Best Practices: Board Governance Executive Compensation in Non-Profit Mental Hygiene Agencies

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Best Practices: Board Governance & Executive Compensation in Non-Profit Mental Hygiene Agencies April 2010 Report New York State Commission on Quality of Care And Advocacy For Persons With Disabilities

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Overview of Presentation What is CQC and What Does it Do Why Best Practices & Board Governance Legal & Regulatory Environment Best Practices Overview of Survey Data Case Example

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The Commission on Quality of Care and Advocacy for Persons with Disabilities Created in 1977 – Article 45 MH Law Independent Oversight Agency Oversight for all OPWDD, OMH, and OASAS authorized and contracted suppliers; and for affected Adult Homes Approximately 100 Employees

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Mission Statement To enhance the personal satisfaction for people with incapacities and secure their rights.

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Core Activities

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Fiscal Bureau Charged under NYS law to survey the cost adequacy in the administration, supervision, and conveyance of mental cleanliness administrations Investigate claims of misrepresentation, waste, and mishandle Conduct cost viability contemplates

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Why Compensation? Expanded Public Scrutiny Scandals Questionable Compensation Arrangements Current Economic Climate Compensation Funded Primarily with Gov't. Stores (e.g. Medicaid) Need for Transparency and Accountability

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Common Threads Inadequate Board Oversight Executive Self-Interest Recent Commission Investigations PSCH, Inc (2008) Evelyn Douglin Center (2008)

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PSCH, Inc. Ex. Dir. Pay Totaled Over $730,000 34% Increase Over 3 Years Median Compensation at Similar Agencies $260,000 Executive Director Accrued 351 Vacation Days and 400 Sick Days Payout Due Upon Separation $673,000 Resolution – ED expelled – Restitution to Agency.

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Evelyn Douglin Center Over a 8 Year Period The Executive Director Received $143,000 in Salary Above What Was Approved By Board The Child of The Executive Director Charged $18,000 For Gasoline. The Agency Provided 13 Vehicles Valued at Over $500,000 to Executive Staff Resolution – ED evacuated, Internal Control Improvements

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Scope of Study On-line Survey of 1,200 OMH and OPWDD Providers 750 Responses 658 Included in Analysis 31 Site Visits

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What is Compensation? As indicated by the IRS: Any financial advantage gave either straightforwardly or by implication to a person in return for administrations rendered. Compensation Deferred pay arranges Pension & benefit sharing arrangements Health protection premiums Employer gave auto Expense accounts Low or no intrigue credits Housing Allowances Tuition

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Legal & Regulatory Environment Compensation Must Be "Sensible" New York Not-For-Profit Corporation Law N-PCL § 202(a)(12) Fix sensible pay Commensurate with administrations performed IRS Intermediate Sanctions Regulations (IRC § 4958) The sum that would conventionally be paid for: Like administrations By like ventures Under like conditions

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Intermediate Sanctions Most noteworthy occasion influencing Tax Exempts in more than 30 years Addressed IRS hesitance to Revoke Exempt Status Allows IRS to force punishment extract charges on certain "precluded people" and "association supervisors" participating in "overabundance advantage exchanges"

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Definitions Disqualified Person Any individual who was in a position to practice generous impact over an excluded association Officers and chiefs Key Employees Family individuals from excluded people Substantial patrons Organization Manager Any officer, executive, trustee, or individual with comparable forces or duties

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Definitions Excess Benefit Transaction Any exchange in which the financial advantage gave by a relevant absolved association straightforwardly or by implication to an excluded individual surpasses the estimation of the thought got in kind for giving the advantage Salary (rewards, conceded pay) Fringe Benefits Low or no intrigue advances Sales and trades Leases

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Excise Tax Correction of Transaction 1 st Tier Tax 25% 2 nd Tier Tax 200% Tax on Organization Managers 10%

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Example Executive Director of XYZ Charity, Inc. Salary $250,000 Deferred Comp. 30,000 Other Fringe Benefits 20,000 $300,000

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Example (proceeded with) IRS attests estimation of administrations at $200,000 Penalty on Disqualified Person: Excess Benefit $100,000 Excise Tax 25,000 Total $125,000 * ($300,000 - $200,000 = $100,000)

