IRS Looking at Higher Education Financials, Executive Pay
January 4, 2010
"The new filing rules requiring not-for-profit organizations such as colleges and universities to report to the IRS in detail their financials including executive pay and perks are stirring things up in higher education," observes Richard V. Smith, senior vice president and national executive compensation leader at Sibson Consulting.
"The IRS is increasingly looking at higher education, and college and university trustees and presidents are personally responsible for repaying monies taken from endowments plus paying massive penalties possibly totaling millions of dollars if an excess benefit to any of the five highest paid employees is found," he says.
Smith points out that Sibson Consulting looks at the financial stability of an institution in relation to compensation and also at the peer group used to compare and assess a president's compensation package. He says that loans to presidents in general should not be allowed let alone forgivable loans, which sometimes happens in the form of split-dollar contracts or egregious expense accounts.
Trustees who were on a board at the beginning of a president's tenure are also liable and will be questioned by the IRS. If it is found that trustees approved any excessive pay or loans, they will be on the hook for payback, even if they are no longer on the board today.
Smith says it is possible that compensation consultants may be called in by the IRS to give their version of pay decisions and defend their methodology, especially using dubious peer groups. Consequences for the consultant could also be severe if found to be in collusion to set artificially high pay at the behest of either the president or trustees.