Massachusetts boosts scrutiny of CEO pay at charities

Reuters News
Posted: Dec 19, 2013 5:02 PM

By Richard Valdmanis

BOSTON (Reuters) - Massachusetts said it will require annual reporting of CEO compensation at the state's public charities after a review found hospitals, health care plans, and universities giving their executives "high" and rapidly increasing pay.

The review by Massachusetts Attorney General Martha Coakley's office found chief executives at the state's top 25 charitable organizations received annual compensation ranging from $487,397 to $8.8 million between 2009 to 2011.

"While CEOs at for-profit companies have commanded the highest compensation packages, CEO compensation at public charities has also increased," according to the report released on Thursday. "Despite the care these organizations took in setting CEO compensation, we found little evidence that the process restrained CEO compensation or its growth."

It said high executive pay at public charities "frequently leads to greater levels of concern, because of the view that large compensation packages take money away from charitable missions."

Public charities receive funding from the public at large and provide direct services, while private foundations typically have a single major source of funding and make grants to other charitable foundations rather than operating their own charitable services.

Former Blue Cross Blue Shield of Massachusetts CEO Cleve Killingsworth was listed in the report as having received the highest annual compensation of $8.8 million in 2010 - a figure that was inflated by a multi-million dollar severance package. His successor Andrew Dreyfus was paid $1.8 million the following year, more in line with other health plan CEOs.

Hospital CEO pay was typically between $1 million and $2 million, while at universities it was slightly lower, according to the review. The report also listed the Harvard Management Co, which manages the elite university's multi-billion dollar endowment and whose CEO Jane Mendillo pulled in $5.2 million in 2011 after a year of strong performance for the fund.

Coakley's office said the review had prompted it to implement a new annual reporting form "requiring detailed information about CEO compensation" from charities, including a breakdown of pay and other benefits and the process taken to decide on the compensation.

It said it hoped the additional reporting would lead to more thoughtful decisions on executive pay and ultimately reduce the pace of annual increases.

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"We hope that requiring reporting on these additional aspects ... will moderate the rate of increase in executive compensation," it said. "That might also decrease the disparity between CEO pay and that of the rest of the workforce, a disparity that has generally increased in the United States in recent years and is a cause of concern to many."

The attorney general's report noted that high CEO pay also posed a reputational risk to charitable organizations, many of which receive sizeable tax breaks.

"While we do not at this time recommend specific limits on executive pay, we do recommend that public charities consider the level of public support they receive as an aspect of determining the reasonableness of executive pay," it said.

(Editing by Phil Berlowitz)