Author: ERI

Data Submission Period Continues for Salary & Benefits Surveys: 50% Discount on Results

Posted on | by ERI

Looking to benchmark salaries and benefits in 2013? Looking for a great deal on data? Consider participating in our traditional compensation and benefits surveys. By submitting your organization’s data, you become eligible for a half-off discount on the survey results.  Participants also receive a free Executive Summary. ERI Salary Surveys has a wide variety of industry and job function compensation surveys to choose from, as well as two benefits surveys.

Benefits Surveys (U.S. only)

The survey focuses on employer-provided employee health care benefits.  The report serves as a valuable reference for considering plans, changes, and strategies for effective benefits management.  Data are reported by organization sector, industry group, geographic region, and organization size.  Participation in this survey closes February 15, and the report will be available April 2013.

This survey includes information on medical, prescription, and dental costs, and also provides data on life/disability benefits, retirement plan practices, paid leave, and other benefits such as executive perquisites.  Data provided in this survey give nonprofit organizations an inexpensive resource to compare current benefit offerings to those of other nonprofit organizations throughout the U.S.  Data are reported by organization scope, activity area, geographic region, and organization size.  Nonprofit organizations have the opportunity to participate in this survey through March 31.  The full report will be available July 2013.

Compensation Surveys (U.S. & Canada)

Each salary survey reports up to three sources of employer-provided data per job title: data derived from participants, digitized public records, and ERI Economic Research Institute’s Assessor Series databases. Compensation data are reported as annual base salary, incentive/variable pay, and total direct compensation shown in means, medians, and percentiles. A job description, a graph with a trend line and data points, and the Selected Characteristics of the Occupation (optional) are also included for each benchmark position.

Participation for all compensation surveys closes March 31. Results will be published in August 2013.

Choose from popular combined industry titles such as the All Manufacturing Salary Survey and All Health Care Salary Survey. Industry-specific surveys (nearly 100 total) include the Consulting Salary Survey, the Retail Salary Survey, and the Transportation and Distribution Salary Survey. ERI Salary Surveys also publishes approximately 20 job function surveys, including the following: Engineering and Scientific Professional Salary Survey, Top Management and Executive Salary Survey, Physicians Salary Survey, and Human Resources Salary Survey.

Surveys are available with national or statewide results.

Nonprofits have the option of choosing from specific sectors (30 in all) — such as the Mental Health Services Salary Survey, the Public Education Salary Survey, and the Human Services Salary Surveys — and/or participate in the All Nonprofits Salary Survey.

Surveys are available with national or statewide results.

Our Canadian salary survey collection has grown due to increased participation and interest. Our newest offering is the All Construction Salary Survey. Other popular titles are the All Energy and Mining Salary Survey, the Food and Beverage Manufacturing Salary Survey and the Oil, Gas and Upstream Services Salary Survey.

All of our Canadian salary surveys show national results.

Assessor Series subscribers are encouraged to participate in any applicable survey to receive the results for free (PDF version). Survey questionnaires may be accessed through the Platform Library. Survey participants do not receive a discount on Assessor subscriptions.

For more information about ERI Salary Surveys, contact us at [email protected] or 877-210-6563.

Are Boards Required to Maximize Tax Deduction When Deciding a CEO’s Compensation?

Posted on | by ERI

In a recent case, Freedman vs. Adams, a shareholder filed a claim alleging the Board paid out $130M in discretionary bonuses without consideration to maximizing tax deduction, according to IRC 162(m), specifically referring to a provision that deems performance-based compensation qualifies for a full deduction in the compensation expense.

Let’s review the rule and see its application in an example.

Essentially, the IRC 162(m) rule denies tax deduction for any annual compensation exceeding $1 million paid to the “covered” executives, who are the CEO and the three most highly compensated executives as of the last day of the company’s tax year. Prior to 2007, the CFO position was covered; however, under the current rule, the CFO is not considered a covered employee.

Most companies have replaced discretionary bonus plans, yet they disclose in their filings retaining right to have discretion in adjusting these payouts in the event that the intended results of a compensation plan are not achieved or are unexpected (e.g., windfall or punitive).  If a discretionary payment is made beyond the cap of an IRC 162(m) compliant incentive plan, then that discretionary portion is not tax deductible and is disclosed in the bonus column of the Summary Compensation Table.

Here is an example applying this rule.

A covered employee receives a $900,000 base salary and a $600,000 discretionary bonus.  Also included in the compensation package are a $1.5 million performance-based cash incentive and a $3 million dollar payout for nonqualified stock option tied to achieving a market based performance condition , 10% total shareholder return (TSR).

