Deferred compensation fuels pay increases for association executives
Deferred compensation contributions help drive robust increases in overall executive pay, masking a decline in base salaries
W hen CEOs consider the results of the Modern Healthcare annual association executive compensation survey, which finds total compensation for top executives grew rapidly in 2008, they might want to keep one number in mind: 65%.
That’s the percentage of Americans who hold an unfavorable opinion of U.S. corporate bosses, as reported by a recent Bloomberg National Poll. For comparison, that’s within the margin of error of the percentage of Americans holding members of Congress in disregard, according to the same poll.
So it is perhaps not difficult to predict how many Americans, including association members, would view the news that the top executives at 52 not-for-profit associations related to the healthcare industry received average increases of more than 20% in their total compensation packages.
This, during a recessionary year when revenue at those same organizations was statistically flat, according to the results of the survey.
But a more detailed look at the results, made possible by the first year’s worth of new data on the greatly enhanced tax-disclosure forms—the Internal Revenue Service’s Form 990—shows that executives and their boards might not be as tone-deaf to public perceptions of their salaries as would appear from the results of the survey.
Although total compensation did increase, average base salaries actually decreased by 9% during fiscal 2008—the most recent year of data available—leaving many experts to conclude that changes in the tax forms and the new ways that compensation is accounted for have led to many of the apparent fluctuations in compensation seen in the forms.
“The board members live in the community, and you can’t help but be impacted by the perception of executive pay,” says Jim Nelson, a managing principal in the Minneapolis office of executive compensation firm Sullivan, Cotter & Associates. “The issues continue to be transparency, full disclosure, simple disclosure of pay and the public perception impact on pay.” The results of the ninth annual Modern
Healthcare association executive compensation survey might at first seem to show that total compensation just for the 2008 tax year rose at a rate more than double the previous year, 23% in 2008 compared with 10% in 2007.
A closer look at the numbers
Average total compensation among the top executives at the 52 associations whose tax forms were inspected by the magazine rose to $921,644 from $730,282 the year before. Several of the executives saw large percentage increases in their total compensation packages, though some of those were attributable to accounting changes or comparisons with partial-year salaries. Industry experts noted that although such not-for-profit associations are viewed by the public as charities because of their tax-exempt status, board members typically base compensation rates on the salaries in comparable industries. In the case of this group of industries, the most commonly cited comparables were hospital C-suites and lobbying industries, both of which are well-compensated areas for executives.
Eleven of the 52 executives for which 2008 data figures were reported
Billy Tauzin, head of the Pharmaceutical Research and Manufacturers of America, tops this year’s ranking. This is the first year PhRMA was included in the survey.