Nonprofit groups in Massachusetts are paying their chief executives huge amounts of money and giving them lavish perks unavailable to most workers, according to a new report from Attorney General Martha Coakley’s office that calls for reform in the way groups disclose executive compensation.
The 92-page study, which covered 25 large charitable organizations in Massachusetts, mainly hospitals, insurers and colleges, found all of them paid their leaders at least a half-million dollars a year in total compensation. And many of the organizations offered their executives an assortment of other benefits, including bonuses, deferred compensation, auto allowances, financial planning, life insurance and other benefits that are more commonly associated with corporate leaders.
Even when executives retire, they often leave with hefty severance or consulting deals that allow them to earn millions more. The executives covered by the report each received between $487,000 and $8.8 million in total compensation each year between 2009 and 2011 — pay levels that Coakley’s office said should cause concern in some cases.
“It is not always clear that large compensation benefits packages are actually necessary to attract and retain talent,” the report argued.
But many nonprofits argue that they need to offer their executives significant compensation to attract talent and compete with peers around the country. And many of the organizations in the survey, including universities and hospitals, are large, complex organizations with billion-dollar budgets.
Coakley’s office launched the study after revelations that Blue Cross and Blue Shield of Massachusetts, the state’s largest nonprofit health plan, gave two former chief executives multimillion-dollar payouts after they stepped down. William C. Van Faasen received $16.4 million in a lump sum retirement benefit in 2006 and Cleve Killingsworth received $11 million after he left in 2010, including more than $4.2 million in severance.
Blue Cross later agreed to refund $4.2 million to customers after Coakley challenged the payment. Blue Cross spokeswoman Sharon Torgerson said the insurer has dramatically scaled back the pay for its current top executive, Andrew Dreyfus, including the severance provisions in his contract.
As the Globe reported last month, many local universities give their former presidents large exit packages or keep them on the payroll even after they quit. For instance, Tufts University President Lawrence Bacow received $1.7 million in “end of service compensation” after he retired in 2011 and Brandeis University President Jehuda Reinharz has received at least $1.2 million for part-time advisory work since he stepped down three years ago. Tufts said Bacow earned the payment over many years and Reinharz is providing valuable assistance to the school.
To address the issues, Coakley’s office urged nonprofit compensation committees to consider their charitable mission, how the executive pay compares to other workers’ salaries, and take into account the amount of public support the nonprofit receives from its tax-exempt status.
The office also proposed creating a new form that charities would have to fill out to disclose their executive compensation more quickly and in a form that might be easier to understand. Organizations currently can wait nearly two years to disclose executive pay on their federal tax returns, because of extensions and differences between group’s fiscal and calendar years. The information is “often quite stale by the time it is reported,” the report noted.
In addition, the attorney general’s office strongly urged boards to reconsider promises to give executives large amounts of severance if they are later let go. The report suggested the severance clauses in employment contracts can handcuff boards by discouraging them from firing floundering executives — and damage the organizations. The report said it hoped such severance deals become less common after the uproar after Killingsworth’s golden parachute.
Still, the report did not single out any organizations for criticism. And it said that, on the whole, it found that organizations took “care and attention” to make sure the executive pay levels complied with federal rules. Most of the organizations hired outside compensation consultants or analyzed pay for leaders at comparable organizations.
Coakley is seeking the Democratic nomination for governor.