According to IRC 162(m), the $1 million deduction cap would apply to the base salary and the discretionary bonus. Only $1 million would be deductible and the extra $500,000 would not be deductible.  The $1.5 million performance bonus and the $3 million earnings on the non-qualified stock options do qualify for the tax deduction, so the company will report a total of $5.5 million tax deduction ($1M allowable plus $4.5M performance-based compensation).

For more information about these executive compensation data, regulations, research, and related analysis, contact ERI. See www.executiveloyalty.org for more infomation on this case and other topics regarding executive compensation law.

JP Morgan Board Adhering to Pay-For-Performance Principles

Posted on | by ERI

Research assistance provided by Ben Croudace, ERI Subscriber Services Associate

One of the key principles substantiating pay-for-performance is that the executive needs to be able to impact or influence an outcome, or have some “measure of control” over the results. The Board of JP Morgan held CEO Jaime Dimon accountable for the unconventional investment approach that was not approved and, subsequently, resulted in $6B in losses, as explained in a report issued by a JPMorgan Task Force. Possibly heeding the missteps of Citigroup and other public corporations regarding executive compensation recommendations, the Board filed an 8-K on January 16, 2013, announcing a 50% reduction in annual compensation for Dimon.

Dimon’s compensation reduction is based on the 2011 annual compensation of $23,000,000, and has been adjusted to $11.5M.  As reported in the Proxy JP Morgan filed April 2012, the annual compensation includes the salary, bonus, stock award, and options awards.  JP Morgan’s bonuses are discretionary cash; stock awards are delivered via restricted stock units (RSUs) ; and options awards are delivered via stock appreciation rights (SARs).  A notable change in Dimon’s pay package is that it now includes base salary and RSUs only. They eliminated discretionary cash and SARs.  Unrelated to the reduction, the Board also extended the January 22, 2013 vesting date of SARs for an additional 18 months, which is subject to Board review of performance goals achieved.

How does Jaime Dimon’s new pay level compare to the market?  Let’s take a look at an industry benchmark  from ERI’s Executive Compensation Assessor for a CEO of a $24B Financial Institution, anchored to the U.S. National Average, as shown in the below table.

Benchmark

Salary

Incentive Compensation

Annual Compensation

 CEO Dimon

1,500,000

10,000,000

 11,500,000

ERI

1,005,733

10,615,445

11,621,178

The external benchmark results in $11,621,178 annual compensation based on ERI’s January 1, 2013 database.  It appears that the big banks’ pay levels are affected by the regulatory changes and current events transpiring from shareholder and institutional investor constituents.  Note, the incentive compensation benchmark data includes salary, bonus, stock award, options and non-equity incentive plan compensation.  Although JP Morgan does not have non-equity incentive plans (e.g., excluded from Summary Compensation Table per SEC guidelines only when a company does not offer such pay elements), this type of pay is characteristically included in incentive compensation.  For more information about these benchmarks and related analysis, contact ERI.

Nonprofit CEO Pay Over $1 Million: Right, Wrong, or Reasonable?

Posted on | by ERI

A recent article in the San Francisco Chronicle revisits the discussion of appropriate salary levels for nonprofit CEOs. Citing data from the Chronicle of Philanthropy’s annual compensation report, the article examines two perspectives of annual salaries over $1M: “That’s Too Much for a Nonprofit CEO” and “It’s Time to Change Our Thinking.”

The public often appears outraged by high salaries for nonprofit executives, and legislators in some states (e.g., New York, New Jersey, Florida, and Massachusetts) have supported the sentiment by proposing a cap on salaries at nonprofit organizations that receive public funding. While no such restrictions are currently in force, they may be forthcoming. It seems that there is an expectation among some people that nonprofit employees should be willing to sacrifice personal compensation to achieve organizational goals.

Others argue that, when higher salaries attract top talent, the result is better for the organization — as is often the theory associated with for-profit companies. A highly effective — and highly paid—executive may bring improved management and efficient systems that will increase organizational revenues far in excess of the investment in executive salary.

Ethics and theory aside, comprehensive research shows that most nonprofits provide reasonable CEO salaries and that highly paid executives are the exception rather than the rule (see ERI White Paper Charity Executive Pay).

