April 8, 2012; Source: The Post-Star

Last year, Gov. Andrew Cuomo called for an examination of nonprofit executive compensation in the state, and this year Cuomo issued an executive order capping the amount of state funding that can be dedicated by the grantee organization towards CEO salaries at $199,000. In addition, Cuomo limited the amount of the funding that can be apportioned to the entity’s overhead to 25 percent, a high that must be throttled down to 15 percent by 2015. While the specifics are still be ironed out, each of the affected state agencies is now coming up with rules for implementation. A passel of agencies, including the state’s Department of Health, are covered by the order, and have until mid-May to formulate their plans. The order represents the first definitive step toward addressing nonprofit compensation abuse, which has been a hot topic in Albany since a few egregious examples came to light last year.

Everyone agrees that many executives of New York nonprofit organizations earn six-figure annual compensation, but the contentious question is whether this is a misuse of taxpayer monies, or simply natural market forces at work with competitive compensation a necessary component of retaining competent leaders in the nonprofit sector.

Will these blanket fiscal collars work? Doug Sauer, CEO of the New York Council of Nonprofits Inc., finds many faults in the conception and application of the new restrictions, including loopholes in the form of waivers and differing—potentially conflicting—rules among the affected agencies that could wind up trapping nonprofits that deal with multiple state offices. Sauer, who notes that most nonprofits provide moderate pay to their executives, argues that more red tape and little profit will come from the fiscal restraints and argues that the “order won’t deal with excessive salaries and it will cost all the nonprofits more money.” Many in the state’s nonprofit sector find IRS requirements to report executive compensation and ensure that pay is determined at arm’s length sufficient.

When it comes to overhead, Andrew Cruikshank, CEO of Fort Hudson Health Center, notes that a huge chunk of any nonprofit’s expenses, such as mandated insurance, is beyond the individual organization’s control. “I don’t know how one comes up with a standard figure that should apply to all not-for-profits,” he says. Cruikshank earned $250,000 in 2010, the source of which is varied, which points to the fact that nonprofits can skirt the salary cap mandate by using privately sourced funds to cover higher compensation. Because of this, many in the state’s nonprofit sector don’t see this brouhaha as a major problem nor do some think Cuomo’s mission will amount to much.

Instead, many believe that the more widespread problem is under-compensation—leaders in the trenches foregoing relative riches to do good work in chronically underfunded organizations. –Louis Altman