is excessive — an example of bloated compensation in pockets of the nonprofit community. Shock value alone reveals when salary is too high, critics argue.

Others disagree, saying pay — even at nonprofits — can’t be judged at face value. At best, it’s a starting point for questions about experience, performance and the competition.

While no one denies overpaid nonprofit executives exist, there’s no simple formula to single out those individuals — the industry is too diverse. What’s fair for a multinational organization with a billion-dollar budget is unfathomable for a small food pantry with three employees, and vice versa.

Spurred by a few gross abuses at downstate charities last year, state lawmakers have been trying to address the question of how much is too much.

Over the past eight months, the governor has formed a task force and issued an executive order, the state Senate held a hearing, and the attorney general released a report.

No closer to consensus, one thing is clear: The issue of nonprofit compensation is as sensational as it is complex.

Health care offers top pay

In a review of public financial information for 50 of Warren, Washington and Saratoga counties’ larger nonprofits, The Post-Star found many examples of executive compensation in excess of $100,000, including a Saratoga Hospital doctor earning $860,000.

According to tax Forms 990 from 2010, the most recent available, the highest pay locally was concentrated in health care, education, and the arts — consistent with national trends.

At Glens Falls Hospital, the region’s largest employer, longtime CEO David Kruczlnicki’s compensation was $433,000 in 2010. He oversees a $290 million budget, a staff of almost 3,000 and a health care network that includes an acute care hospital and 29 regional facilities in multiple counties.

The Queensbury-based Hudson Headwaters Health Network provided its founder and CEO, Dr. John Rugge, $430,000 in 2010. Hudson Headwaters is a much smaller organization, however, with about 560 employees, 14 Adirondack clinics and a $40 million budget.

To the south, Saratoga Hospital CEO Angelo Calbone earned almost $470,000 in 2010 to oversee a $186 million budget and 1,800 employees spread over the hospital’s main campus and six Saratoga County outpatient and primary care centers.

Pay for all three health care CEOs was less, though, than that of Skidmore College President Philip Glotzbach, who earned $470,000 in 2010. And even Glotzbach’s compensation paled in comparison to that of high-ranking hospital doctors.

Three cancer doctors employed by Glens Falls Hospital topped Kruczlnicki’s compensation in 2010. C. R. Wood Cancer Center oncologists John Stoutenburg and Aqeel Gillani had earnings of $470,000 and $485,000, respectively, while the center’s founding medical director, oncologist Robert Sponzo, earned nearly $600,000. Then-Chief Financial Officer Michael Niles took home the most that year, however, at $620,000 due to pension and other one-time payouts associated with his 2010 retirement.

To the south, Saratoga Hospital anesthesiologist Dr. Gordan Kuhar, who runs the hospital’s Pain Management Center, earned more than $860,000, making him not only the highest-paid hospital employee but by far the highest-paid individual at nonprofits reviewed by The Post-Star.

In a statement, Saratoga Hospital said it conducted market research to determine what other physicians in Kuhar’s specialty were making before setting his salary within that range.

Board Chairman Michael West said Saratoga Hospital uses outside groups to help determine pay, targeting the 75th percentile for overall compensation at similar-sized hospitals, including base pay and bonuses.

West said the market for leaders, physicians and nurses is competitive, and the hospital tries to recruit the best.

“We believe competitive compensation is required if we are to meet our goals for our community,” he said in a statement.

Glens Falls Hospital said its process for determining compensation involves hiring an outside firm to conduct market research.

Michael Clarke, vice chairman of the hospital’s Board of Governors and chairman of the personnel committee that sets compensation, said the nonprofit aims to pay its executives in the 50th percentile, or middle of the road for similarly sized hospitals.

“We’re not a typical nonprofit,” Clarke said of the hospital.

“It is a complicated business and it’s a very important business. It supports the livelihood of 3,000 employees and on the other side supports the health care of 150,000 people.”

Clarke noted other factors have to be considered when it comes to pay, such as the location of the organization and an executive’s experience and performance. Kruczlnicki, for example, has been the hospital’s CEO for more than 20 years.

In the end, the pay should reflect the complexity of the executive’s job and his success in helping the organization fulfill its mission, Clarke said.

“You can focus on the quality, focus on the community outreach that the hospital makes, or focus on the accomplishment of the goals,” he said. “The salaries are, in some ways, related to the accomplishment of all that.”

Other six-figure salaries

Other high-paid health care executives in 2010 includ CEOs of nursing and senior living facilities such as Fort Hudson and Saratoga Springs-based Wesley, who earned more than $200,000.

A few cultural organizations broke the $200,000 mark as well.

