Some Boards Are Changing the Way They Pay Their CEO to Avoid Unwelcome Scrutiny

Under the arcane rules for reporting the salaries of nonprofit executives, Roxanne Spillett took a big pay cut and still ended up in 2011, her final year at the helm of the Boys & Girls Clubs of America, with a pay package totaling $1,814,593.

At a time when the public and state regulators—not to mention the Internal Revenue Service—are casting an ever more skeptical eye toward big payouts for charity leaders, some boards are revamping the way they structure packages for executives to try to avoid the kind of unflattering spotlight that has shone upon Ms. Spillett’s pay.

Ms. Spillett made national headlines in 2010, when members of Congress held up a bill that annually provides millions of dollars to the Boys & Girls Clubs, in part because of compensation that they deemed excessive for a charity leader. Ms. Spillett’s total pay in 2008 was $988,591, including $385,500 in deferred compensation.

The board of the Boys & Girls Clubs defended Ms. Spillett’s pay as appropriate for the leader of an organization with such a large national presence, but she nevertheless insisted on giving up a portion of her pay from 2009 to 2011. She declined payments that would have totaled roughly $1-million—and she rejected that portion of her compensation for good reason.

It was money she was entitled to receive through a supplemental retirement plan. This type of deferred compensation is required to be reported in the year it is accrued and also in the year it is paid out. Had Ms. Spillett elected to continue to receive those payments from 2009 to 2011, her reported compensation in 2011 would probably have been closer to $2.8-million.

Appearances Count

Such big reported payouts can shoot executives toward the top of The Chronicle’s annual salary survey—and may draw the ire of donors and charity regulators.

Peter C. Marzio, director of the Museum of Fine Arts, Houston, earned a base salary of $448,000 in 2010. But his death late in the year triggered a payout of deferred compensation and a multiyear bonus arrangement that pushed his total pay to more than $3.2-million—the second highest total among all nonprofit chief executives in The Chronicle’s survey this year.

This reporting phenomenon has prompted some charities to scale back or eliminate portions of executive pay that accrue over multiple years but must be reported in full during the year they’re paid out.

“I recently had one client—a well-known, large tax-exempt organization—that told me they were no longer using deferred compensation because they didn’t want to have that ‘year of payment’ effect,” says Harry Atlas, a lawyer in Washington who frequently helps charities structure pay packages.

“Boards are extremely concerned about perception issues,” says Brian Vogel, a compensation consultant in Washington. “And the bigger the organization, the more they’re concerned about it. One organization I’m working for right now told me, ‘I worry a lot more about The New York Times than I do about the IRS.’”

Cutting Perks

Compensation experts say charities are also beginning to phase out certain perks, such as club memberships and first-class travel, the details of which must be fully described on the latest version of the IRS Form 990, the annual tax form that charities file.

And “tax gross-ups”—additional payments that charities make to executives to cover taxes on certain benefits, like a car or tuition—“have become a thing of the past,” Mr. Atlas says.

Relatively common a decade ago, tax-gross-ups are now seen as excessive, he says. Why? “If the government thinks you should pay taxes on something, you ought to pay the tax,” Mr. Atlas says.

During a recent Webinar about trends in compensation for hospital executives, Yaffe & Company, a consulting firm, devoted about 10 percent of the slides to media inquiries and “sensationalism.”

The company’s founder, Rian Yaffe, thinks nonprofit executives are getting a bad rap, especially at universities and hospitals, where he says executives have become scapegoats for the ever-escalating prices of health care and tuition.

“People are looking for reasons, and salaries are an easy target,” Mr. Yaffe says. “A hospital or university might have thousands of employees. The CEO is one. There’s no way that CEO salaries are causing the rise in the cost of health care, or causing tuition to go up.”

Watchful Eyes

One charity executive who may escape scrutiny for her 2012 pay is Ms. Spillett. Although she stepped down as president of the Boys & Girls Clubs in December, she stayed on as interim head of national resource development through July, and she will continue to work full time through the end of the year, helping to develop a new national fundraising campaign.

For Ms. Spillett, the million-dollar pay days appear to be over. Her 2012 salary will be $306,682. But plenty of people will be watching—not least, members of Congress—to see what the Boys & Girls Clubs chose to pay her successor, Jim Clark.

Evan McElroy, a spokesman for the charity, says Mr. Clark is making a base salary of $425,000 (slightly less than Ms. Spillett’s 2011 base of $455,829), plus benefits, and a potential bonus “based on predetermined performance criteria.”

Chief Executive Pay at the Boys and Girls Club