New York State is reconsidering the rules and practices related to compensation of executives by nonprofit organizations, particularly those that contract with state agencies. The governor, the New York State Senate Standing Committee on Investigations and Government Operations, and the attorney general have each weighed in on the topic.
In January 2012, Governor Cuomo issued an Executive Order intended to limit spending for administrative costs and executive compensation at state-funded service providers. State agencies have been working to promulgate regulations pursuant to the Executive Order.
Following the Executive Order, the State Senate Standing Committee on Investigations and Government Operations held hearings on executive compensation, issued a report, and reviewed proposed legislation. Lawyers Alliance, as a member of a coalition representing community-based nonprofit organizations, submitted testimony to the Senate Committee. Separately, the Attorney General’s Leadership Committee for Nonprofit Revitalization issued a comprehensive report and set of recommendations designed to streamline nonprofit operations and, among other things, clarify the responsibilities of boards in overseeing executive compensation. The attorney general is proposing legislation to implement these recommendations. Taken all together, state officials are considering the (i) appropriate limits on the amount of compensation to be reimbursed under a state contract; (ii) processes for boards to review comparable data and make decisions about compensation-related party transactions; and (iii) function of compensation committees.
As part of LANYC’s Advocacy Initiative, Lawyers Alliance is closely monitoring the legislative developments and seeks to offer input into the policy discussion based on its experience working with numerous nonprofit organizations. Future legislative and regulatory developments will be the subject of news and legal alerts, posted at www.lawyersalliance.org/news_legal_alerts.php. As these reforms are weighed, Lawyers Alliance will continue to advise boards and managers about the federal and state laws and regulations related to executive compensation and related party transactions. This includes the “safe harbor” available under federal intermediate sanctions rules as well as compliance with the New York Not-for-Profit Corporation Law. Lawyers Alliance’s client services include direct legal representation and educational programs.