The president of the Yaddo artists’ compound, Elaina Richardson, earned $211,000, while Marcia White, president and executive director of the Saratoga Performing Arts Center, took home $281,000.

Many more nonprofits paid their leaders more than $100,000, including museums like the Hyde Collection in Glens Falls and the National Museum of Racing in Saratoga Springs; religious organizations such as the Word of Life camp in Schroon Lake and the YMCA’s Silver Bay conference center; economic development corporations in Warren and Saratoga counties; and a groups that provide services to developmentally disabled New Yorkers such as Community Work and Independence Inc. in Glens Falls, Saratoga Bridges, and Queensbury-based Warren-Washington ARC.

Human service organizations that assist low-income residents had the lowest executive pay of groups surveyed.

The heads of the Washington County Economic Opportunity Council, Warren-Hamilton Counties Action Committee for Economic Opportunity and the Tri-County United Way all earned about $65,000 a year.

The Post-Star did not find any examples of million-dollar pay at nonprofits in Warren, Washington or Saratoga counties, but they do exist closer to Albany. Jackson of RPI, for example, and Albany Medical Center CEO James Barba earned more than $1 million in the most recently reported fiscal year.

What’s normal?

According to a survey by Charity Navigator, a website that specializes in ranking nonprofits’ effectiveness, the average CEO pay at 3,000 mid- to large-sized groups was $150,000 nationwide, or $185,000 in the Northeast.

Charity Navigator defended the median pay as generally appropriate for big organizations. But the group also highlighted examples of excessive pay.

The survey revealed 14 nonprofits with executives earning more than $1 million in 2008 and another 106 with CEO pay above $500,000.

Sandra Miniutti, Charity Navigator’s chief financial officer, said arts and education institutions tend to pay more than human service providers, and college presidents or sports directors can make upward of $1 million.

If that’s atypical among the nation’s larger charities, it’s even more rare when smaller organizations are considered.

Michael Clark, executive director of the Nonprofit Coordinating Committee of New York Inc., estimates the average nonprofit CEO in New York makes $37,000 to $47,000 annually.

“Nonprofit executives across the board are being paid way too little,” said Clark. “That’s why we get the (state) contracts — we work cheap.”

United Way Executive Director Barbara Sweet, who earned $63,000 in 2010 to manage an $850,000 budget, said she and her small staff have opted to forgo pay raises two of the last five years.

“We are very aware of the need in the community and operate a lean-and-mean organization,” Sweet said.

As head of the United Way, which raises money for other community nonprofits, Sweet is familiar with compensation levels at many groups and said they work hard to meet the community’s needs with limited resources.

“That’s not us,” she said of excessive pay now being targeted by Gov. Andrew Cuomo.

In fact, many contend undercompensation is a bigger issue for nonprofits.

Doug Sauer, CEO of the New York Council of Nonprofits Inc., believes efforts to address and control outrageous pay detract from the real concern.

“This is a very little problem,” he said of excessive nonprofit pay. “(The discussion in Albany) focuses a public discourse on something that’s not real.”

Coming tomorrow: The second part of this series on nonprofits will explore efforts at the state level to address compensation abuses.


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How much is "too much" depends on who you ask

A recent article from the Post-Star:
From industry groups to boards of directors to the Internal Revenue Service, most nonprofit stakeholders believe executive pay should be fair and reasonable.

Agreeing on a definition of “reasonable,” however, has proven challenging, if not impossible.

“If you’re running a $400 million enterprise, can you say how much that person should be making?” said Doug Sauer, CEO of the New York Council of Nonprofits Inc.

Even the IRS, which grants charities their tax-exempt status, doesn’t have a formula or threshold for salaries, Sauer noted. Instead, the agency asks nonprofits to list on their Form 990 employees earning more than $100,000, as well as pay for key officers, directors and trustees. The IRS wants to see board policies and procedures on setting compensation, no conflicts of interest, that comparable salary data is taken into consideration, and that pay decisions are documented.

Sauer, who testified before a state Senate committee hearing in February on nonprofit

executive compensation, acknowledged it’s difficult to establish a cutoff, given the diversity of nonprofits. Still, he suggested salaries above $500,000 a year merit a closer look and anything over $1 million is excessive.

Charity Navigator, a website that specializes in ranking nonprofits’ effectiveness, agrees that $1 million is a fair cutoff.

“We don’t think people should be in the business of running a nonprofit to be a millionaire,” said Sandra Miniutti, Charity Navigator’s chief financial officer. “That’s where we draw a line in the sand.”

