Non-profits and charities are quickly becoming a mechanism for gaining large amounts of wealth in the U.S.
Tax-exempt organizations provide executive level employees seven-figure salaries. Some 2,700 employees received salaries of over a million dollars in 2014, up 33 percent from 2011, The Wall Street Journal reports.
Charities are exempt from taxation because of their dedication to public service. Since charities do not file traditional tax returns, discerning employee compensation is incredibly difficult. Most charities and 501(c)-3 organizations file an informational tax return with the IRS Form 990. While the form provides regulators and the public with a general overview of an organization’s programs and finances, it fails to give details, like compensation, that traditional tax returns include.
The IRS made it easier for financial analysts last year by making non-profit returns publicly available. Researchers who study compensation levels at charities and non-profits report that executive level pay at these organizations has been on the rise for some time, mimicking the trend of executive compensation in the corporate world.
Health care and higher education appear to be two areas where executive pay is increasing at an exponential rate. In health care, the trend is apparent when examining the pay of presidents and executives. Some 75 percent of charities that provided executives with seven-figure salaries in 2014 were in health care alone.
For example, Ascension is one of the largest hospital providers with over $20 billion in operating revenue. Its President and CEO, Anthony Tersigni, was paid $17.6 million in 2014, The Journal reports. Tersigni also received a $10.2 million bonus that year. Hospital president salaries at smaller non-profit hospitals are, in some cases, much greater than presidents of larger hospital systems.
In higher education, the story is the same as in health care. The highest-paid public and private college presidents make 129 times the amount the average student makes. The top 10 highest paid college presidents in the U.S. earned 15 times the average salary of their students who received financial aid six years out of college, MarketWatch reports.
A professor who studies executive level compensation at universities reports that the trend is due to a shift in the make-up of university governing boards. Universities are nominating former private sector executives to fill roles once staffed by alumni and community leaders. As a result, we are seeing college and university president salaries matching up to the levels formally relegated to the private sector.
“One of the reasons that we believe we’re seeing these salaries escalate is the changing composition of governing boards of universities,” James Finkelstein, a professor emeritus of public policy at George Mason University, told reporters. “Corporate executives are used to these complex employment agreements and contracts.”
There is another potential reason executive pay is increasing across charities and non-profits. The IRS is supposed to enforce an excise tax on individuals who receive exorbitant benefits from charities. To avoid any appearance of impropriety, charities will hire an independent compensation consultant.
In all, the IRS only audits 1 percent of nonprofit filings. If a charity can prove it used a consultant, the IRS often times passes on the organization because an audit could prove too costly to disprove the consultant’s report. Some 66 percent of charities that paid employees over $1 million used a consultant, the Journal reports. Employee salaries rise as a result, because firms want to be competitive and offer executives an attractive salary.
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