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Late last week, the Massachusetts Senate adopted legislation
that would require public charities to obtain approval from the
Massachusetts Attorney General before compensating non-employee
officers, directors, and trustees for their service in those roles.
A "Massachusetts based public charity" seeking to
compensate officers, directors, or trustees would be required to
submit an application to the Director of the Non-Profit
Organizations/Public Charities Division that demonstrates in a
clear and convincing manner that compensation is necessary to
attract and retain experienced and competent individuals to serve
as non-employee officers, directors, and trustees. The Senate
legislation provides that if an application is approved, the
compensation granted to non-employee officers, directors, or
trustees must be reasonable as compared to the purposes for which
it is awarded. After granting approval, if the Director of the
Non-Profit Organizations/Public Charities Division later finds it
excessive, the Director may rescind the compensation
authorization.
The legislation defines a "Massachusetts based public
charity" as a public charity established under the laws of
Massachusetts and specifically includes a public charity
established outside of Massachusetts if the organization
"primarily conducts its business in the
commonwealth."
If the legislation becomes law, the foregoing requirements would
become effective six months after its enactment. The Director of
The Non-Profit Organizations/Public Charities Division may adopt
regulations to carry out the foregoing provisions.
Continuing a trend we are seeing in other states, the Senate
legislation also authorizes the Massachusetts Attorney General to
review the compensation of public charity directors, officers, and
senior managers acting in an executive capacity for the purpose of
considering appropriate compensation levels. As opposed to the
application submission provisions discussed above, which apply only
to Massachusetts-organized institutions and those foreign public
charities that "primarily" conduct their business in
Massachusetts, this broad-based review of executive compensation
covers all public charities that are required to register with the
Non-Profit Organizations/Public Charities Division. The legislation
permits the Attorney General to consider compensation standards of
public charities under her oversight as well as compensation
standards by public charities on a nationwide basis. This portion
of the legislation would become effective upon enactment of the
legislation. The Attorney General is required to submit her report,
including her recommendations concerning excessive compensation, to
the Massachusetts Senate and House of Representatives by no later
than December 31, 2012.
The Senate legislation was approved in the form of an amendment
to the Massachusetts budget for fiscal 2013. As a comparable
amendment was not included in the Massachusetts House version of
the state budget, the House will review and have the opportunity to
make additional revisions. A joint Senate and House committee has
been convened to consider this legislation and other matters. Given
the Patrick Administration's track record of working together
with the Massachusetts legislature to complete annual budgets in a
timely manner, the fate of the Senate legislation may well be
resolved by June 30, 2012.
As this legislation could have broad implications for public
charities operating in Massachusetts and their executives, Mintz
Levin's Nonprofit Institutions team will continue to monitor
developments and provide updates. We are available to advise and
assist organizations that are interested in further
information.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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