The website uses public information about a nonprofit’s financials, transparency and accountability to rank charities by how efficiently they use donations. Miniutti said salary isn’t factored into the ranking system because it’s so subjective, but the number is disclosed so donors can ask questions and make their own judgements.

Other industry experts caution against emotional reactions to numbers without proper context.

Michael Clark, executive director of the Nonprofit Coordinating Committee of New York Inc., stressed the public can’t gauge what’s fair based on instinct because there are too many variables that go into pay, such as the size of the organization’s budget, cost of living and the employee’s experience.

“What is an astronomical salary in one part of the nonprofit world is not astronomical in others,” Clark said. “Either you believe in the market system or you don’t.”

Salary may be the most sensational number on a charity’s Form 990, but it’s not the only indicator donors should study.

At Charity Navigator, Miniutti said many donors hone in on the percentage of expenses that goes to programs or services as a solid indicator of performance.

Charity Navigator says a good benchmark is 75 percent for programs and 25 percent for administration and overheard.

The New York Council of Nonprofits aims a little higher, saying overhead should be less than 20 percent, while the Better Business Bureau’s standards for charity accountability say 35 percent overhead is reasonable.

Clark, of the Nonprofit Coordinating Committee, rejects the idea of measuring nonprofits by their overhead. He said administrative expenses go up and down based on projects, investments and growth.

“Never make a decision about whether to give money based on the ratio of administrative costs,” Clark said, adding it’s the tip of the iceberg for the questions donors should ask.

A better measure of a nonprofit’s performance, according to Clark, is whether it takes in more than it spends and has a rainy-day fund to draw on during tough times. Donors should also ask if the charity is making a difference in its community.

“It’s hard and ill-advised to apply any sort of one-size fits all rule to any nonprofit,” he said.

For his part, Sauer said larger organizations with more sophisticated accounting can figure out how to allocate time and resources to reduce overhead, while smaller groups can’t. He also believes other metrics deserve more attention than executive compensation or administrative expenses,.

The best, approach, he said, is to weigh as much information as possible.

“It’s not about executive compensation,” Sauer said. “It’s more about are people reasonably paid? Are they competent and able to show on their website that they are providing services you think should provide? Are there indications the board is functioning well and will continue to be around?”


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Nonprofits Push Back Against Limits On CEO Pay

Nonprofit groups pushed back during a hearing today in Albany on Gov. Andrew Cuomo’s proposals to combat excessive pay for top executives, saying the plans would do little to root out what they insist are rare cases of abuse.

Last month, the governor issued an executive order setting a $199,000 cap on state funding for executive salaries, while also requiring that 75 percent of state dollars are spent on actual services, not administrative costs. State agencies have three months to comply with the order.

The order came after a New York Times article last August, which detailed the story of two brothers who made close to a million dollars a year as top executives of a New York nonprofit for the developmentally disabled.

But at the hearing, James Lytle, a partner at Manatt, Phelps and Phillips, which represents more than a dozen nonprofit organizations, testified before the Senate Committee on Investigations and Government Operations that it made no sense to have a one-size-fits-all limitation — a cap he argued would hurt non-profit efforts to recruit qualified executives.

“No evidence has been advanced by anyone so far that would suggest that these abuses are either widespread or particularly unpunished when they have occurred,” Lytle said.

Nonprofit representatives acknowledged that some CEOs receive extravagant pay and benefits, but said the governor’s order wouldn’t change much, since the big players would use their influence to get waivers or shift pots of money around to minimize the impact.

Doug Saur, the CEO of the New York Council of Nonprofits, said that million-dollar executives wouldn’t see any changes because the state isn’t capping salaries, just how much state money can go into those salaries.

“That’s an accounting issue,” he said. “Who’s going to get hurt are the community action programs or some of the smaller organizations that don’t raise a lot of money, that are mostly government funded, and there are no alternative sources to go and do that.”

Those testifying from the non-profit world said that setting a specific limit on the state’s contribution to executive salaries fails to take into account the multiple factors that go into determining annual pay, from the size of an organization’s budget to the complexity of its structure, to comparable salaries for similar private sector jobs.

“None of the conversation today has been about performance,” Saur said.

Some lawmakers suggested other remedies to the abuses besides the Cuomo-imposed cap. Sen. Carl Marcellino, who chairs the Investigations Committee, said another solution was to demand greater accountability from the boards of nonprofit entities, which in some cases are made up of family members or appointees of the chief executive.

“It’s been my experience with a lot of these governing boards that a lot of the membership is appointed by the CEOs of the organizations themselves,” said Marcellino. “In many cases, they’re just rubber stamps.”

Link to article:

http://www.cityandstateny.com/nonprofits-push-limits-ceo-pay/