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Charity Officials Are Increasingly Receiving Million-Dollar Paydays

The Wall Street Journal. logo The Wall Street Journal. 3/6/2017 Andrea Fuller

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About 2,700 people had seven-figure pay packages at the nonprofits in 2014, a number that was up a third in three years, newly searchable IRS data show

Charities are becoming a lot more generous with pay at the top.

The tax-exempt organizations, which include many hospitals and colleges as well as traditional charities such as the United Way, provided seven-figure compensation to roughly 2,700 employees in 2014, an analysis of newly available data shows.

The total is higher by a third than in 2011, The Wall Street Journal found, after analyzing about 100,000 organizations that filed electronic returns with the Internal Revenue Service all four years.

While many of the big earners ran large enterprises, others were leaders of small charities, such as a couple who run an online ministry. Together, their $4 million in compensation equaled nearly half of the ministry’s revenue.

A broad picture of pay at charities, which are spared from taxation because of their stated missions related to public service, was hard to discern until recently. Last year, for the first time, the IRS made available nonprofit returns in a computerized format.

Academics and think-tank researchers who study pay at charities say it has been increasing for decades as organizations have grown more professional and adopted pay strategies from the corporate world, where executive compensation has also been on the rise.

James Finkelstein, a professor emeritus at George Mason University who has studied executive pay at nonprofit colleges, says those pay packages are “beginning to resemble CEO contracts more and more,” with complex bonus systems and deferred-compensation arrangements.

Many of the $1 million-or-more packages in the Journal’s analysis included deferred-compensation contributions or payouts. In about a quarter the base pay was $1 million or more.

High pay at charities has drawn scrutiny from some lawmakers because the organizations receive substantial tax breaks for committing to public service. Charities receive federal tax benefits worth upward of $100 billion a year, according to the Congressional Research Service. That doesn’t count tens of billions of dollars in state and local subsidies.

“Who’s harmed by this is really who is supposed to benefit from the charities—the orphan, the refugee, the stray dog,” said Dean Zerbe, a lawyer who examined charities for several years as a senior adviser to Sen. Charles Grassley (R., Iowa). Mr. Grassley has criticized pay levels at nonprofit hospitals and colleges at a time of rising tuition and medical costs.

Others see little problem with large charities paying well to draw talented people from the private sphere.

“While there are outlier cases where the salary is not warranted, there are also huge organizations like hospitals and colleges and universities that are billion-dollar enterprises,” said Elizabeth Boris, who studies nonprofits as a fellow of the left-leaning Urban Institute think tank. “If a business person were running a similar-sized entity, there wouldn’t be eyebrows raised at all.”

Federal law is vague about how much untaxed organizations can pay employees. Regulations say pay should be “reasonable,” meaning an amount that “would ordinarily be paid for like services by like enterprises under like circumstances.” The IRS rarely imposes penalties over excessive pay at charities, tax lawyers say.

About three-fourths of the charities that provided million-dollar compensation packages in 2014 were involved in health care. About 10% were private colleges.

The biggest 2014 package went to Anthony Tersigni, president and chief executive of Missouri-based Ascension, one of the largest hospital operators with $21.9 billion in operating revenue across its subsidiaries last year. His compensation totaled $17.6 million.

Mr. Tersigni’s pay included a $10.2 million bonus. Stephen Dufilho, a board member who serves on Ascension’s executive compensation committee, said that the health system puts a premium on at-risk executive compensation tied to goals, and that the hospital chain works with compensation consultants to make sure pay is fair. Mr. Tersigni had no further comment.

While executive pay at charities typically tracks their size and complexity, this isn’t always the case. The Red Cross has one of the largest budgets among charities, about $2.9 billion, yet paid no one anywhere near $1 million in 2014. Its CEO earned $557,000.

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The leaders of one small ministry earned several times that. Hal Lindsey and his wife, JoLynn, operate Hal Lindsey Website Ministries, a Texas-based evangelical group. Mr. Lindsey hosts the “Hal Lindsey Report,” available online and on Christian television networks, and is the author of books on current events and prophecy.

The charity’s revenue in 2014, which came almost solely from contributions, was $8.1 million. The ministry paid Mr. Lindsey $2.2 million and his wife $1.8 million. For each, this included a $1.5 million bonus.

Mr. Lindsey, 87 years old, and his wife, 62, declined to be interviewed. In a written statement, Mr. Lindsey said the bonuses were approved by the board and intended as one-time retirement benefits. He said he worked many years for little or no compensation.

The ministry’s IRS filings show it paid Mr. Lindsey less than $50,000 during most years in the early 2000s but paid him and his wife a total of more than $7.8 million from 2007 through 2014.

Charities’ reliance on donations varies widely. Hospitals, for instance, depend mainly on operational revenue. Still, about 65 charities that paid someone $1 million or more in 2014 received at least half of their revenue from contributions and grants.

High pay at such organizations can spark complaints from donors, said Sandra Miniutti, a spokeswoman for Charity Navigator, a watchdog group. “For some people, it’s a struggle to give $20.”

The International Fellowship of Christians and Jews drew almost all of its $129.4 million in 2014 revenue from contributions, its IRS filing shows. The Fellowship paid its chief executive, Rabbi Yechiel Eckstein, $1.1 million in 2014. It was his third straight million-dollar year.

His 2014 package included a $512,000 base salary and a $544,000 contribution to his retirement plan, the Fellowship’s IRS return says. According to financial statements for 2015, Mr. Eckstein’s retirement plan vests in 2022 and is projected to be worth about $4.2 million. The Fellowship provides services for needy Jews throughout the world, and promotes interfaith cooperation and support for Israel.

Mr. Eckstein, 65, said his retirement contributions help make up for years of receiving no pay after he founded the Fellowship in 1983. He said his base pay is in line with recommendations from a compensation consultant.

At nonprofit hospitals, how well executives are compensated varies widely. Wisconsin-based Mercy Health System, which has about $1 billion in operating revenue after completing a merger with another hospital in 2014, paid its president and chief executive, Javon Bea, $8 million that year.

This exceeded the pay for chiefs of some far larger hospital chains. It was nearly double that of the CEO of Colorado-based Catholic Health Initiatives hospital system, where operating revenue in fiscal 2015 was about 15 times Mercy’s current revenue.

Mercy said Mr. Bea’s compensation accurately reflects the complexity of his duties overseeing multiple branches and his role in transforming a community hospital into a health system over several decades. Mercy attributed his 2014 bonus, which was $3.3 million, in part to his having met performance incentives related to the merger that year, adding that it used compensation consultants to set his pay.

Federal law calls for excise taxes on individuals who receive “excess benefits” from charities, defined as compensation above fair-market value. The IRS said in 2007 that it assessed $21 million in taxes on excess benefits against 40 individuals at charities, following a special investigation of charity pay.

What the IRS has done since then isn’t clear. A spokesman said the agency doesn’t track how often it imposes such sanctions. It audits less than 1% of filings by nonprofits, according to federal data.

If the IRS does confront a charity about pay practices, the legal burden is on the agency to prove they exceed market norms. If a charity shows it used a compensation consultant, it often is too time-consuming and expensive to try to counter the consultant’s report.

All told, more than two-thirds of charities that paid an individual $1 million or more in 2014 reported using a compensation consultant. These can contribute to pay inflation even if used properly, some analysts say, because many organizations want to pay executives above the mean.

“It’s Lake Wobegon,” said Steven Miller, a former head of the IRS charities division and former acting commissioner, referring to Garrison Keillor’s fictional town where all the children are above average. “It’s hard to tell somebody, ‘I am going to give you the 50th percentile because I think you’re average.’”

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