Executive Compensation: A
Complicated and Controversial Topic in New York State
Dan Heim, executive vice president, LeadingAge New York
H
ow much not-for-profit (NFP) long term
care and senior services organizations
pay their executives is a matter that one
would think would be left up to compensation
committees and boards of directors, but is a
far more complicated proposition in New York
State. The State Legislature, State administrative
agencies and the Office of the Attorney General
each have something to say about
executive compensation. For its
part, LeadingAge New York
is fighting to make sure
any such requirements
are reasonable and do
not disadvantage our
member organizations
when it comes to
hiring and retaining
top executive talent.
Under long-standing
authority, the Attorney
General regulates
NFP organizations and
enforces the State’s NFP
Corporations Law. This law
explicitly leaves decisions about
the internal operations of private
organizations – including setting executive
compensation – to the governing boards of the
organizations. The only limit imposed by the
Legislature on NFP corporations in this law is that
executive compensation must be reasonable and
commensurate with the services performed.
Governor Cuomo’s efforts to limit executive
compensation in for-profit businesses and NFP
organizations began when he established the
Task Force on Not-For-Profit Entities in August
2011, announced one day after a New York
Times article exposed million dollar salaries for
executives of a Medicaid-financed NFP serving the
developmentally disabled. Over the next several
months, the Task Force collected information
from NFPs about executive and board member
compensation levels.
In January 2012, the Governor issued Executive
Order #38 (EO#38) directing State agencies
that provide State funds or State-authorized
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payments (e.g., Medicaid, various grants, etc.)
for services to implement regulations limiting
executive compensation of entities that receive
these funds and payments. The Department of
Health and other State agencies adopted final
regulations which took effect July 1, 2013. EO#38
and these regulations create an annual “hard cap”
of $199,000 on compensation (salary and most
benefits) of covered executives paid for
with State funds or State-authorized
payments. A secondary limitation
(the “soft cap”) limits annual
compensation to $199,000
from all funding sources,
but allows for waivers
of the cap for greater
compensation if the
amount paid is less
than the 75 th percentile
of comparable
executives, and has
been approved by
the governing board
following a review of
comparable pay.
LeadingAge NY and its members
were very concerned about these
regulations, and commented on them
extensively throughout the adoption process.
Among the points we made is that those NFP
organizations that serve greater numbers of poor
people are paid less than their actual costs by
the State to provide these services. Those tend to
be smaller in size are most disparately affected,
and would be disadvantaged in recruiting and
retaining well-qualified managers. We were also
concerned that the regulations placed secondary
requirements on State funds paid for services
already rendered, and that the State was effectively
trying to regulate providers’ use of funding sources
that do not even come from the State.
Our legal journey on challenging these regulations
began in September 2013. Based on our concerns,
we filed suit along with other provider groups
in State Supreme Court, Albany County. In
LeadingAge New York et al v. Shah, we argued that:
(1) the EO#38 regulations conflict with existing
State laws, including the NFP
Adviser a publication of LeadingAge New York | Fall 2017
(continued)