A recent article about the Dodd-Frank law on financial industry reform notes the potential for a significant “spillover” effect on the nonprofit healthcare sector, including executive compensation. The article notes particularly the possible effects on the ratio of total CEO compensation to median employee total compensation, the relationship of executive compensaton to financial performance, compensation committee and adviser independence, disclosure, and “clawback” policies for incentive payments. While the new law does not apply to nonprofits, it may, as with Sarbanes-Oxley, set new expectations for “best practices.”
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Across many fronts, but particularly in executive compensation, nonprofit healthcare can be expected to feel the impact of a changing perspective on corporate social responsibility and sustainability (CSR). A good discussion of this was developed by the Society for Human Resource Management’s Future Insights, Top Trends by Special Expertise Panel in its release for 2010. External pressures have been documented in the media and regulation, but the Panel believes that internal pressure to embrace CSR will increase as an increasing number of Generation Y employees weigh an organization’s CSR commitment as a factor in accepting employment and remaining employed in an organization.
Trends across for-profit and across healthcare, higher ed and other nonprofit sectors seem to be mirroring each other. For example, when Lawrence Associates was quoted in the BNA Daily Tax Report, IRS Audits Harvard, Other Universities in Probe of Exempt Purpose Rules by Diane Freda, March 26, 2010, the former IRS Exempt Organizations Director Marcus Owens, now an attorney with Caplin & Drysdale, said that a review of compensation has now become a staple of every audit of an exempt organization.
Most recently, Dodd-Frank, legislation enacted July 21, 2010, in response to market excesses and regulatory inadequacy, is expected to have a spillover effect on nonprofits much like the spillover effects of Sarbanes-Oxley. This is described in an interesting article by Michael W. Peregrine, McDermott Will & Emery, LLP and Timothy J. Cotter, Sullivan, Cotter and Associates, Inc.: Dodd-Frank: The Spillover Impact on Nonprofit Healthcare. These legislative initiatives, enhancing board independence, reducing potential conflicts of interest, increasing “say-on-pay,” requiring disclosure of the ratios of CEO to median employee total compensation and CEO to executive pay, along with clawback provisions on incentive pay; attention to conflicted advisors; and documentation of pay for performance all reflect a sea change in governance of both for-profit and nonprofit organizations.
Please join us for Lawrence Associates’ free webinar on 8/25/2010, 1pm EST on Nonprofit Executive Compensation, Wage & Incentive Design in the New Economy http://bit.ly/ccm50m
The New York Times reports (link to article is here) that the Labor Department is investigating overtime pay practices throughout the health care industry. The cases have involved mis-classification of nurses and other workers as “exempt employees” not entitled to overtime pay, or issues such as failing to pay overtime when employees were required to work through meal breaks. The article reports large payments by various major organizations to settle claims on this issue, along with class actions brought directly by employees.
The front page of the New York Times for August 10 carries a story about what it describes as tax-free “luxury” housing for museum chiefs. The article focuses on the question of whether the housing properly meets the tests that the housing be on the “business premises” and the employee is required to live there. According to the article, the museums say their CEO’s situations are similar to those of university presidents. The article notes that housing for the museum chiefs is generally not on the premises of the museum itself, but in separate apartment buildings, though one, the Museum of Modern Art, has a residential tower on top of the building so the CEO’s apartment is literally an elevator ride away from his office. The article further notes the wide range of practices among nonprofits – at one extreme, the Morgan Library charges its director rent on his apartment and reports the difference between market rent and what he is charged as income on his W-2. As of the time of this posting, a link to the article was not yet available at the Times’ web site but we’d expect it can be found soon at nytimes.com.
