Executive Compensation at Boys & Girls Clubs of America: A Closer Look

For an update to this story, please see
The Fine Print: BGCA Executive Pay Update

The debate around the compensation paid to Roxanne Spillett, President of Boys and Girls Clubs of America, prompted by an inquiry on the part of Senator Charles Grassley and three other Republican Senators, is one which continues to grow, at least here in the blogosphere and twitterverse.  While I made passing mention of the controversy in my post yesterday (Canada vs. USA…No Hockey Involved), I feel compelled to address the issue a bit less obliquely.  However, if you’ve come here looking for impassioned moral or emotional arguments on either side of the controversy, you will be disappointed. That ground has been well-staked, on one end by Dan Pallotta, in his Harvard Business Review post “Senator Grassley Is Undermining the Humanitarian Sector”, and on the other by Rosetta Thurman, in her Chronicle of Philanthropy post “Nonprofit CEOs Who Want For-Profit Salaries Should Work At For-Profit Companies“. Each of their posts have received a fair number of comments on both sides of the issue.

Perhaps because I’ve spent the past two decades as a human resources management consultant, primarily in the rewards arena, and the past 12 years working exclusively with nonprofits, my perspective is somewhat different.  My primary reactions around nonprofit pay tend not to be emotional.  It may be that I’ve seen enough cases — on both the high end and the low end — to be inured.  In addition, when I am asked, as a consultant, to render opinions about executive compensation levels, it’s a serious and diligent undertaking which requires far more information and access than what is publicly available in this case. It’s also something that I’m accustomed to getting paid to do. Nonetheless, given the high profile of this case, I found myself asking questions…

Well, how did we get here?

Like many of you, I’m sure, when the story broke, one of the first things I did was to have a look at the organization’s most recent (2008) Form 990.  Having just written a post asking organizations, “Are Your Executive Compensation Bases Covered?“, I wondered about the processes and tools the organization used to establish and manage compensation for the President.  I found that, with the exception of a written employment contract, all of the specific approaches identified on the IRS form had been applied.

As outsiders to the process, what we don’t know, of course, are any of the details or outcomes behind these approaches, particularly the independent consultant engagement, review of other organizations’ 990s, and use of compensation surveys or studies. The closest we get is this, from the original Chronicle of Philanthropy article:

The group said its board’s human resources committee worked with an independent consulting firm, Mercer, to assess the marketplace in setting Ms. Spillett’s total compensation. Mercer “found that it was consistent with prevailing and current market practices of similarly situated national nonprofit organizations,” it said.

As time goes on, we may learn more of these details than is the case in many nonprofit executive pay “scandals”.  As part of their inquiry, Senator Grassley et al. have requested a copious amount of information related to the organization’s governance and compensation practices:

• Copies of BGCA articles of incorporation, charter, by-laws or other documentation indicating how BGCA board members are selected.
• Number of board meetings held in calendar year 2008, and provide the attendance record for each Governor, Life Member, and Governor – Emeritus listed.
• Indication of which, if any, Governor, Life Member or Governor – Emeritus is also a board member or officer of a BGCA affiliate.
• Titles, job descriptions, and resumes for all compensated individuals listed.
• Copies of the compensation studies, reports, and other documentation for each individual’s compensation, including minutes of compensation committee and governors’ meetings approving such compensation.
• Criteria used to determine each individual’s bonus and incentive compensation.
• Minutes of all meetings where the Board of Governors discussed and decided that a Supplemental Executive Retirement Plan (“SERP”) was needed for Roxanne Spillett.
• Copy of the SERP document and any compensation studies or reports used to determine the amount of BGCA’s contribution to the SERP.

What does “nearly a million” look like?

The next thing I wondered about was the composition of Ms. Spillett’s compensation, which totaled $988,591 in 2008. Working from any executive’s total compensation figure, I find, leaves out too much of the story. Understanding the size and relationship between the individual compensation elements allows one to better understand — and question, if desired — the overall package. Here’s the breakdown of Ms. Spillett’s 2008 compensation:

Again, I am not going to offer a professional judgment on — nor an emotional or moral reaction to — Ms. Spillett’s compensation. While the breakdown does allow some observations about the manner in which Ms. Spillett is compensated, we again, as outsiders to the organization and its internal processes, will still be left with questions. To provide further context for observations, I’ve taken a look at the 2008 Form 990s for the other 11 organizations in the Chronicle of Philanthropy’s annual Executive Compensation Survey with organization income between $1 billion and $5 billion, exclusive of colleges, universities, hospitals, and medical centers (which tend to be their own beasts, in terms of compensation practices). Following, then, are a few general observations and unknowns:

• A general comment: The changes made to Form 990 effective with the 2008 tax year have the potential to to bring much greater clarity and consistency to the reporting of nonprofit executive compensation. However, with regard to data available as of now, this potential is yet to be realized. For most of the organizations reviewed, their non-calendar fiscal years ended during 2008 and, as a result, the 2007 version of the 990 was utilized. In the older version, which lacks the much more detailed Schedule J, the breakdown of executive compensation is limited to “compensation”, “contributions to employee benefit plans and deferred compensation”, and “expense account and other allowances”. This makes it impossible to know, for example, what portion of an executive’s compensation was base salary versus bonus or incentive pay, or what portion went to unqualified deferred compensation arrangements as opposed to qualified benefit plans, or what income may have been realized from related organizations other than the filing entity. Of the 12 organizations reviewed, B&GCA was one of only three for whom the detailed Schedule J information was available. Beginning with the 2009 filings, we should have consistent access to much better information.
• Across the 12 organizations, Ms. Spillet’s cash compensation of $510,774 is the third highest, falling below the $685,884 paid to John R. Seffrin of the American Cancer Society and the $652,800 paid to James E. Williams, Jr. of Easter Seals. The Chronicle reported 2008 incomes for these organizations that were 21% and 9% lower than B&GCA, whose income falls mid-pack among this group of organizations.
• Ms. Spillett’s bonus compensation was equal to 42% of her base salary. What we do not know is what results were seen as the basis for this bonus, how her actual bonus compares to any target opportunities that may have been established, or how the base/bonus allocation compares to her peers.
• The $385,500 in deferred compensation paid to Ms. Spillett is a notable number in relation to the base salary and overall pay package. When combined with “other” income of $83,152, this is equivalent to 87% of her base salary and represents 48% of her total compensation. The $385,500 consists of contributions to a 403(a) non-qualified supplemental executive retirement plan, so we can make general assumptions with regard to vesting, forfeiture, and taxation but, again, do not have adequate information to fully evaluate this compensation element. Looking back at the organization’s 2006 and 2007 990s, although they do not provide the same level of detail as in 2008, it is clear that similarly large contributions were made. Among the other 11 organizations, only two reported comparatively significant non-cash compensation. Mr. Seffrin’s deferred/benefits total of $360,003 is equivalent to 52% of his cash compensation and represents 34% of his total compensation, while United Way Worldwide’s Brian Gallagher’s deferred compensation plus “other” income totals $505,146, equivalent to 102% of his base salary and 49% of his total compensation. The bulk of the “other” compensation consisted of imputed non-qualified pension income.

So, is your head spinning yet? Mine certainly is. But hopefully all of this detail gives you a glimpse into some of the questions and perspectives that I — and other consultants — bring when we look at executive compensation stories and data, and perhaps adds to your perspective on the current debate. I will watch the situation play out as an interested bystander, and eagerly await a time in the near future when the improved reporting requirements bring greater transparency and allow for more meaningful and rational analysis, discussion, and management of nonprofit executive pay. How about you?

Photo credits: Lieutenant Pol, Migraine Chick