Local United Way board members are concerned that the pay package they approved for their former president might violate IRS rules regulating compensation for charity executives.
Current and incoming board chairmen of the United Way of Central Carolinas said Tuesday that the board has discussed federal tax laws that could apply to former president Gloria Pace King's pay.
The IRS in recent years has cracked down on excessive compensation for nonprofit executives. Penalties can involve fines of tens of thousands of dollars for the CEO and individual board members.
Mark Hanson, an IRS spokesman in Greensboro, declined comment Tuesday, saying he couldn't discuss relationships between taxpayers and the government.
Incoming board Chairman Carlos Evans said the United Way is not under investigation. But he said board members have had “in-depth” discussions about whether King's compensation violated tax rules.
The Charlotte board agreed to pay King $1.2 million in salary and benefits last year. After defending its decision for two months, the board reversed course last week, saying the outcry over King's pay convinced them it is excessive. The controversy made King's leadership untenable, board members said, and they asked her to resign or be fired.
The board discussed the IRS rules before making that decision, said Evans and current chairman Graham Denton.
The IRS limits “unreasonable compensation” for nonprofit CEOs under a 1996 law requiring charities to check peer salaries before setting their own.
Local United Way leaders have said they surveyed CEO pay before approving King's package but have declined to release specifics.
They say they are still studying the IRS issue.
“We all wish there was absolute clarity about what's reasonable and what's not reasonable,” Evans said. “These matters are not crystal clear.”
The board has said it will pay King's salary for the next 21/3 years but will not pay the more than $1 million remaining on a retirement contract she signed in 2006 – which likely would be the focus of any IRS inquiry, experts say.
King's attorney, Bill Diehl, has suggested she'll fight for her full pension in court.
Just who proposed King's upgraded retirement benefit remains unclear. But IRS rules suggest the agency could hold King and each board member who approved it accountable.
Board members have told the Observer that the 17-member executive committee approved King's compensation, while the rest of the board voted on the agency's overall $44 million budget. King's pay, however, is clearly stated in the budget.
The IRS would be interested in whether the board properly reviewed and approved the compensation, said Mike Smith, chief operating officer for Charity Navigator, a nonprofit watchdog. “(Board members) should ask questions. That's their job.”
Johnson and Wales University President Arthur Gallagher is a member of the board but not the executive committee. He said he and many other board members learned the particulars of King's pay by reading the Observer earlier this summer.
An Observer analysis of 31 similar- and larger-sized United Ways across the country showed King's compensation was the highest.
In addition to more than $822,000 in retirement contributions, King earned $365,000 in salary and bonus last year, placing her among the best-paid CEOs for a nonprofit of any size, according to a 2008 CEO compensation study by Charity Navigator.
According to the study, top leaders of more than 5,000 nonprofits nationwide, including major universities, earned an average salary of $149,000. Average CEO pay among nonprofits in the South was $134,000.
If the IRS determines King's pay was unreasonable, it could seize what it deems “excess” payments and fine her 25 percent or more of that amount. Board members could be fined as much as $10,000 each.
The IRS also could revoke the charity's nonprofit status, but Smith said he doubts that would happen.
The IRS's interest in excessive CEO pay has been spurred in part by abuses in the private and nonprofit sectors and “a couple good scandals,” said Linda Lampkin, research director with ERI, Economics Research Institute.
Starting in 2004, the IRS reviewed tax filings from 1,800 charities nationwide and found 600 agencies wrongly reported CEO pay.
The IRS asked the agencies to file amended tax forms and fined 40 people more than $20 million in taxes because of excessive pay.
Next year, the IRS will revamp its tax form to require details from nonprofits on how they set CEO pay and why they think the amount is appropriate.
@Nyx.CommentBody@