"A child's learning is the function more of the characteristics of his classmates than those of the teacher." James Coleman, 1972

Wednesday, October 12, 2011

College Board Pays Gaston Caperton $1.3 Million in Tax-Subsidized Salary Every Year

That's right--more than the head of the American Red Cross or even Harvard University's president. Below is an example of journalistic excellence by Janet Lorin at Bloomberg News, who offered this story in late August.

Want to guess how many corporate media outlets reprinted it?  That's right, none.
The president of the College Board, the nonprofit owner of the SAT entrance exam, has seen his compensation triple since 1999 and now gets more than the head of the American Red Cross, which has more than five times the revenue.
The value of Gaston Caperton’s compensation was $1.3 million including deferred compensation in 2009, according to tax filings, also surpassing that of the president of Harvard University. Richard Ferguson, the now-retired chief executive officer of rival testing company ACT Inc., got compensation valued at $1.1 million. Nineteen executives at the New York- based College Board got more than $300,000.

The College Board, ACT and a third nonprofit company -- Educational Testing Service -- make money owning, designing or administering college entrance tests. All have unusually generous compensation for either executives or directors, said Dean Zerbe, a former senior tax counsel for the Senate Finance Committee which has examined the pay of nonprofit executives.

“This is the kind of salary I would expect from a for- profit business that is paying taxes,” Zerbe said. “Congress should take a hard eye at these tax-exempt testing companies that pay big-time salaries and seem to want to shake every dollar possible out of the pockets of students applying to college.”

The companies don’t pay corporate taxes because of their nonprofit status. Each year, several million students take their exams, which generate revenue through fees. Seven states fund the Preliminary SAT and seven more will pay for the ACT this school year, according to their departments of education.

‘In Line’

In 2009, the median compensation for chief executives of nonprofit companies with budgets of more than $50 million was $394,508, according to the Chronicle of Philanthropy, which compiled data from Guidestar.org, a website that posts tax forms by nonprofit groups.

When Caperton, a former two-term governor of West Virginia, started at the College Board, he had total compensation of about $404,000. Under his tenure, the company has more than doubled revenue -- to $660 million in the year ended June 2010. It had a surplus of $66 million.

College Board executive salaries are “very much in line” with the capabilities required to run a complex organization, Peter Kauffmann, a spokesman for the company, said in an e-mail. Caperton’s pay is set by a committee of trustees, which gets outside advice from independent consultants, as does ACT, according to the companies.

“The economic reality is that nonprofits, just like for- profit organizations, compete for talent,” Kauffmann said. “To insist that non-profits pay their employees significantly less than for-profits would be to hobble their efforts to provide quality, reliable offerings.”

22 Years as CEO

Compensation in 2009 for ACT’s Ferguson included $392,700 for retirement benefits accrued during his 38-year tenure, 22 as CEO, Thomas Goedken, chief financial officer, said in an interview. Ferguson’s deferred compensation began in August 1985 and his pay was negotiated annually with trustees, Goedken said.

ACT pays its executives “well enough to attract good talent and keep them,” said Mark Musick, ACT’s lead director. “We operate in a situation where many of the folks are in the same pool with for-profit companies.”

Gail McGovern, CEO of the nonprofit Red Cross, had total compensation of $1.03 million in 2009, which included a one-time reimbursement of $474,000 for her relocation. Her compensation reverted back to about $500,000, where it has remained since 2008, said spokeswoman Laura Howe. The emergency response and blood services company, based in Washington, had revenue of $3.6 billion in the year ended June 2010, according to a tax filing.

University Leaders

Caperton’s compensation exceeds that of the leaders of almost all the member organizations that form or support the College Board. Harvard University President Drew Faust had total compensation of $875,000 in 2009, according to a tax filing.

Thirty college leaders earned more than $1 million in compensation and benefits, according to the Chronicle of Higher Education’s most recent survey of 448 private, nonprofit U.S. colleges and universities, which looked at salaries in 2008.

Richard Levin, president of Yale University, had a pay package of $1.6 million, including deferred compensation in 2009, the most among presidents of the eight Ivy League schools, according to tax filings.

The median total compensation for the 185 public-college presidents in the Chronicle of Higher Education’s 2009-2010 survey was $375,442.

ETS President

Educational Testing’s president, Kurt Landgraf, had compensation of $742,000 in 2009, the most recent tax filing available. The Princeton, New Jersey-based company generated $906 million in revenue with a surplus of $7.42 million that year. Landgraf is also chairman of ETS’s for-profit subsidiary Prometric Inc.