So, is it wrong to pay a nonprofit CEO $1M or more a year? If potential donors believe that their gifts are going to pay salaries that are too high, then revenues to the organization may drop. On the other hand, what organizations should and have to pay their executives is influenced by the size and type of organization, as well as the need to attract executive talent. The more appropriate question might be this: Is it unreasonable to pay a nonprofit CEO $1M or more a year?

The challenge for nonprofits is that the IRS doesn’t say precisely what is deemed unreasonable compensation, but it does require that comparable salaries for executives with similar responsibilities in similar organizations be used to determine appropriate pay. ERI’s Nonprofit Comparables Assessor shows comparable salaries for a given organization’s CEO, based on the type of organization, size, and geography, using ERI’s database of Form 990 compensation data. A look at the free demonstration version may help assess if those $1M plus salaries are, in fact, reasonable.

ERI Compensation Data Cited by Commission Analyzing Nonprofit Executive Pay

Posted on | by ERI

About two years ago, Senator Charles Grassley asked representatives of the nonprofit sector for input on key policy issues related to financial accountability.  At first, the focus was on religious groups, but it was later expanded to encompass the broader nonprofit sector. Over the past year, about 80 leaders were involved in the discussion. The final report, Enhancing Accountability for the Religious and Broader Nonprofit Sector, was issued in December 2012.

The questions submitted to the commission included whether the current regulations on determining executive compensation should be changed.  An organization can now establish a rebuttable presumption of reasonableness (that is, the burden of proof that the compensation is excessive shifts to the IRS, if this process is followed) if the nonprofit board goes through these steps (after first ensuring that no one making the decision has a conflict of interest):

  • Approves the compensation arrangement in advance;
  • Collects and uses appropriate comparable data; and
  • Adequately documents the basis for the determination at the time of making it.

Some observers now perceive that nonprofit executive compensation is frequently excessive and that current law is ineffective in addressing the problem. It has also been suggested that some organizations abuse the rebuttable presumption protection by using comparability data that is not truly comparable.

To bring some factual data to this discussion, ERI used 2009 Form 990 data from more than 96,000 nonprofits to submit to the Commission members.  ERI research reported the following:

  • 40% of the organizations filing Forms 990 in 2009 have less than $100,000 in annual revenues, and only about 2% of them have any paid staff at all.
  • Organizations with greater than $1 million in annual revenue show greater than 60% with paid staff, but these only account for roughly 14% of all nonprofit organizations.
  • The highest paid CEOs — those that are paid more than two standard deviations above the average — represent about half of 1% of all nonprofit organizations.

The executive compensation section of the Commission’s report extensively references the ERI analysis. With better data on the incidence of high compensation, the final recommendations called for no new laws and regulations (with the exception of some possible guidance on when to use for-profit comparable data), for more nonprofits to use relevant compensation data, for donors and funders to review compensation levels and the process of determining them, and for the IRS to continue its compliance efforts.

ERI’s Nonprofit Comparables Assessor remains the most flexible and comprehensive software available to create the comparable data needed to establish a rebuttable presumption — and it is the tool also used by the IRS to evaluate compensation levels.  A free demonstration version is available for download.

Last Chance for 75% Discount on Our Salary and Benefits Surveys

Posted on | by ERI

There’s still time to participate in ERI Salary Surveys’ compensation and benefits surveys to receive 75% off the purchase price. Submit your organization’s data before December 31, 2012, to become eligible for the full discount.

Can’t make the early deadline? ERI Salary Surveys will provide a 50% participant discount for the remainder of the collection periods, ending March 31, 2013, for the industry-specific and job function compensation surveys, and January 31, 2013, for the Health Care Benefits Benchmarking Survey. We will also be collecting submissions for the Benefits in Nonprofit Organizations survey until March 31, 2013.

Our salary surveys cover a variety of industries and nonprofit sectors in the United States, as well as for-profit industries in Canada. Full listings of job function surveys are also available for both countries.

Each salary survey reports employer-provided data derived from participants, digitized public records, and ERI Economic Research Institute’s patented online, interactive salary surveys and Assessor Series databases. Salary information for each job title represents actual data points—no attempt is made to alter the data as collected, reported, and graphically displayed other than to normalize collected compensation amounts to a common date.

Participation in ERI Salary Surveys is easy! Submissions are accepted online, via email through an Excel version of the questionnaire, or in the old-fashioned paper and pencil format sent by mail (postmarked by Dec. 31, 2012) or fax.

