Massachusetts Attorney General Report on Charity CEO Compensation Reviews Pay Practices and Introduces New Reporting Form

by Foley Hoag LLP

Shortly before the new year, Non-Profit Organizations/Public Charities Division of the Office of the Attorney General (the AGO) released a detailed 92-page report on executive compensation at Massachusetts-based public charities.

The report analyzes the CEO compensation-setting practices at twenty-five large Massachusetts public charities, makes recommendations regarding additional criteria – apart from IRS guidelines – that charitable boards should consider in setting executive compensation, and introduces a new form (the “Schedule EC”) that certain Massachusetts public charities will need to complete as part of their Form PC annual report.

AGO Survey of 25 Public Charities

The AGO is entrusted by statute to “see to the due application of funds given or appropriated to public charities” in Massachusetts and charged with preventing “breaches of trust in the administration” of public charities. M.G.L. c. 12, § 8. To that end, the AGO reviews financial matters at the public charities under its authority, including matters related to executive compensation.

The AGO conducted this focused review of CEO compensation by requesting twenty-five large Massachusetts public charities to complete a prototype “Schedule EC” covering the three-year period from 2009-2011. The participating charities also completed a detailed executive compensation information request.

The charities participating in the study were primarily health plans, hospital and provider systems, and universities. The report profiles the base compensation paid to the CEOs and discusses other elements of total compensation, including bonuses, deferred compensation, auto allowances, financial planning, life insurance, and severance payments. The study also highlights certain areas where the AGO considers benefits to be particularly generous.

AGO Favors Broader Criteria For Setting Reasonable Executive Compensation

The report observes that boards of the participating institutions exercised “care and attention” in meeting federal guidelines for setting “reasonable” executive compensation. When a public charity follows these guidelines, it establishes a presumption that the compensation is reasonable under federal tax law. Generally, these guidelines provide that if the independent members of the board approve the compensation, record their decision-making process in writing in a timely manner, and base their decision on a review of compensation paid by comparable institutions for comparable services, the presumption of reasonableness is established.

Under federal law, compensation that is not “reasonable” under the guidelines may result in steep penalties to the individual who received the compensation as well as to the officers and directors who approved it.

The AGO report opines that merely meeting such federal compensation-setting guidelines is insufficient to ensure proper administration of charitable funds. Rather, the report recommends that additional considerations should inform a charitable board’s compensation-setting process, including:

  • impact of the compensation on the charity’s mission;
  • impact of the compensation on the charity’s reputation;
  • level of financial risks imposed by certain types of compensation arrangements;
  • whether the charity is paying more than is necessary to secure the needed executive talent;
  • the relative magnitude of the CEO’s total compensation package in relation to that of the charity’s non-executive workforce; and
  • the “tax subsidy” received by the charity due to its exemptions from income tax, property tax, or other forms of taxation.

The AGO report states that adding such additional data points and aspects of analysis to the executive compensation-setting process may lead to “more moderate rates of increase in CEO compensation”. This will, according to the report, allow more charitable resources to be applied to the organization’s charitable mission and may decrease the disparity between executive compensation and the compensation paid to the rest of the charity’s workforce. Such broadened considerations may also “increase public confidence in the fairness or reasonableness of CEO compensation” at Massachusetts public charities.

New “Schedule EC”

The AGO report states that the purpose of the new Schedule EC is to provide more transparency regarding executive compensation by requiring more detailed and more timely disclosure of such information. The AGO report notes that the compensation information reported on Schedule J of IRS Form 990 may be more than a year out of date by the time it is made public.

Schedule EC will need to be completed by certain Massachusetts public charities as part of the Form PC annual report. More information about Schedule EC and related reporting requirements, including which types of charities will be required to file the new form, will be forthcoming in revised Form PC instructions which the AGO anticipates releasing early in 2014.

The prototype Schedule EC, and accompanying Schedule EC-1, were completed by the charities participating in the AGO study. Among other items, the prototype of the new form requires organizations to:

  1. describe the nature of each compensation component reported on Schedule EC-1;
  2. provide an explanation regarding how and when any forms of contingent compensation (e.g., deferred compensation, incentive compensation, and retirement) accrue, vest, and are (or will be) paid;
  3. list loans and loan guarantees initiated or existing between the organization and the CEO;
  4. identify the compensation consultant used in establishing the compensation; and
  5. describe how the CEO’s compensation-setting process differs from the compensation-setting process for other members of the organization’s senior management team.

The new Schedule EC proposed by the AGO should not be confused with the Department of Revenue’s Schedule EC – Solar and Wind Energy Credit.


The AGO report includes a significant amount of information regarding compensation-setting practices at the twenty-five large public charities studied, providing other Massachusetts charities with valuable insight into how these practices operate.

In addition, the AGO report and the new Schedule EC both signal a strong renewed commitment by the AGO to publicly monitor and closely scrutinize (i) the level of compensation paid to top executives at public charities, (ii) the reasonableness of each compensation component as a means to accomplish the charity’s mission, and (iii) the method by which compensation is set.

In light of this, Massachusetts public charities may want to review their executive compensation setting processes to make sure that they will withstand a possibly higher level of scrutiny.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Foley Hoag LLP | Attorney Advertising

Written by:

Foley Hoag LLP

Foley Hoag LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.