Corporate-Style Bonuses Come to Jewish Charity World
The salary of the top executive at the Birthright Israel Foundation in 2014 was half a million dollars. He took home much more.
First there was his bonus, a $90,000 chunk awarded, according to a vague statement from a Birthright spokesperson, based on “key metrics and benchmarks.” Then there was the deferred compensation he accrued, which totaled another $37,000.
All told, David Fisher earned or accrued well over $600,000 that year.
Complex, corporate-style compensation packages like Fisher’s are increasingly standard for top-rank leaders of Jewish not-for-profit organizations. Incentives such as bonuses and complex tax structures like deferred compensation plans, transported over from the for-profit sector, are now becoming the norm for top executives at large Jewish charities.
Chief executives at the Republican Jewish Coalition, the Foundation for Jewish Camp and The Associated: Jewish Community Federation of Greater Baltimore all took home major bonuses in the latest tax year, according to tax filings.
Those larger bonuses are part of a trend, driven by donors, board members and foundations, that’s making Jewish charities look a bit more like businesses. Never mind that charities are spending tax-exempt donations and government dollars, while corporations spend revenues; in terms of the tools for-profit and not-for-profit entities use to reward their top executives, the space between the spheres is shrinking.
“Charities have been exhorted in recent years to act more like the for-profit world,” said Linda Lampkin, research director of ERI Economic Research Institute, which provides comparative salary information. “The people who are giving them money — donations, foundations and so forth — are interested in results, and they like the concept that you get paid more for results.”
These benefits all must be reported in public tax filings. Yet their complexity can make it harder for the public to fully understand the scope of an executive’s compensation. Deferred compensation plans, for instance, are often mixed in with retirement benefits in the tax forms, muddying the picture for watchdogs and donors. And although groups report the size of bonuses, they are unlikely to explain why a bonus was given, and how its size was determined.
“Whatever the executive is being paid, we need to recognize that some percentage of it is actually the public paying the person,” said Lila Corwin Berman, an associate professor of history at Temple University in Philadelphia and director of the school’s Feinstein Center for American Jewish History. Charitable donors, Berman noted, get tax deductions for their gifts, which arguably amounts to a public subsidy. “As a public, we have, perhaps, even more of a right to think about those salaries, because we’re subsidizing them heavily,” Berman said.
The growing trend in the broader not-for-profit industry toward corporatized compensation packages for charity executives comes amid the collapse of FEGS, the New York Jewish social service not-for-profit that was the epitome of the corporatized charity. Obsessed with growth and expansion, FEGS awarded its executives with fat annual bonuses while spinning off for-profit subsidiaries meant to provide it with non-charitable revenue streams. The group declared bankruptcy in early 2015, its well-paid executives totally unable to manage the corporate-style behemoth they had created.
Unusual perks are nothing new for longtime watchers of the salaries of Jewish charity executives. This year saw some odd ones: David Harris, the executive director of the American Jewish Committee for the past 25 years, was paid an extra $538,144 above his salary in 2014 to compensate him for not using more than 200 vacation days over nearly 20 years. He was compensated for all of the days at his current salary level.
Unlike other AJC employees, who are limited in their ability to carry over vacation days, Harris was allowed under his contracts to accrue unlimited days, and was given approval by a board committee to take a payout for the unused days.
Yet one-off perks like Harris’s, while eye-popping, are being overtaken by what experts agree appears to be an increase in bonuses and deferred compensation agreements among top Jewish charity executives.
“It’s to be competitive in the marketplace,” said Joseph Sorrentino, a managing director at Steven Hall & Partners, an executive compensation consulting firm. “Not-for-profits…have gotten more complex. Some of the largest ones are very comparable to the roles and responsibilities you would see in a for-profit corporation.”
Performance bonuses are, perhaps, the most corporate-like compensation tool transferred from the Wall Street boardroom to the not-for-profit conference table. Birthright’s president David Fisher’s $90,000 bonus wasn’t even the largest among charities reviewed by the Forward — that honor goes to the RJC’s Matthew Brooks, who squeaked past Fisher with a $93,750 bonus.
At for-profit companies, bonus sizes for executives are generally based on objective benchmarks, such as revenues or profits. At not-for-profit organizations, where accomplishments are harder to quantify, it can be harder to set goals — and to hold executives to them. “For for-profit companies, it’s pretty easy,” said Sorrentino. “For not-for-profits more about mission… there can be something obviously related to levels of contributions, or various marketing strategies, or it can range.”
ERI Economic Research Institute’s Lampkin acknowledged that it can be tricky for the not-for-profit sphere to adopt the for-profit bonus model. “What do you measure?” asked Lampkin. “There are a lot of times when you’re trying to put a square peg in a round hole.”
In fact, when the Forward asked charities about the criteria on which they based their chief executive’s bonus, they were not forthcoming. A spokesperson for The Associated said that its president Marc Terrill’s $75,000 bonus was based on the terms of his contract, which were confidential. Birthright referred to the previously mentioned “key metrics and benchmarks” when asked about Fisher’s $90,000 bonus.
Alongside bonuses, deferred compensation plans are also increasingly common for the heads of big Jewish not-for-profits. These plans, which are similar to retirement benefits, accrue over a number of years before paying out in a massive chunk. They carry advantages for both the charity and the executive. Some can be forfeited if an executive leaves before the plans are fully vested, encouraging loyalty among high-level employees. For executives, getting a single payout all at once can provide a tax advantage.
A swath of major Jewish charities gave their top executives deferred compensation deals this year. Brandeis University adds $50,000 to its top executives’ deferred compensation account each January 1, and Baltimore’s Terrill got $50,000 toward his deferred compensation. Jacob Solomon of the Greater Miami Jewish Federation was paid out $160,961 in deferred compensation that had previously been set aside. Howard Kohr, CEO of the American Israel Public Affairs Committee, was paid out $760,710 in previously earned deferred compensation. And Richard Joel, the president of Yeshiva University, received a massive $1.6 million deferred compensation payout, despite a Y.U. operating deficit of $150 million.
Charities have little to fear from the IRS as they embrace new corporate-style compensation models. IRS limits are loose. Tax rules specifically allow not-for-profit boards to set salaries based on those at for-profit companies. Marcus Owens, former director of the Exempt Organizations Division of the IRS, said that agents generally don’t question large cash bonuses.
Agents raise their eyebrows when they see “over-the-top excess through private jets, vacation homes in distant locations — that sort of thing, where it really does look like not a pay for performance, but use of the assets of the charity for personal purpose,” Owens said. “But I find the IRS tends to be more accepting of a large bonus in dollars, because that’s sort of traditional.”
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Additional reporting by Maia Efrem.