Monday, May 21, 2007

What makes a nonprofit? Split on what to pay

What makes a nonprofit? Split on what to pay
  May 21, 2007 Newsday  
By Daniel Wagner

Executive compensation policies at not-for-profit organizations have been an issue of heated contention in recent years, with federal regulatory agencies, academics and think-tanks weighing in on whether those running tax-exempt, multimillion-dollar corporations are entitled to private-sector salary and benefit packages.

Defenders of organizations' discretion say nonprofits have to compete with private-sector institutions to attract talent; critics argue that large organizations such as hospitals -- many of which grant top executives millions in compensation -- should not be classified as tax-exempt at all, given their structural difference from the charities most people associate with the term "nonprofit."

In 2002, the Internal Revenue Service started assessing extra taxes to nonprofit executives whose salaries it deemed to be excessive, according to a report from the Washington, D.C.-based think-tank The Urban Institute.

But the report said that in an increasingly competitive market for executives, "nonprofits have little choice but to provide leaders with salaries and benefits that are comparable to compensation rates in the for-profit sector."

For community development corporations, the most important issue is what balance the board strikes between compensation and expenditures on programs that fulfill the mission that grants a group its tax-exempt status, according to Marianne Garvin, president and chief operating officer of the Community Development Corporation of Long Island. That group performs some of the same functions as the Long Island Development Corp., but also develops real estate and provides loans for low-income housing.

"What makes it a not-for-profit is that the revenues of the corporation go to furthering the mission of the corporation," Garvin said. "Having said that, we operate in a business-like manner ... and the staff is geared and evaluated on performance and outcomes."

Garvin said compensation policies should be judged by the comparison of core program spending to compensation. She said 75 to 80 percent of revenues dedicated to core programs is the going standard; in her group's case, she said, that number is above 90 percent.

In 2005, the corporation's chief executive, Wilbur Klatsky, collected $202,839 in pay and benefits, according to the organization's most recent filing.

She said strong oversight by a group's board of directors is a key to striking the proper balance, but that most grant-funded programs, including the HUD- and SBA-backed loans that groups like hers administer, are audited frequently and thoroughly.

Copyright 2007 Newsday Inc.

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