The term "nonprofit" is so misleading it should be drummed out of the dictionary. In Massachusetts it can refer to legitimate charities and cultural organizations that deserve that tax-protected status, as well as the highly profitable health insurer Blue Cross and Blue Shield. As Attorney General Martha Coakley pointed out Thursday, one of the ways profitable nonprofits abuse the privilege is by paying outrageous salaries, bonuses and severance packages to top executives.
The attorney general released a survey of 25 large nonprofits that revealed the pay and perks these executives receive, money that would be of greater benefit to employees, customers and in some cases university students. This issue came to a head when an inquiry by the attorney general's office found that Blue Cross fitted two departing chief executives with golden parachutes totaling $16.4 million and $11 million respectively. An embarrassed Blue Cross agreed to refund the severance amount to customers, most of whom have regularly endured increases in their health insurance during the tenure of the execs.
No laws may be broken, but organizations that receive tax breaks because of their nonprofit status and pay out lavish salaries and bonuses rather than return the money to employees or beneficiaries are behaving irresponsibly and cynically. The major source of the problem are the boards of directors who sign off on these salaries and severance packages. Ms. Coakley urged the boards to reconsider their severance policies and consider how compensation for CEOs compares to the salaries of the workforce.
As it can take as long as two years for executive compensation to emerge on the tax returns of nonprofits, Ms. Coakley will require them to fill out a new form revealing this information more promptly and completely. Shaming these organizations is often the most effective way of getting them to reform their behavior, and the harsh light cast by this disclosure may shame those capable of embarrassment.