Executives at Publicly-Funded Nonprofits Make Big Bucks Serving the Needy

What makes Gupta’s services worth so much?

Gupta said his $531,652 annual salary actually saves the nonprofit money because he does three jobs. “I’m not just CEO,” he said in an interview in his cramped, windowless office at Mission City’s worn main clinic in North Hills. “I’m also CFO and CIO [chief financial officer and chief information officer].” Gupta said he works seven days a week.

He was the highest paid executive in a review by the Center for Public Accountability of payroll information for Southern California health and human services nonprofits which are partly funded with tax dollars obtained through Los Angeles County contracts. The review found that six of these agencies reported paying more than $300,000 per year to at least one executive. Hospitals were not included in the review.

[All compensation data used in this report was compiled by Guidestar from public tax returns (Forms 990) that nonprofits are required to file. This self-reported data is only rarely reviewed by the IRS, and thus may be incomplete. CPA is solely responsible for the analysis.]

It turns out that only a small minority of nonprofits pay their executives more than $200,000. Guidestar’s database includes more than 9,000 Southern California charities of all types. That database shows that fewer than 10% had an executive paid $200,000 or more. Many were paid much less.

The Internal Revenue Code section that sets the rules governing compensation at public charities, also known as “501c3 organizations,” specifies that “No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual.” However, it gives each nonprofit’s board of directors latitude in deciding how much to pay top managers. The IRS does require that the non-profit’s board have an objective process for setting executive salaries, including use of comparisons with salaries paid by similar organizations for similar services. Without a reasonable basis, a nonprofit that normally pays no taxes could be taxed for paying excess benefits to an insider.

In Gupta’s case, the Mission City board of directors decided in 2007 to more than double his salary of $264,280 in recognition of his having put the once-struggling nonprofit on a sound financial footing, and as a safeguard against him leaving for more lucrative health care consulting work, according to then-treasurer Jerry Scharlin. Mission City has big plans to grow, said Scharlin, a former director of Los Angeles’ Community Redevelopment Agency, and has applied for $12 million in federal grants to help build a large new facility.

Driving the board’s decision was a belief that Gupta had no heir apparent. “We knew if he left, the place would shut down,” Scharlin said. “He is Mission City.”

The board also decided to make Gupta eligible for an incentive bonus, Scharlin said. “As long as there is some money being made, the board felt I should get something,” Gupta said. He declined to provide a copy of his contract, which he said was approved by the nonprofit’s attorney, citing privacy concerns.

Gupta and Scharlin go way back. Gupta worked with Scharlin years ago at a private corporate turnaround firm and invited him to join the Mission City board when he became executive director in fiscal year 2001-2002. Scharlin became Mission City’s $120,000-a-year COO in January and left its board.

In general, the federal government imposes a usual $196,000 limit on how much of a non-profit executive’s salary can be paid with federal funds.  Officials of Los Angeles County, which often serves as a pass through for federal money, say they rely on federal authorities to assure compliance with this standard. 

A nonprofit can easily get around the standard by reporting that private funds–including tax-exempt donations or fees paid by poor clients seeking services–are used to pay the portion of salary which exceeds $196,000.

Mission City reports receiving about $700,000 a year from non-government sources, including “receipts from patients.”

Tarzana Treatment Center, a largely publicly-funded, $45 million a year substance abuse agency, has explained that it too uses private funds–for example, payments by clients with health insurance–to cover much of its top executives’ salaries. It pays its chief operating officer, Albert Senella, $428,000, and pays its chief executive, Scott Taylor, $330,000. Taylor, a lawyer, gets an additional $238,000 in legal fees.

The Center for Public Accountability has reported extensively on Tarzana Treatment Center and asked the state attorney general’s office to investigate its leadership. Some of its leaders, including Senella and Taylor, overcharge in renting facilities they own to the nonprofit, county auditors have concluded.

Other relatively small, government-supported Southern California human service nonprofits that pay their executives well include:

  • The Children’s Home Society of California
    , which pays its president, James T. Spradley Jr., $467,000. He runs a $100 million a year organization that reports 95% of its funds come from state and local governments. The government interest is mainly to help poor families afford child care. Spradley did not return telephone calls seeking comment.

  • ChildNet Youth and Family Services
    , which paid its president, Robert Di Stefano, $451,000 to run a $22 million a year organization in fiscal year 2007-2008. ChildNet reports that it gets 97% of its funds from the government. It uses them mainly to place children in foster homes and provide counseling to children and their families. DiStefano took a big pay cut the next year, a spokesman said. The nonprofit’s board slashed his pay to $300,000 so that it could afford to hire a chief operating officer to groom as his successor without increasing overall administrative costs.

  • AltaMed Health Services
    , which pays its chief executive, Castulo de la Rocha, $396,000. He runs a $110 million a year organization that operates public health clinics and adult care centers. De la Rocha did not return telephone calls. But board chair Stuart Gray issued a statement saying that de la Rocha had built the nonprofit from a three-employee storefront and that the board sought guidance from a national executive compensation firm in determining fair pay.

  • Pacific Clinics
    , which pays its president and chief executive Susan Mandel $376,000. She oversees an $87 million a year mental health organization heavily dependent on government funding. Mandel did not respond to a voice mail message.

Tracking the Dollars
Click on the name of the organization to view its latest tax return.
Mission City Community NetworkNik GuptaCEO and CFO$531,652
Children’s Home Society of CaliforniaJames T. SpradleyPresident$467,508
ChildNet Youth and Family ServicesRobert Di StefanoPresident and CEO$451,589
Tarzana Treatment CenterAl SenellaCOO$428,057
AltaMed Health ServicesCastulo de la RochaPresident and CEO$396,416
Pacific ClinicsSusan MandelPresident and CEO$376,514
Tarzana Treatment CenterScott TaylorCEO$330,732

0 responses to “Executives at Publicly-Funded Nonprofits Make Big Bucks Serving the Needy

  1. As foundations continue to demand that non-profits structure themselves and behave more like corporations, we are likely to see more of this type of abuse. For-profit corporations dependent on government funds (Halliburton, et. al.) waste taxpayer money in a way that belies all verbs! Thank you for beginning the discussion about proper compensation for all corporate leaders, starting with the non-profit sector. Please, please follow through by spotlighting those non-profits that compensate their staff reasonably and fairly, and by expanding your investigation to profit-making entities doing the government’s work.

  2. We should regulate the financial transactions in non profit organisation, to prevent abuse by some. Better audit and verification should be done.

  3. The Non profit pay should be reviewed as it is a tax exempt organisation. In order not to have any abuse by any federal. It being paid less, there would have been a tumult and many discussion about it open. Now that there is overpayment as per the limit, it is called private and confidential contract. To be reviewed

  4. I think that charity is good in any way, meaning the motivation does not influence on results. If somebody have a big money, and the system of taxes welcomes helping funds for poor families and children who do not have families, it’ll be good, won’t it? But this is how I see. Thank you for an article it gives a good material for thinking.