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

SCHENECTADY, NY (04/30/2010)(readMedia)-- A report issued today by a State watchdog agency has identified "best practices" used by non-profit agencies in the New York State's mental hygiene system, and analyzed executive compensation through survey sampling of more than 650 non-profit agencies licensed by the State Office of Mental Health (OMH) and/or the State Office of Mental Retardation and Developmental Disabilities (OMRDD). The New York State Commission on Quality of Care and Advocacy for Persons with Disabilities' report, entitled "Best Practices: Board Governance & Executive Compensation in Non-Profit Mental Hygiene Agencies," provides tools for agency boards of directors to assist them in fulfilling their duty to establish and ensure the "reasonableness" of compensation for agency executives.

In preparing this report, the Commission sought to examine the legal and regulatory requirements relating to executive compensation, to highlight best practices already used among some agencies, and to present comparability data compiled by the Commission from 658 non-profit service providers throughout the state. These non-profit service providers collectively receive approximately $9 billion in revenue from a variety of sources, including New York State, pay $96 million in executive compensation and employ about 180,000 persons.

While the responsibility for establishing executive compensation in all forms lies with the boards of directors of each non-profit, the Commission's report provides a valuable tool for boards in carrying out their fiduciary responsibilities. In addition, the Commission's report seeks to increase accountability from agencies receiving government funding.

Jane G. Lynch, the Commission's Chief Operating Officer, said, "I hope that members of the boards of non-profit agencies serving people with disabilities will find this report useful as they discharge their fiduciary duties to their respective agencies. The overwhelming majority of boards take their responsibility to be faithful stewards of public funds very seriously. Under Governor Paterson's leadership, and particularly in light of the Governor's commitment to increased transparency and accountability in public service, the Commission, in cooperation with the certifying agencies, is eager to support and assist boards of non-profit agencies in any way possible as they strive to maximize the application of their resources, in the most efficient and cost-effective manner, to improve the quality of services provided to New Yorkers with disabilities."

The Commission found the two primary factors influencing CEO pay levels at the agencies surveyed were agency size (based on the annual revenue) and their geographic location. While some agencies had very informal systems with minimal documentation for setting executive compensation, others had more sophisticated systems, with compensation committees, annual evaluations, employment contracts, and documentation of board deliberations and votes for compensation decisions.

After examining a broad cross-section of agencies of varying sizes and locations throughout the state, and reviewing the U.S. Internal Revenue Service's Intermediate Sanctions Law affecting executive compensation, the Commission identified certain "best practices" which should benefit boards which might otherwise lack the expertise and resources to make informed compensation decisions. The Commission report states it is important for boards to:

- Identify and document all forms and sources of compensation;

- Use employment contracts to specify compensation as well as duties/responsibilities;

- Select "comparables" by comparing their agency to agencies which are similarly situated and to executives in those agencies who are in functionally comparable positions;

- Before beginning payment, make sure the compensation is formally approved;

- Establish a conflict of interest policy with required disclosure; and

- Keep records of board deliberations and decisions, including records of information relied upon, terms agreed to, and votes cast by each board member on compensation.

Specifically regarding the executive compensation, which was self-reported in the survey responses submitted by the 658 agencies used in the study, the Commission found:

- The median compensation package for a CEO among the 658 was $117,000;

- 85 percent of CEO compensation was in the form of salary;

- Of the $96 million in CEO compensation, $15 million covered benefits other than salary;

- 67 percent of CEOs had a deferred compensation and/or retirement plan;

- 42 percent had additional benefits such as life, health, and disability insurance; and

- 34 percent of agencies provided the CEO with an automobile.

The Commission is an independent State oversight agency responsible for ensuring quality of care and cost effectiveness in the existing regulatory system, in which boards have a fiduciary responsibility to ensure that funds are spent for their intended purpose. The Commission conducted its study by mailing letters to more than 1200 provider agencies under the jurisdiction of OMH and OMRDD, requesting a range of information on executive compensation for a three-year period. Over 750 agencies completed the online survey and 658 responses were included in the Commission's analysis.

The Commission's report is available on the Commission website at www.cqcapd.state.ny.us

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