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Massachusetts Senate Bill 824, introduced by State Senator Mark C. Montigny, seeks to control nonprofit executive compensation by limiting it to $500,000.
The bill provides:
“Section 30. Executive Compensation Caps
“Any public charity with annual gross revenues in excess of $1,000,000.00 are subject to the following provisions: (a) no officer, director, trustee or senior manager shall receive annual compensation in excess of $500,000.00; (b) compensation, as defined by this Section, includes salary, bonus payments, incentive payments, deferred compensation, severance payments, below market rate loans, and the lease or rental of any vehicle.”
A further section of the bill provides for a review of and waiver for compensation above the cap before a troika of public officials. This entails a bureaucratic process and hearing for each position that must be revisited every two years.
The Massachusetts Attorney General’s Web site offers its description of what constitutes a “public charity” and states that the term is synonymous with “charity,” for which there is “no statutory definition.” It goes on to include among its examples “nonprofit schools and hospitals, museums, scholarship foundations, social service organizations, and youth sports organizations.”
Accordingly, using the term public charity inclusively, here are a few prominent Massachusetts organizations that may be subject to Senate Bill 824’s compensation limitation:
Number of Reported Executives with Total Compensation in Excess of $500,00
Harvvard: 10
MIT: 10
Massachusetts General Hosital: 6
Children’s Hospital: 15
Museum of Fine Arts, Boston: 1
If this bill becomes law, it is unlikely that any of them, or any substantial Massachusetts charitable entities for that matter, will flee the state. But they may conclude that they risk losing talent if they don’t pursue ways around the law, perhaps through new corporate structures or methods of compensation. It could also have a chilling effect on new or small charities, providing an impetus to establish at least their headquarters beyond the borders of Massachusetts.
Sen. Montigny is also the proponent of pending legislation that would deny any compensation whatsoever to nonprofit trustees (see our separate blog post), but here he outdoes himself. The bill’s logic seems primitive, at best. Nowhere is there a consideration of the skills and experience required to succeed in an organization’s industry, the complexity of one business plan over another, the length of a common employment contract, or the ratio of a charity’s throughput to its compensation. Does the nonprofit world really need such social engineering?
Paul Creasy
A copy of Massachusetts Senate Bill 824 can be found here: http://www.malegislature.gov/Bills/187/Senate/S00824
Massachusetts Attorney General FAQs describing public charities here: