Nonprofit executive compensation gets a lot of attention in the United States these days, as I wrote in my post yesterday on the Mission Connected blog (“Are Your Executive Compensation Bases Covered?“). Over the past week, the topic has gained prominence in both the US Senate and the mainstream press, as Senator Charles Grassley (R-Iowa) and three other Republican senators have raised questions about the compensation provided by the Boys and Girls Clubs of America to the organization’s president. That controversy has struck an emotional chord on both sides of the issue, including a scathing response by author Dan Pallota.
In this context, I found it notable to learn this week that the issue of nonprofit executive compensation has also attracted attention at the federal level in Canada. Specifically, as Jane Taber reports in her Ottawa Notebook blog, a Liberal Member of Parliament from Ontario has introduced a “charity transparency bill”. Under the legislation proposed by MP Albina Guarnieri, all registered Canadian charities would be required to publicly disclose the salaries of the organization’s five highest-paid employees. Further, the annual salary of all executives would be capped at $250,000.
The proposal has already garnered response on both sides — including this extensive counter-argument by Mark Blumberg on GlobalPhilanthropy.ca — and is scheduled for a vote next month.
I am not registering an opinion about the bill either way, but I am struck by the contrast between the legislation’s provisions and practices in the United States. On the one hand, the disclosure requirement provides for far less transparency than that required in the US. On the other hand, the concept of a finite cap on executive pay is one that I believe would be met with tremendous resistance in the US.
The proposed Canadian legislation calls for organizations to disclose the salaries of the five highest-paid employees. (Taber and Blumberg’s articles refer specifically to salary. It is not clear to me from the information currently available how or if non-salary compensation would figure in to the disclosure requirements.) Under the US Internal Revenue Code, nonprofit organizations are required to disclose on their annual IRS form 990 the compensation paid to all officers, directors, and any employees paid more than $150,000.
The US requirement dates all the way back to the very first Form 990 filings in 1941 (when the threshold for reporting was $4,000). Form 990 goes beyond salary, encompassing all forms of compensation (e.g., benefits contributions, deferred compensation, and expense allowances). With the Form 990 revisions instituted in 2008, the disclosure requirements have become even more extensive. So it appears that the Canadian requirements, if implemented, would fall well short of what is required in the US.
But let’s consider the second provision of the proposed Canadian legislation, calling for the compensation of all charity executives to be capped at $250,000, at the risk of forfeiting the organization’s status as a registered charity. The $250,000 figure appears to be somewhat arbitrary, but Ms. Guarnieri notes that it is more than what a minister (cabinet member) earns. This echoes a notion that I’ve sometimes heard in my work as a human resources and management consultant to nonprofit organizations — that no nonprofit executive should earn more than the US President’s salary (currently $400,000).
Public opinion notwithstanding, the only “cap” that exists on nonprofit executive compensation in the US is that imposed by Internal Revenue Code Section 4958, under which high levels of compensation can be construed as an excess benefit, triggering intermediate sanctions for the organization and the individuals involved. However, this is far from a finite cap, in that the standard applied is one of “reasonability”, based on the somewhat fuzzy criteria that the compensation be consistent with “the value that would ordinarily be paid for like services by a like enterprise under like circumstances”.
I would venture to guess that any serious effort to impose a finite quantitative cap in the US would be met with considerable opposition from many sides, including, in perhaps an ironic twist, some proponents of free market capitalism who might not often find themselves advocating on behalf of the nonprofit sector.
So what do you think? Does the proposed Canadian legislation go too far or not far enough? I am interested in hearing from those on both sides of the border — and both sides of the issue — as to the appropriate role of federal governments in the disclosure and regulation of nonprofit executive compensation in either country.
Photo credit: scazon 
I have to agree – executive compensation in the charitable sector is a hot button issue! Thanks for describing what transparency means in an American context. I also personally have to agree with a lot of the notes Mark Blumberg brought up about T3010 filings.
I’m from the great white North so I thought I could help put this bill in context. In my opinion, it didn’t happen in a vacuum.
MP Albina Guarnieri represents Mississauga-East-Cooksville, a Toronto-area riding where many newspapers have made a point of writing critically and specficially about executive compensation & fundraising costs per dollar.
The Toronto Star in particular has been highlighting the charitable sector (beginning with an investigation series in 2002) and has since published many pieces that have generated a lot of commentary from the public.
Here are some of the articles that have inspired debate in the community, and could have contributed to the attitudes shown by those supporting/creating the bill.
