THE law seems clear. No profit from tax-exempt charities may benefit "any private shareholder or individual."
Yet as The Sun's survey of nonprofit executive pay shows, plenty of individuals are doing very well by associating themselves with charitable organizations.
No, they're not breaking the law. The definition of what lawyers call "private inurement" of nonprofit assets has narrowed so far as to be practically meaningless.
But compensation for nonprofit bosses has hit levels that ought to have donors and taxpayers asking: Remind me again -- exactly whom is this organization supposed to be benefiting?
And the law looks like it's about to change, although unfortunately not enough.
Led by Senate Finance Committee Chairman Charles E. Grassley, an Iowa Republican, Congress is moving toward the biggest overhaul of nonprofit regulation since 1969. There are plenty of targets for reform: inflated gifts that fraudulently reduce donor taxes; foundations that benefit donors more than any worthy cause, and insiders vacuuming up charity dollars with rip-off vendor contracts.
And executive pay. Disturbed by reports of high nonprofit remuneration, Grassley's committee is considering making charity boards more accountable for justifying CEO pay. The panel also may try to restrict what charities can spend on junkets and other perks.
"More and more, we're seeing that some people view charities and charitable gifts as a chance to help themselves, not others," Grassley said last month in a prepared statement. "It's time for comprehensive reforms to shut down personal enrichment at the needy's expense."
Of course, one man's personal enrichment is another's deserved pay for a job well done.
Mimicking corporate America, nonprofit organizations claim they must pay lucrative executive salaries to get and retain the best people. (They hire slick consultants to bless the packages as "reasonable" -- and then pay the consultants with tax-exempt assets.)
But according to this logic there is no such thing as excessive pay for nonprofit executives, no absolute level at which everybody might agree: Yeah, this is pretty gross.
Is that the best we should demand from these organizations that operate with extraordinary privilege and leeway?
Nonprofits pay few or no taxes while getting the same government services as everybody else. Americans give billions to the groups, and the donations further reduce government revenue because they are deductible against taxable income.
All these gifts and subsidies help underwrite bigtime nonprofit salaries. But charities want the freedom to enrich their executives similar to that enjoyed by the for-profit, tax-paying sector. Go ahead and complain about, say, the $1.3 million paid last year to Robert E. Prince, CEO of Duratek, a Columbia for-profit processor of radioactive waste. But at least Duratek writes checks to the IRS and doesn't go around shaking a can for donations.
Unfortunately, there is no sign Congress would substantially control pay at tax-exempt organizations. The farthest anybody has gone has been to suggest changing legal rules to make it easier for the government to prosecute potential salary violations.
True to history, the nonprofit lobby seems to have no interest in substantial reform. Last week an advisory panel of nonprofit executives working with Grassley recommended that nonprofit boards approve CEO pay (What a concept!); that compensation consultants report to the board, not the CEO; and that executive pay be calibrated primarily against that of other nonprofits.
Nice ideas, but what about limiting pay as a portion of a charity's assets or revenue, phasing out deductibility for gifts to charities that pay CEOs over a certain level or seeking antitrust exemptions to let nonprofits regulate compensation?
The good news is that disclosure of nonprofit pay is better than ever and will probably improve under Grassley's reforms. Perhaps potential donors will think twice after they learn what nonprofit executives make.
Your local hospital chain and the homeless guy on Conway Street are both asking for your charity. The hospital chain pays its boss $1 million. The homeless guy is homeless. Who really needs the money?
