October 3, 2010 | Read Time: 5 minutes
Looking around the Web, one can find people complaining publicly about Robert J. Beall’s more than half-million-dollar salary in 2008. What are people going to say when they learn that Mr. Beall, president of the Cystic Fibrosis Foundation, made $2-million in 2009?
There’s a good case to be made that Mr. Beall didn’t actually earn $2-million in 2009, but $2,082,276 is the bottom-line number the Bethesda, Md., charity reported to the Internal Revenue Service. Using that figure, Mr. Beall earned more than any of the 57 executives in a recent spot check of executive compensation that The Chronicle conducted.
Nearly three-fourths of the sum reported for Mr. Beall in 2009 was accrued in two deferred-compensation plans over 12 years. Mr. Beall had the “bad luck,” as Henry Smith, a lawyer who advises the charity’s board, puts it, to have one plan vest on January 1 and the other vest on December 31, driving Mr. Beall’s total compensation above the $2-million figure. Mr. Smith says the number that people should care about is the $576,105 that Mr. Beall received in salary and bonus in 2009.
“The reader who does not take the time to read the full tax return will get the radically misinformed impression that Bob made $2-million,” Mr. Smith says. “That number is meaningless.”
‘An Awkward Place’
Still, the $2-million number is likely to jump out at reporters, the charity’s supporters, and, potentially, government regulators.
In March, news-media outlets around the country trumpeted the nearly $1-million 2008 pay package for Roxanne Spillett, president of the Boys & Girls Clubs of America, which included deferred compensation of $385,500. The scrutiny came after four U.S. senators raised questions about her pay and other spending at the Atlanta charity, while considering legislation to extend a large annual grant that the organization receives from the Justice Department.
William Barram, national vice president of division services at the American Cancer Society, who earned more than anyone else in The Chronicle’s spot check of executive compensation, received more than 80 percent of his pay from deferred compensation. His total compensation, $2,424,592, exceeded that of the charity’s chief executive, John R. Seffrin, by some $1.1-million. Greg Donaldson, an American Cancer Society spokesman, says Mr. Barram earned the pension and supplemental retirement benefits “over the course of 30 years of professional service” to the charity.
Michael W. Peregrine, a Chicago lawyer who advises several charity boards, expects even more politically explosive compensation packages in the years to come, as retirement and deferred compensation plans negotiated during the boom years before 2008 begin to be paid out.
Mr. Peregrine says that many charity boards are taking a close look at their top executive’s pay package—and looking to restructure the compensation when possible—to head off the kind of public-relations nightmare that the Boys & Girls Clubs endured.
“Boards are in an awkward place,” Mr. Peregrine says. “They may have done exactly the right thing in past years, but that was then, this is now. There has got to be a hard internal dialogue about the risk to the organization in the current environment. If you’re going to pay extraordinary dollars in deferred compensation or retirement benefits, you ought to start anticipating the fallout.”
Appearance Counts
It’s a lesson the Boys & Girls Clubs appears to have learned. Ms. Spillett earned just $635,406 in salary, bonus, and benefits in 2009, more than a third less than she made in 2008, primarily because of a sharp decrease in deferred compensation.
And she is unlikely to be back near $1-million in total pay any time soon. In a statement to The Chronicle, the charity said Ms. Spillett had asked the board to eliminate any payments to her supplemental retirement plan after 2008 due to the “challenging economic environment and a period of significant media attention regarding her total compensation.”
The statement said Ms. Spillett worried that the focus on her total compensation would have a “negative impact on local clubs.”
Sen. Charles E. Grassley, the Republican of Iowa who was one of the four senators who questioned Ms. Spillett’s salary and other spending at the charity, has been critical of generous deferred-compensation packages for nonprofit executives. He tried unsuccessfully to introduce an amendment to a bill last year that would have curtailed the ability of charities to justify paying executives high salaries by pointing to pay at similar for-profit institutions.
Mr. Grassley—the senior Republican on the Senate Finance Committee—says he continues to look for a way to crack down on executive pay at charities.
“It’s not clear whether charitable board members are doing their due diligence and independently scrutinizing the justification for these compensation packages, or whether they are blindly accepting the recommendations of outside consultants,” Mr. Grassley says.
He adds, “I’ve seen many boards rubber-stamp compensation recommendations from these consultants that might be considered excessive by the general public.”
Rethinking Deferred Pay
The new Form 990, the federal informational tax return filed by charities with the Internal Revenue Service, makes it easier than under the previous version of the form for nonprofits to highlight how much of an executive’s compensation was earned in prior years. But charities still must report the total amount paid out in a particular year—a requirement that grates on some charity advisers.
“The better way to report deferred compensation would be to report it only as it accrues, rather than in the year that it is paid,” says Mr. Smith, the lawyer who works with the Cystic Fibrosis Foundation’s board.
Like Mr. Peregrine, Jose Pagoaga, an executive-compensation consultant at Mercer, expects more debate in boardrooms about whether it’s worth keeping deferred pay and retirement plans to attract and retain quality leaders.
“Clearly you have to balance the tension that is inherent around this process,” Mr. Pagoaga says. “What will this look like to the general public, regulators, and the media? Even if the compensation is totally earned and justified, is the juice worth the squeeze?”
