Before everyone gets their hackles up over how much money California’s top-compensated nonprofit executives earn, some context is in order.
The highest-paid chief executive in the for-profit world was Sundar Pichai of Alphabet, Google’s parent company. He pulled in $226 million in total comp in 2022, according to the research firm Equilar, on revenue of $280 billion.
Then there was Live Action Entertainment head Michael Rapino, who had total comp of $139 million on revenue of $16.7 billion.
The nonprofit world, by and large, is far more circumspect than this, even though running a large nonprofit — especially the healthcare behemoths that dominate the top-paid nonprofit executives list — demands very similar skill sets. Still, when you see some of these numbers, the relationship between revenue, complexity and top comp at some nonprofits can raise a few eyebrows.
The highest-paid nonprofit exec in California was the CEO of Dignity Health, Lloyd H. Dean, which has locations all over California, according to data filed with the IRS and compiled by ProPublica. “As an affiliate of Commonspirit Health, Dignity Health is committed to making the healing presence of God known in our work by improving the health of the people we serve, especially those who are vulnerable, while we advance social justice for all,” its latest tax filing says.
Dean’s total compensation was $35.5 million, on revenue of $9.5 billion.
That’s more than twice the compensation of the next closest nonprofit CEO, Gregory Adams of Kaiser Foundation Health Plan, even though Adams heads an organization many, many times larger than Dignity. Adams’ total comp was $15.6 million, on total revenue of $68.1 billion. Kaiser’s mission is “to provide high-quality, affordable health care services to improve the health of our members and the communities we serve,” its filing says.
Popping in at No. 3 was Teresa Campbell, CEO and president of the relatively smallish San Diego County Credit Union. Campbell had total comp of $11.8 million on revenue of $305.2 million. That’s close to 4% of revenue, compared to 0.37% for Dignity’s Dean and 0.02% for Kaiser’s Adams.
Let’s pause to define “compensation” here. Our pals at the IRS say it’s all “income” received by the exec, including straight wages/salary, bonuses, contributions to retirement accounts, housing and car allowances and similar things of value.
“At the upper end, compensation must be ‘reasonable’ and not ‘excessive,’ which is a fundamental requirement of maintaining tax-exempt status,” says the National Association of Nonprofits.
Those are obviously rather squishy guidelines. What is reasonable? What is excessive?
Unclear
“Unfortunately, the IRS doesn’t really define reasonable…at least not in a way that you could look up in Webster’s,” wrote Greg McRay of the Foundation Group in a blog post.
“Reasonable compensation is best understood in light of factors the IRS examines when determining whether or not a charity is exceeding reasonableness with its compensation arrangements. These factors look something like this: Actual job description; Required level of education or experience; Compensation averages in your area; Number of hours worked; The overall budget of the charity.”
Some in the charity-watchdog world are uncomfortable with $1 million-plus pay packages in the nonprofit sector, while high-paying nonprofits beg to differ. These executives could make much more money elsewhere, they say, and the skills and expertise they bring to their jobs make them worth every penny, especially in those complicated, life-or-death hospital positions.
“Executive compensation at Delta Dental of California is determined in accordance with recommended IRS best practices for exempt organizations and is evaluated annually by the Compensation Committee of our Board of Directors,” a Delta spokesperson said by email. “This committee leverages recommendations from an external executive compensation consultant and relies upon appropriate comparability data including third-party market data, industry information and competitor data to ensure compensation is set at fair market value and is reasonable for the services provided.”
In recent years, new laws and rulemaking have “added more burdens to nonprofits trying to set reasonable compensation,” said consulting firm Concannon Miller in a post. Under one law, “tax-exempt organizations are assessed a hefty excise tax if they pay more than $1 million in remuneration to certain ‘covered employees.’ This excise tax rate is equal to the corporate tax rate — currently, a flat 21%.”
“Remuneration” includes wages paid that are subject to federal income tax withholding (such as salary and bonuses), plus deferred compensation. A “covered employee” is one of an organization’s five highest-compensated employees who receive $100,000 or more in reportable wages.
The IRS won’t say if any nonprofits have lost tax-exempt status due to excessive executive comp — “unable to provide per federal disclosure law(s),” a spokesman told us — but officials are clearly looking more closely at executive pay.
Who cares?
We’ve written these stories with fair regularity over the years, and always receive an inbox full of screeds taking us to task for looking ungenerously at nonprofit pay.
So let’s say this now: Of course working for a charity doesn’t mean folks should work for free. Of course the executives on Wall Street make gobs more than the folks on these lists.
But this can be viewed as money out of the public pocket. The gift of tax-exempt status means that these organizations don’t have to pay some state and federal income and other taxes. The gift they’re supposed to give back is societal benefit.
Also remember that those health care pay packages are built into your private insurance premiums, as well as into the costs of public health programs.
Among the top 25 most well-compensated nonprofit executives — the majority in health care — there’s a sprinkling of others, such as David Shaw, Stanford’s former football coach, with comp of $7.4 million; Robert Wallace, Stanford CEO, $5.9 million; Deborah Szulansky, former officer with the National Academy of Recording Arts & Sciences, $5.8 million; Darren Williams, CEO of Wescom (Credit Unions in the State of California), $5.4 million; Ana Marshall, vice president and chief investment officer with the William & Flora Hewlett Foundation, $5.2 million; Denise Strack, chief investment officer with the Gordon E. and Betty I. Moore Foundation, $4.8 million; Frank Hanley, surgeon at Stanford, $4.8 million; and Lawrence Scott, former commissioner for the Pac-12 Conference, $4.1 million.
ProPublica’s rankings use the most recent data — some from 2022, some from 2021.
Consultants advise nonprofits to pay what executives are worth. A Sutter Health spokesperson told us this: “(W)e structure compensation to attract talent that can help better serve patients and expand access in a complex healthcare market – one that’s being redefined by retail and tech competitors.”
Source: Orange County Register
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