Charities admit fundraising mess – July 15, 2007
Columnist discusses commission-based fundraising tactics for major charities:
http://www.thestar.com/news/canada/article/236046
Feds aim to revoke Children’s AIDS – March 16, 2010
Investigation of the costs-per-dollar at a pediatric AIDS foundation:
http://www.healthzone.ca/health/news/investigations/article/780906–feds-aim-to-revoke-children-s-aids-charity-after-audit
Fox’s Celebrity Worries Charity – Sept 24, 2009
Discussion of Michael J. Fox’s American charity vs. an established Canadian charity:
http://www.healthzone.ca/health/newsfeatures/research/article/700200–fox-s-celebrity-worries-charity
Charity boss gets 2.7 million send-off – October 1, 2009
Critical commentary on the published salaries for staff at a hospital foundation:
http://www.healthzone.ca/health/news/gta/article/703659–sick-kids-charity-boss-gets-2-7m-send-off
Shady Kids Charity Has License Yanked – May 12, 2009
Expose on findings of a Canada Revenue Agency audit:
http://www.healthzone.ca/health/news/gta/article/632819–shady-kids-charity-has-licence-yanked
This all comes after a 2006 series of articles run by the paper that calculated only 19 cents of every dollar donated to MADD Canada was spent on programs. This investigative piece and follow-ups created a ripple effect in the community and has stuck in the public perception.
One of the pieces is here:
MADD’s exorbitant costs anger charity’s volunteers:
http://www.thestar.com/news/article/134309
Not every critical article on the charitable sector is written by the Toronto Star, not every article written about charities is critical – I don’t mean to pick on them, but they’re the paper that makes many of their historical articles available on the web and easy to share!
I wanted to highlight some of what’s been written about charities up here because I think it sets the stage for why a bill like this could be tabled and attract public attention.
Claire, thank you so much for reading and for your comment. I appreciate you taking the time to fill me in on some of the context in which this legislation has been proposed. I’ve glanced through all of the articles you linked to, and am struck by the fact that most of the focus seems to be on fundraising tactics and fundraising/administration versus program costs. The latter issue definitely mirrors another of the current nonprofit hot buttons here in the US, with many feeling that “overhead” has gained far too much prominence as a measure of nonprofit effectiveness.
As a semi-frequent (?) visitor to Canada, and in the interest of expanding my professional horizons, I’ll definitely be keeping an eye on how the proposed legislation unfolds, and look forward to hearing more of your views. I will also be continuing to write, both here and on the Mission Connected blog, about my views on executive (and non-executive) pay in the nonprofit sector.
Finally, I have to tell you that I love love love your blog (and have added it to my blogroll). If mine grows up to have even a quarter of the personality that yours does, I’ll be a very happy blogger.
Thanks again, Claire. Be well, and stay in touch!
Thanks for the compliments Joe — If you’re ever in Toronto, let me know so we can quaff beers (national beverage)!
I posted on Mark Blumberg’s article but also wanted to mention – the “2.7 million salary” quoted by Ms. Guarnieri in her call to action for the bill is related to severance, not a regular yearly salary, and the number as reported is currently under legal dispute. Says so right on the Toronto Star article.
Hi Claire. Thanks for the follow-up post. Your point about the $2.7 million is a good one. It also underscores a point that I made in my original post…it is unclear whether the $250,000 limit in Ms. Guarnieri’s bill refers to salary only or all compensation.
Along these lines, I have to take issue with Mark Blumberg’s assertion that Canada has “excellent transparency on the issue of compensation” and that the bill ignores “the extensive transparency requirements that already exist”. I’ve taken a look at the relevant tax form, schedule 3 of T3010B, as well as the accompanying instructions, and note that all forms of compensation are lumped together. I also note the manner in which compensation is reported — by the number of people falling within each dollar range — and have a hard time considering this to be “excellent transparency”.
I’m still not taking sides. Honestly, I don’t care how this turns out. I don’t have a dog in the fight, as the saying goes. But I’m also not understanding Blumberg’s statement that “If providing exact salary information is a poor idea…”. I can’t find, or perhaps I can’t follow, his argument. Why is it a poor idea?
Identifying actual compensation on a per individual basis, with a breakout as to the various types of compensation, would be consistent with the US treatment effective with the 2008 tax year. At least in our circumstances, it seems to represent a reasonable degree of transparency. Certainly, as a consultant to nonprofit organizations in this area, it will allow me to do a better and more informed job.
By the way, I think Blumberg’s point that more transparency about evaluations of the charities’ work is needed is a good one…and one that is applicable to the US nonprofit sector as well.
What I find most striking is that the bill contains two very different provisions: 1) transparency/reporting and 2) capping compensation. I am surprised that these issues are being conflated, and would imagine that different constituencies would have different stands on these two issues (I would).
As I mentioned to you, I received a call from Ms. Guarnieri’s office, filling me on some of the next steps for the bill. I understand that the second hour of debate in the house will happen on 4/19, and if passed, the bill will then go to the Finance Committee. I will be interested in keeping an eye on how it and the accompanying discussion proceed, and look forward to continuing to hear your views on it as well.
Thanks again!
Joe, Thank you for the blog. You raise a number of good points in your blog.
