Executive Pay Curbs

Earlier this month the WSJ.com disclosed an article written by Deborah Solomon and Laura Meckler relating to President Obama’s plan to restrict executive salaries. Organizations that receive a substantial amount of government aid may be restricted on the amount of executive compensation.

The possible restrictions include a $500,000 cap on executive salaries. Additional compensation could be provided in the form of restricted stock or funds that are tied to the long-term health of the organization. President Obama’s tentative plan also restricts executives from receiving severance payments; and allowing shareholders “more say” in how top executives are compensated. This restriction will not apply to any of the existing financial-rescue bailout programs.

Should organizations that receive federal funds be restricted on how much executives are compensated? I believe the answer lies in accountability. These organizations that receive federal funding (taxes generated from the public) have a strong responsibility to manage with integrity and fiduciously. Especially if the organization is tax-exempt, these organizations carry a huge fiduciary responsibility to the public…using public funds for public benefit.

Why the cap? Because of abuse.

Why abuse?  Because of personal/private/public perceptions.

However public perception has changed and communicated a general disdain for abuse and greed.

How much is an executive worth? What is reasonable compensation for executive management under President Obama’s tentative plan? It appears that the value is capped at $500,000.

The IRS is interested in compensation, especially excessive compensation and taxable benefits. Review Schedule J of the redesigned Form 990 and determine how your organization can respond to the new questions.