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Mission Matters Insights

Compensation Issues at Massachusetts Charities

August 11, 2011

The Massachusetts Attorney General has come out against compensation to trustees of all nonprofits, including foundations that are registered in the Commonwealth. Although lawmakers in the state voted in May 2011 to ban payments, the proposal did not pass as part of the budget bill.

The Massachusetts Attorney General has come out against compensation to trustees of all nonprofits, including foundations that are registered in the Commonwealth. Although lawmakers in the state voted in May 2011 to ban payments, the proposal did not pass as part of the budget bill.

This compensation attention all began in the Fall of 2009 when the AG’s office issued a memorandum regarding compensation within the health care sector. The memorandum called for a review of compensating independent directors for their service to charitable organizations. The AG noted that compensating directors is rare in Massachusetts and that “voluntary board service is a primary indicator that an organization’s purposes and methods are traditionally charitable.” The AG also notes that in their Guide for Charities and Foundations, the Independent Sector of Washington, DC notes that board members are “generally expected to serve without compensation.”

A recent front page story in the Chronicle of Philanthropy notes that most of the 50 richest foundations compensate their board members. This is a good article that summarizes the pros and cons of board compensation. While the compensation of board members may not be an issue at your nonprofit, another legislative activity in Massachusetts should command some of your attention.

Sen. Mark Montigny, the Democrat from New Bedford, has introduced Senate Bill #824 which contains a provision limiting the compensation of public charities. The Bill indicates that any public charity with gross revenues in excess of $1 million shall not pay compensation to any officer, director, trustee or employee in excess of $500,000. Furthermore, compensation includes salary, bonus payments, incentive compensation, deferred compensation and severance payments. Also included in the salary definition are below market rate loans and the lease or rental of any vehicle.

Deferred compensation arrangements are fairly common at charities, and boards should be concerned if their organizations have a deferred compensation arrangement in place and this Bill becomes law in its present form.

Remember, public charities have the right to lobby for or against bills and regulations. The 2012 legislative season is shaping up as one in which charitable practices are on the table. We urge all interested parties to keep an eye on developments and get involved early.

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