For Assessor Series subscribers, 2013 ERI Salary Surveys (PDF versions) are free with participation (printing and shipping costs apply to hardcopy requests). There is no limit to the number of applicable surveys in which a subscriber may participate. Our salary surveys give subscribers a permanent copy of ERI pay information with a data date of March 31, 2013, in addition to actual participant data. By participating, subscribers add to the quality of ERI’s employer-provided salary databases, which are reflected in the Assessors you use. Please note: The offer is available to subscribers with valid license codes and survey questionnaires must be accessed via the Platform Library. If you are not already an Assessor Series subscriber, please sign up for a Guided Tour.
For more information about ERI Salary Surveys, contact us at [email protected] or 877-210-6563.

Compensation Up for Private-College Presidents

Posted on | by ERI

Received a call or letter from the alma mater asking for an end-of-year donation this holiday season?  A recent compensation survey by the Chronicle of Higher Education might prompt you to check where that donation may be applied as private-college presidents’ hefty compensation packages are on the rise. According to Forms 990 filed in 2010, 36 earned more than $1 million. The report found median compensation for private-college presidents was $396,649, a 2.8% increase over 2009.

Another interesting finding was that about half of the highest-paid college presidents were given cash payments to cover taxes on bonuses and other benefits.  This practice of “grossing up” has been dropped at many publicly traded companies in recent years because of shareholder pushback.  Alums may not be aware that their donations are helping to pay taxes for a college president already making a high salary and, furthermore, may not think that such a practice is a good use of their money.

The revised Form 990, first used in 2008, now requires nonprofits to disclose perks like first-class travel for executives, and also whether highly compensated employees have received payments to cover taxes. However, about 75% of the private colleges with the 50 highest-paid presidents reported paying cash to cover taxes, but did not say which employees received the gross-up benefit on their 990s. So, it may be difficult to learn about the details of this practice.

Another common perk for college presidents is deferred compensation, and some have hundreds of thousands of dollars set aside for them in a given year. Although invested tax free until paid out, that money would be forfeited if a president voluntarily resigns before an agreed-upon payout date. When the president does leave, the total compensation reported in that year may be huge because of the payout of money that had been set aside in previous years.  What’s reported to the IRS is both money set aside for deferred compensation and any actual disbursement of deferred compensation. Thus, some of the dollars may be double counted.  Simply looking at a list of total compensation data does not tell the whole story.

Check out your college’s Form 990 using this quick search tool. You can review past years’ forms as well as the most recently filed reports.  If you want you see how presidents of similar-sized schools are paid, download the demonstration version of ERI’s Nonprofit Comparables Assessor.  It’s free and worth checking to make sure your hard-earned dollars are being used for purposes you support.

Pay-for-Performance and Executive Compensation

Posted on | by ERI

Pay-for-performance for executives is incentive compensation aligned to business objectives that are typically defined prior to the beginning of the performance period. Most pay-for-performance plans are short-term incentive plans that qualify for IRC Section 162(m) tax deduction. The award amounts are derived based on a formula and reported in the Non-equity Incentive Plan Compensation column of the Proxy’s Summary Compensation Table.

Curiously, Microsoft Corporation has a discretionary bonus plan yet sill garnered a high approval vote for their Say-On-Pay, despite shareholder activism related to pay for performance. Let’s review their discretionary plan by taking a closer look at Microsoft’s 2012 Incentive Plan. Unlike the typical attributes just described, Microsoft 2012 Incentive Plan awards are not determined based on a formula or measured against predefined targets; rather, they are based on the executive’s performance across financial, operational, and strategic factors. The qualitative and quantitative factors used to evaluate 2012 performance included the following:

  • Compliance and integrity
  • Contribution margin
  • Corporate citizenship
  • Customer acceptance
  • Customer satisfaction
  • Developer community satisfaction
  • Efficiency and productivity
  • Innovation
  • Operational excellence
  • Organizational culture and leadership
  • Organizational diversity
  • Product development and implementation
  • Quality
  • Revenue
  • Sales and licensing volume
  • Strategic planning

The Incentive Plan design includes 20% of the target award payable in cash and 80% payable in stock that vests in four equal installments. The Plan is funded as a percent of Microsoft’s fiscal year 2012 corporate operating income and is capped at 0.3%. The CEO target award is 0% to 200% of base salary, whereas the other Named Executive Officers have 0% to 150% of the incentive target award. Also, the specific business rationale disclosed in the Proxy that supports the discretionary pay-for-performance approach:

  • incentivize efforts to create shareholder value that may not produce tangible results within a fixed or predictable time period, which is important given the long-term characteristics of Microsoft’s business

Based on this plan description, let’s take a look at Steven Sinofsky’s 2012 compensation and how this information was disclosed in the Proxy Summary Compensation Table.

