52 Top Executives Are Paid at Least $1-Million

When the Internal Revenue Service announced last month that it plans to ask charities that pay their chief executives

$1-million or more to justify how they set compensation, it didn’t make clear which organizations it would review or how many nonprofit officials met that qualification.

To determine just how many charities pay their executives that much, The Chronicle analyzed salary information using GuideStar’s database of informational tax returns filed by the country’s nonprofit groups. After excluding charities that made mistakes or said that the salary figure included a lump sum for deferred compensation, The Chronicle identified 52 charities that paid their leaders more than $1-million in annual salary for the most current year for which information was available — 2002 for most of the organizations. The search did not include benefits or other nonsalary compensation.

The IRS is prohibited by law from saying which organizations it is reviewing, so it is not clear how many of the groups, if any, on The Chronicle’s list will be asked to provide additional salary information to the revenue agency. IRS officials have been careful to point out that most if not all of the salaries above the $1-million threshold may be well justified. Steven T. Miller, commissioner of the IRS’s Tax-Exempt and Government Entities Division, says the IRS is simply looking at the outliers on the pay scale to be sure the amounts meet the requirement of being reasonable based on pay at organizations of similar size for similar work.

Hospitals Dominate List

Forty-two of the people on The Chronicle’s list were the chief executives of hospitals or medical centers. Of the remainder, four managed endowments or investment funds; three were conductors of symphony orchestras; one was a bankruptcy trustee who had been appointed to oversee the collapse of a nonprofit hospital chain; one was vice president of a Christian broadcasting station; and one ran a children’s residential home.

Marc Owens, a Washington lawyer and a former director of the IRS’s Exempt Organizations office, says that the scope and responsibility of a particular job may justify a large salary. An executive with big responsibilities “may be paid handsomely for that job, and he may earn every penny of it,” Mr. Owens says. “The question is, what are people doing for the money?”

The actual universe of charity leaders who earn $1-million or more could be higher, since the tax forms of private foundations are not available in a format that allows them to be easily searched for salary information. In addition, because the GuideStar data do not reflect the most recently filed Form 990 tax-return information, executives whose pay topped $1-million only in the last year or two would not be on the list.

Also, The Chronicle restricted its review to officials who have a leadership role with the organization because that is the group the IRS will examine.

Another 136 employees — ranging from financial managers to surgeons to football coaches — also were paid $1-million or more; however, the federal law that restricts unreasonable payments to top officers and directors of a charity does not apply to employees who lack the authority to make policy decisions for the group.

Top Salary: $5.7-Million

Leading the list of chief executives who made $1-million or more was Jack R. Meyer, president of the Harvard Management Company, in Boston, which manages the university’s $19.3-billion endowment. Mr. Meyer made $5.7-million in 2002, the most recent year available from the GuideStar database. That was nearly four times as much as the next highest-paid endowment manager on the list, Robert Bovinette, president of the Commonfund in Wilton, Conn. Mr. Bovinette made $1.5-million in 2002.

At Harvard, controversy is brewing not only over Mr. Meyer’s pay, but also over that of the managers of the endowment. Some Harvard alumni are protesting the salaries, saying they are far higher than those paid to endowment managers at other leading universities.

David R. Mittelman, a senior vice president of the Harvard Management Company, tops The Chronicle’s list of the highest-paid employees who are not chief executives. In 2002 he was paid $17.4-million — $35,000 more than the second-highest paid employee, Jeffrey B. Larson, another of Harvard Management’s senior vice presidents. At least three other employees of Harvard Management made more than $6-million. More of its employees may have been paid more than $1-million, but federal regulations require nonprofit organizations to list only the five highest paid employees other than officers and directors.

Terry M. Bennett, a 1964 graduate of Harvard Medical School, is lobbying Harvard University alumni to withhold their donations to the university in protest until the managers’ pay is reduced and the institution discloses additional information about its investment practices. Dr. Bennett, a general practitioner in Rochester, N.H., says he would like to see Mr. Meyer and the endowment managers make salaries comparable to other universities. For example, he says, the head of the endowment fund at the University of Texas, Bob Boldt, was paid $430,000 (plus $313,316 in benefits) last year.

Dr. Bennett says that the way he sees it, the $4-million gift he made to Harvard in 1991 went into the endowment managers’ pockets, rather than being spent on scholarships and facilities as he had hoped.

“The endowment is either a great charity designed to finance … the education of the carefully selected brilliant, or it is a private piggy bank for a few insiders,” Dr. Bennett says. Right now, he says, it looks like the latter.