When I said that we have “excellent transparency on the issue of compensation” I am not comparing Canada to the US but to the needs we have here in Canada. For the importance of this issue compared to other issues I think we have more than enough disclosure. From what I have seen so far excessive compensation is not a problem in Canada – abusive Canadian charity tax evasion schemes ($5 billion over 6 years), fraudulent issuing of receipts, poor controls over expenditures both in Canada and abroad etc – those are far greater problems in Canada.
Furthermore 1) Canada requires disclosure of compensation in increments till $350,000 whereas before it was 120,000 which is a very substantial improvement in our context. 2) Compensation according to the bill is not just salary but “compensation” “includes salaries, wages, commissions, bonuses, fees and honoraria, plus the value of taxable and non-taxable benefits;” Hope that answers your question. 3) In Canada I can search in an Access database through all of the T3010 information for free and see which charities are paying what increments – I don’t have to go from one 990 to another as I understand one needs to in the US. I think in fact that Canada is one of the few countries that has made the information electronically accessible as opposed to a PDF on a site which makes it cumbersome to compare thousands of charities at once. 4) I do not think in the big picture compensation should be used as a proxy to determine the effectiveness and usefulness of a charity. There is so much more important information for which there is little transparency required (although some charities voluntarily report on it).
My understanding of the US includes that it takes 3 years of failure to file your 990 to be deregistered as a 501(c)(3) – in Canada if you don’t file your T3010B form within 6-10 months after the deadline a Canadian charity will lose its status. So with a particular charity in the US they may not file for a few years and the information you are receiving can be 3-4 years out of date – even though it is correct to the penny! I am sure that you have seen examples of that.
In terms of salary caps which I agree should not be lumped in with the issue of disclosure and transparency.
Compensation in Canadian charities must be appropriate otherwise it is a breach of the duties of the board/governors and there are significant stakeholders concerns.
In the Canadian context I think it is important to decide what type of transparency would be helpful to various stakeholders of charities, to prioritize that information because charities have to do their mission (obviously they are not there just to fill in forms), and to require that the most useful information is requested from charities on the T3010 and then available to the public. I think that it is important to recognize when certain information on a particular point is enough especially when there are other important areas that are getting little to no attention. There can be different levels of transparency for small versus large charities etc.
Mark Blumberg
http://www.globalphilanthropy.ca
Hi Mark. Thanks very much for your comment. I appreciate you bringing your perspective to the discussion, and I appreciate the opportunity to expand my understanding of the context for the charity transparency bill and the challenges facing the nonprofit sector in Canada. It is interesting to see the similarities and differences vis a vis the challenges of the sector in the US.
It does sound like there are certain ways in which the transparently which exists currently exceeds that which we have here. In particular, the electronic access to information from the T3010 forms sounds quite progressive. As you suggested, our primary option is to search through individual PDFs of annual tax returns, and to do so primarily using Guidestar, a private organization. (Guidestar has constructed and does provide access to a database reflecting some of the information, but it is limited and access is on a paid basis. The Chronicle of Philanthropy also provides an online database, but it contains a very limited number of prominent organizations and foundations).
The timeliness of the filings in your country is also clearly superior to our practices. In most cases, the most recent information we have available to us now is from FY 2008.
I do understand your argument that other areas of charity operations may merit greater transparency but I view the line you’ve drawn with regard to compensation information — the present use of increments up to %350,000 — as somewhat arbitrary. You imply that reporting individual compensation information would take more time, but it seems to me that the individual employee information is actually the raw data, and that the act of categorizing into increments is actually more work on the part of filing organizations.
I also feel that there can be considerable value in reporting the various elements of compensation separately, rather than lumping them together in a single number. It seems this practice is at the heart of the controversy around the $2.7 million case that you and Claire have both pointed out. As illustrated in my recent posts about the Boys & Girls Clubs of America hubbub here in the states, understanding the makeup of compensation can go a long way towards more reasoned discussions of compensation.
I completely agree with you that compensation should not be used as proxy for the effectiveness and usefulness of a charity. Is it your feeling that greater availability of data would tend to make this happen? Is there any danger that lack of availability creates a sense of secrecy and perhaps suspicion? I am also a strong believer that an organization’s overhead and expenses should not serve as proxy for effectiveness or impact, and that we need far better approaches in this area, but I would not suggest this as a rationale for decreasing existing requirements for the detailed reporting of organization expenses. In short, I don’t see it as an either/or proposition.
I am glad that we are in agreement that disclosure and caps are two completely separate issues. It will be interesting to see if they become more distinct as the bill enters its second hour of debate and any subsequent legislative steps.
I am very interested in your statement regarding the responsibility of boards/governors to ensure that compensation is appropriate. Can you tell me more about this or point me to any resource? Is this spelled out somewhere in existing legislation or regulations?
Thanks again, Mark, for your comment and contribution to my learning. As an inquisitive bystander, I look forward to continuing to learn about and discuss these issues, and to seeing how the debate around Ms. Guarnieri’s bill plays out.