Name and principal position

Year

Salary 

($)

Bonus 

($)

Stock awards

($)

All other comp

($)

Total

($)
Steven J. Sinofsky      President, Windows and Windows Live Division     2012

    658,333

    1,530,000

      6,384,487

               10,912         8,583,732

Notice that there are three standard columns not included in the table: Option Awards, Non-Equity Incentive Plan, and Pension & Non-Qualified Deferred Compensation. The Bonus amount reported reflects the 20% cash portion of the Incentive Plan awards, and the Stock Award amount reflects the 80% stock portion of the award. Microsoft aligns pay with performance focusing on the long term by not including hard business targets, options awards that may tempt executives to focus on short-term performance of stock price, and tenure-based plans like Pensions. At the same time, they assess the executive performance with a comprehensive set of factors that measures performance holistically. Microsoft shareholders continue to support these executive pay programs, demonstrating that there is more than one way to align interests and maximizing IRC 162(m) deductibility isn’t a necessary requirement.

For more information, analytics. and tools related to executive compensation, visit www.erieri.com.

CEO Compensation at Charities – What Influences Pay?

Posted on | by ERI

A recently released report on compensation for CEOs of charities authored by Charity Navigator confirms what ERI Economic Research Institute has found in its research over the past decades – what a CEO gets paid depends on the location, the size, and the mission of the organization.

The IRS states that nonprofit CEOs should receive reasonable compensation. Charities are encouraged to collect data from comparable organizations and use that data to determine reasonable compensation for their executives. While the IRS does most of the compliance investigations, there is also scrutiny at the state and local government levels. When governments use taxpayer dollars to buy services to be provided by nonprofits, high pay for those nonprofit executives has become a hot-button issue.

Charity Navigator’s report found that the median compensation for a charity CEO was $132,739 in 2010, based on salaries from 3,786 mid to large charities reported on IRS Forms 990. For CEOs holding the same job in 2009, the average increase in salary for the year was only 1.5%. These do not seem like alarmingly high numbers, but, as usual, the report revealed that CEO compensation varied with the type or mission of the charity, the location, and the size of the organization. Charity Navigator has even included a list of the highest paid by type of charity in the report.

ERI also recently completed an analysis of salaries for about 100,000 CEOs in charities. The findings of both studies reach similar conclusions. While most nonprofit leaders earn reasonable (or less than reasonable) salaries, a few earn much more than expected, based on salaries in comparable charities.

Check out both reports for typical wages in charities of different sizes and types. Much more detail is available in ERI’s Nonprofit Comparables Assessor. This software allows the user to search for comparable organizations by choosing a specific revenue size, geographic location, and type of organization. Then, the comparables included in the analysis will truly be relevant. The basic demonstration version can be downloaded for free.

It is useful to know how CEO compensation levels relates to those in comparable organizations, whether you are donating to, contracting with, or working for a charity.  ERI’s Nonprofit Comparables Assessor provides the ability to select key variables (size, location, and type of organization) that strongly influence the calculation of reasonable pay so that an assessment of reasonableness can be determined.

Anticipating the Need for Salary Survey Data in 2013?

Posted on | by ERI

Save up to 75% off on Our Salary Surveys 
ERI Salary Surveys is currently accepting submissions for our compensation surveys. Participate before January 1, 2013, and receive a 75% discount on the results. Need a bit more time to submit your data? Not a problem. Our collection window is open until March 31, 2013, and participants remain eligible for a 50% discount.

Participate Now and Save!

What’s Included in the Final Report

Our industry-specific and job function surveys provide up to three sources of compensation data for more than 100 benchmark positions. Take advantage of the participant discount and add to the validity of the survey by submitting your organization’s data.

Our surveys report the following information for each position (salary data are shown in means, medians, and percentile cuts):

  • Annual Salary
  • Incentive/Variable Pay
  • Total Direct Annual Compensation
  • Job Description
  • Graph with a Trend Line and Data Points
  • Selected Characteristics of the Occupation

Are you an ERI Assessor Series® subscriber? If so, participate in any of our applicable surveys to receive a PDF version of the results for free. Simply submit your data through the online questionnaire via the Platform Library.

Data collection began on October 1, 2012, and ends on March 31, 2013. Survey results will be published in August 2013. All survey participants will receive a complimentary copy of the Executive Summary.