Harvard officials say the managers’ pay is justified by the endowment’s performance, which topped 12 percent in 2002, according to the university. Lawrence H. Summers, Harvard’s president, says that the managers’ salaries will be limited so they do not exceed a certain amount, although he did not specify what that amount would be. But he also says the endowment costs less to manage than what other universities are paying to outside financial institutions. “If you look at the all-in cost of Harvard’s money management, it’s about half of what it would be on the models used at most other universities,” he says.

Harvard’s investment managers declined to comment on their pay.

Harvard has long refused to provide much public information about its management company or its endowment, in part to maintain a competitive advantage in its investment decisions. But nonprofit-compensation experts say that the growing scrutiny by federal and state officials, as well as donors, will force charities to become more open about their decision making.

“People are saying, ‘Hey, guys, not-for-profit means something,’” says Hugh Mallon, a nonprofit-compensation consultant in Baltimore. “You’re stewards of public trust and held to a higher level of accountability. You need to be willing to be judged in the courts of public scrutiny.”

Christian Broadcaster

The second-highest paid charity executive on The Chronicle’s list was Meredith (Buddy) Merrick, who made $2.4-million in 2001 as vice president of Good Companion Broadcasting and general manager of WJAL-TV, in Hagerstown, Md., which the network owned. That same year, Good Companion sold its station for $10.3-million to Entravision Communications, a Spanish-language network.

The compensation Mr. Merrick received in 2001 was a big increase, since he made $84,000 in 2000. Thomas E. Diehl, the former treasurer of the station, says that Mr. Merrick received the money as payment for several services, including selling advertising for the station, for about a decade, for which he received no commission. The station operated at a loss until it was sold, Mr. Diehl says. “We would have gone [off the air] years earlier if it hadn’t been for Buddy,” Mr. Diehl says.

Mr. Merrick also received a commission for helping to broker the station’s sale, Mr. Diehl says. Efforts to reach Mr. Merrick and Gerald Jacobs Sr., the former president of the station, were unsuccessful.

The third-highest paid executive in the survey was Lorin Maazel, conductor of the New York Philharmonic, who made $2.3-million.

Art museums and symphony orchestras are among the groups that have seen the biggest increases in pay in recent years for top talent, says James Abruzzo, executive vice president of an executive-search firm in Short Hills, N.J. “That was because there was a limited supply, and those groups felt they had to pay for the best,” he says. “I think that’s going to change.” Not only will the increased scrutiny have an impact, but some groups have simply decided they can’t afford it, he says.

Fourth on the list is Sidney Kirschner, chief executive officer of Northside Hospital in Atlanta. Mr. Kirschner made $2-million in 2002.

The hospitals on the million-dollar pay list will probably be able to justify their executive salaries to the IRS, says Bruce Flessner, a Minneapolis executive-search consultant who has worked for several hospitals. Not only will they be able to compare their pay with other hospitals on the list, but in general they are cautious about documenting their salary decisions and following IRS rules, he says.

The only human-services executive, Ray George Jr. of Normative Services, in Sheridan, Wyo., oversees a home for troubled youths, serving about 110 children a month. Mr. George, who was chief administrator of the program, received $1.2-million in 2002, while Julia George, his wife and the charity board’s president, received $900,000. By contrast, the next-highest paid official, Cal Furnish, who is now executive director and was the director in 2002, received $66,000. The pay of the top two officials was nearly a third of the group’s gross revenue of $6.6-million.

Mr. Furnish says that the Georges retired in that year and their pay included severance payments and additional income to compensate the Georges for earlier years when they were underpaid. The board set the Georges’ pay after commissioning a study to determine what would be a fair amount, says Mr. Furnish, who served on the board at that time.

Mr. Furnish says the Georges founded the charity and were involved in overseeing it for 14 years. He says his own salary as executive director is “in the 70s,” which he considers fair given “my job, the part of the country I work in, and the fact that I wasn’t the founder.”

Calls to the Georges’ residence were not returned.

Bankruptcy Trustee

Among the more unusual jobs included on the list: a bankruptcy trustee, William J. Scharffenberger, who earned $1.2-million, more than the assets of the organization he represented, Allegheny University of the Health Sciences, in Pittsburgh.

Mark A. Pacella, deputy attorney general of Pennsylvania, says the compensation is within the range of what would be expected given the work a bankruptcy trustee in this kind of case would have to do.

He also noted that pay for this kind of official is subject to scrutiny not only by the bankruptcy court but also by a bankrupt organization’s debtors. Mr. Scharffenberger was clearing a bankruptcy created under the watch of Sherif Abdelhak, chief executive of the Allegheny Health, Education and Research Foundation, who earned $1.2-million in 1998 even as the organization headed into bankruptcy.

Mr. Pacella says all charity officials should try to welcome the new scrutiny: “No one should be uncomfortable about the compensation they pay.”