State takes steps to cap nonprofit pay

April 8, 2012

New York Council of NonprofitsDoug Sauer, CEO of the New York Council of Nonprofits Inc., said the governor’s order lacks clarity.

Each of the affected state agencies will have its own rules as well as the ability to issue waivers to contractors. There are also questions about whether the order applies to all exeNonprofit Coordinating Committee of New Yorkcutive officers or just CEOs, and how compliance will be tracked when contractors deal with more than one agency.

Sauer believes the end result will be confusion for nonprofits as well as additional compliance costs. And he stressed the order won’t crack down on excessive compensation because contractors with multiple revenue sources can use other funds to pay seven-figure salaries.

"It’s more accountability and more administration to prove that you didn’t do something wrong," Sauer said. "This order won’t deal with excessive salaries and it will cost all the nonprofits more money, and the vast majority don’t have excessive salaries."

Michael Clark, executive director of the Nonprofit Coordinating Committee of New York Inc., suggested the Internal Revenue Service’s guidance on setting nonprofit compensation is sufficient.

The IRS, which grants nonprofits their tax-exempt status, requires annual reporting of financial information, including pay. The IRS doesn’t have a formula to figure out what’s excessive, but it does look for board policies and procedures for setting compensation, that pay decisions are documented, there are no conflicts of interest, and that comparable salary data is taken into consideration.

"Our preference is that we stick with that approach," Clark said, adding new rules may do more harm than good.

"There are a lot of amateurs poking around at something that has for 50 years been the subject of intense study."

David L. Thompson, vice president of public policy for the National Council of Nonprofits in Washington, agreed. He said the law, and others like it passed in Florida and New Jersey, are misguided and counterproductive.

Not only is there no profit baked into most fee-for-service nonprofit contracts, according to Thompson, but state Medicaid reimbursements often don’t cover the full cost of services.

"Why in the world would you cap salaries of people who are saving government money?" he asked.