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Example (proceeded) If exchange is not adjusted: Return of Excess Benefit $100,000 1 st Tier Tax 25,000 2 nd Tier Tax 200,000 Total $325,000 Correction must be made by the before of the date of mailing of a notice of lack or the date on which the expense is evaluated

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Example (proceeded with) Penalty on Organization Manager(s): Excise Tax $10,000 ($100,000 x 10% = $10,000)

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Rebuttable Presumption of Reasonableness The remuneration course of action must be endorsed ahead of time by an approved collection of association Members must be free of irreconcilable situations Use fitting similarity information Document reason for assurance Terms Date Approved Who voted in favor of and against Comparability information really utilized Must be contemporaneous

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Best Practices Identify all types of pay Use business contracts Obtain suitable likeness information Independent load up endorsement Good documentation Full exposure

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Best Practices Identify all types of pay Any monetary advantage got Providers routinely concentrate on pay alone Salary represented 84 % of aggregate announced pay

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Best Practices Use work contracts Detail pay game plan Employer/representative desires Personnel arrangements 38 % of review respondents had work contracts

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Best Practices 3 . Equivalence information Select proper information Similar employment titles Similar size Similar reason Geographic zone Avoid overwhelming dependence on a solitary equivalent Common wellsprings of remuneration information Guidestar (www.guidestar.org) Attorney General's Charities Bureau (http://www.charitiesnys.com) Trade affiliations Compensation expert 70 % of overview respondents detailed utilizing likeness information

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Best Practices 4. Board endorsement ahead of time of installment Independence Conflict of intrigue strategy 95 % of study respondents said the Board affirmed CEO pay

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Best Practices 5 . Documentation Comparability information Deliberations Record genuine vote of every part Date of endorsement 79 % of review respondents said endorsement was archived in board minutes 58 % of overview respondents said the Board had a pay panel

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Best Practices 6. Divulgence IRS Form 990 CFR W-2

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Survey Data

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Executive Director Compensation (Including Benefits)

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Statistical Results Factors Impacting Compensation Agency Revenue Geographic Region Tenure

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Regions Evaluated } NY City Long Island Westchester, Putnam and Rockland Counties Hudson River Valley Central/Western NY NYC and Long Island } Rest of State

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Tenure and Median Compensation 12 Yrs 11 Yrs 6 Yrs 14 Yrs 10 Yrs

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Quartile Approach Using quartiles essentially implies partitioning an informational index into four equivalent amounts of. 75th Percentile - 50th Percentile - 25th Percentile -

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Case Example ABC Community Services, Inc. Worker Profile 20 Years Experience in Field 8 Years with Agency 3 Years as Executive Director Recently Completed Reorganization of Agency Improved Service Delivery Improved Financial Position MSW/MBA Agency Located in New York City Area Annual Revenues Totaling $17 Million

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Case Example

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Case Example 75 th Percentile $280,400 Potential Factors to be Considered by the Board Agency Size Tenure Education/Experience Performance/Achievements Market Competition Median $208,300 25 th Percentile $171,600

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Case Example Compensation Package: Annual Salary $150,000 Deferred Compensation 30,000 Health & Welfare Benefits 10,000 Life Insurance 5,000 Expense Account 5,000 Total Compensation $200,000

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Case Example Important Concepts Include All Forms of Compensation Use Sufficient Objective Data Good Documentation Comparative Data Approval Employment Contract Independence

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IRS Form 990

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Form 990 Questions on Excess Benefit Transactions

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Form 990 Questions on Governance Policies

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Form 990 Questions on Compensation

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Form 990 as a Source for Comparables Form 990 - Part VII Contains pay of officers, chiefs, trustees, scratch representatives, most noteworthy repaid workers, and self employed entities Form 990 - Schedule J Contains remuneration of officers, chiefs, trustees, scratch workers, and most elevated repaid workers (for those which surpass $150,000) Form 990 – Schedule O May contain supplemental story on pay

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Potential Problems with Self Reported Data Sometimes Inaccurate May Only Cover Partial Year (New Hire or end) May Contain One-Shots (e.g., Multi-Year Bonus Payouts) May Double Count Due to IRS Reporting Requirements Impact of Errors Minimized by: A Larger Selection of Comparables Relying on the Median, not the Average

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A duplicate of the full report: Best Practices: Board Governance & Executive Compensation in Non-Profit Mental Hygiene Agencies is accessible on-line at: www.cqc.ny.gov Commission on Quality of Care And Advoca

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