“ETS is an organization with a very strong social mission and we need to be competitive to attract the talent and leadership we need to advance that mission,” Tom Ewing, a company spokesman, said in an e-mail.
The salary of Jon Whitmore, ACT’s new CEO who began last September, hasn’t been disclosed because that year’s tax return hasn’t yet been filed, according to Iowa City, Iowa-based ACT.

Educational Testing, which develops and administers more than 50 million tests annually in more than 180 countries, and ACT both compensate their board members -- a policy also out of the ordinary for nonprofit companies, pay consultants said. ACT compensated outside directors about $640,000 in 2009, averaging more than $50,000 a person. The company posted revenue of $274 million and a surplus of $35.9 million in the period.

Paid Directors

Educational Testing compensated 17 trustees a combined $475,500 for an average 1.5 hours per week that year. The pay ranged from $14,000 to $54,000 per trustee, according to tax records. Trustees meet four times a year and committees meet additionally, Ewing said.

The College Board doesn’t compensate its directors.

Just 1 percent of charities paid their board members, according to BoardSource, a Washington-based company that collects data about nonprofit board service and trains directors. The group surveyed 1,758 nonprofit board members and executives in the U.S. and Canada last year including almost 1,400 affiliated with charities.

ACT began paying directors in 2003, when it changed the board’s composition from deans of admission and high school counselors to people with “a wider reach of experience and background,” said Musick, the lead director.

Musick received $66,000 in total compensation from ACT in 2009, according to the tax filling. He is president emeritus of the Southern Regional Education Board, a nonprofit research group that works with 16 states to improve public education.

Taxpayer Subsidized

Compensating nonprofit directors isn’t the norm and happens more often in heavily regulated industries such as health or mental health, said David Samuels, who spent nine years as deputy chief of the New York Attorney General’s charities bureau.

“The general concern, particularly among regulators, with respect to expenditures of charitable assets for salaries, board compensation, travel and other perks is that charities are subsidized by the taxpayer,” said Samuels, an attorney at Duval & Stachenfeld LLP in New York. “In this era of deficits and budget cutting, there is even greater concern about these matters.”

Current ACT directors include Richard Riley, secretary of education in the Clinton administration, and Bob Graham, former U.S. Senator from Florida. Directors attend four meetings a year, said Ed Colby, an ACT spokesman. If they’re not active participants, they won’t be asked back, he said. At least two members weren’t reappointed, Musick said in an interview.

‘Highly Unusual’

As part of his compensation, Caperton entered into a five- year agreement that grants him $509,000 annually. That money is described as deferred compensation because it is “vested but not paid” until he leaves, the College Board said. Caperton plans to retire next year, four years into that agreement.

Receiving money in annual installments is “highly unusual” because it doesn’t serve to keep the executive in place for the length of the contract, said Paul Dorf, managing director of Compensation Resources Inc., an Upper Saddle River, New Jersey- based pay consulting firm.

The intention of Caperton’s contract was to keep him for five more years, said Lester Monts, former chairman of the College Board’s trustees who headed the committee that set Caperton’s current contract.

Companion Travel

The trustees were “trying to be competitive,” Monts, senior vice provost at the University of Michigan, said in an interview. “We have gotten more from Gaston Caperton than we actually paid him.”

Caperton also receives a monthly housing allowance included in his taxable compensation.

Of ACT’s top 11 employees, five made more than $300,000. Three received funds for companion travel.
Travel funding is also available at ETS. Four trustees and 13 officers received first-class or charter-travel benefits and four officers got money for companion travel. First-class accommodations are allowable for flights of three hours or more, Ewing said.

“ETS trustees are reimbursed for travel expenses, lodging, and an honorarium for their time and expertise,” Ewing said. “This has been standard practice at ETS for some time and serves as the least we can do to thank them for the contributions and leadership.”

Arturo Pacheco, director of the Center for Research on Educational Reform at the University of Texas at El Paso, said he served as an ETS trustee for 10 years. In his last year, 2009, he received $14,000, the lowest amount among 17 trustees listed on a tax filing.

Pacheco said that on occasion he took first-class flights paid by ETS, often with a connection, to attend meetings. Of the nonprofit boards he has sat on, ETS was the only one to compensate him, he said.

“I would have done it for free because it was an interesting experience,” Pacheco said.

To contact the reporter on this story: Janet Lorin in New York jlorin@bloomberg.net.
To contact the editor responsible for this story: Jonathan Kaufman at jkaufman17@bloomberg.net

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