Adviser Fall 2017 Dec. | Page 26

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 25 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)