Relates to the oversight of executive compensation and to trust governance

1 Co-sponsor

• Michael H. Ranzenhofer

BILL NUMBER:S5197

Title of bill

An act to amend the not-for-profit corporation law, in relation to executive compensation oversight; and to amend the estates, powers and trusts law, in relation to trust governance

Purpose or general idea of bill

To amend the Not-for-Profit Corporation Law (N-PCL) and the Estates Powers and Trusts Law (EPTL) to enhance the oversight of executive compensation of New York's charitable corporations and trusts.

Summary of specific provisions

Section 1 adds new definitions to section 102 of the Not-for-Profit Corporation Law to implement provisions of the bill.

Sections 2 creates a new section 712-a of the Not-for-Profit Corporation Law to require that compensation is fair, reasonable, and commensurate with services provided, and that boards of larger nonprofits follow particular procedures in determining that compensation meets this standard.

Section 3 creates a new section 8-1.9 of the Estates, Powers and Trusts Law to make applicable to charitable trusts the new requirements concerning executive compensation, that are made applicable to charitable corporations.

Section 4 is the effective date.

Justification

For the public to maintain trust in the nonprofit sector, it must have confidence that executive compensation is fair, reasonable, commensurate with services, and set independently. Although nonprofit board members and trustees are subject to general fiduciary principles, New York statutes are virtually silent on boards' and trustees' responsibilities for overseeing executive compensation. There should be clear statutory standards to ensure active and independent review of compensation by boards and trustees, including requirements that they affirmatively determine that compensation paid to key employees is fair, reasonable and commensurate with services provided, that no individuals with an interest in the compensation participate in the compensation process, and that boards adhere to statutory criteria when making compensation determinations.

The Act seeks to achieve these goals while appropriately tailoring its requirements to nonprofits' size. The board, or a committee of the board, of any charity required to register with the Attorney Genera] pursuant to Article 7-A of the Executive Law will be required to review and approve the compensation of the organization's principal executive officer. Boards or board committees of those organizations with annual revenues above $2 million will, in addition, be required to review and approve total compensation paid to the top five highest compensated employees whose compensation exceeds $150,000, determine that such compensation is fair and reasonable in relation to compensation paid to individuals serving in similar roles at

corporations of similar size, and document the basis for compensation determinations.

Prior legislative history

New bill.

Fiscal implications

There is no fiscal impact on the state.

Effective date

This act shall take effect January 1, 2014.