Salaries of CEOs at nonprofit credit counseling agencies

What credit counseling CEOs makeWhat credit counseling CEOs make

Which nonprofit pays its CEO the most: Harvard University? The American Red Cross? Or Money Management International, the largest U.S. credit counseling agency?

For the second year in a row, the head of Houston-based Money Management International made more than the CEOs of many larger organizations, even while the nonprofit agency cut staff and helped fewer people get out of debt.

Ivan Hand made $1.5 million at MMI, eclipsing Drew Gilpin Faust's $1.1 million at Harvard and Gail McGovern's $600,000 from the Red Cross.

"It seems to be a lot of money for a nonprofit," said Pete Smith of Smith Pilot, a compensation consultant that advises nonprofits. "Very few pay that much."

Asked why his pay far exceeded industry norms, Hand said that the board gave him bonuses in 2013 and 2014 partly to retain him during a crunch period for the credit counseling industry, which faces declining demand for its debt relief services. For most of his tenure, Hand said he made less than the average for his CEO peer group. "I had two years of bonuses out of 16 years," Hand said.

The Internal Revenue Service rules say nonprofits should set executive pay at "reasonable" levels, leaving boards with wide latitude. "It leaves a lot of wiggle room," said Sandra Miniutti, vice president of the watchdog group Charity Navigator.

But compensation experts questioned the way MMI determined Hand's pay, which is set with reference to pay scales at for-profit companies as well as nonprofits.

"I don't think that's what the IRS intended when they came up with the process of reasonable compensation," Miniutti said.

"Looking to the for-profit world is a really tricky argument," said Smith, the former chief executive of consulting firm Watson Wyatt Worldwide. "Most people who come to nonprofits from the for-profit world take a cut - knowing they're going to take a cut because they don't have stock options."

Paycheck breakdown

Hand's 2014 base pay of $675,000 is about average for similarly sized nonprofits, with more than $50 million in expenses, according to the 2015 Guidestar Nonprofit Compensation Report. The report is based on salaries paid in 2013, the most recent comparison data available.

It was a $650,000 bonus and other compensation of $338,000 that vaulted Hand's total into the top 10 percent for executives of the biggest nonprofits. It was the second year Hand's pay was in the top tier for the largest U.S. nonprofits. The over-$50 million group "includes a bunch of big universities and hospitals that are much more complicated to run," Smith said.

The survey data and information about Hand's salary are drawn from annual "Form 990" financial disclosures that nonprofits are required to file with the IRS and to make public.

Bonuses paid in 2014 were connected to performance in calendar year 2013, according to MMI's 990. Hand's bonus was based on a compensation survey by an independent consultant and "recognizing Mr. Hand's approaching retirement age," the filing states. It was the second year that his approaching retirement age was given as a rationale for a bonus of more than $600,000.

Several other of the largest credit counseling agencies paid their CEOs more than Guidestar averages for their size. At Greenpath Financial Wellness, the second-largest credit counseling agency, CEO Jane McNamara's total compensation of $643,000 was 83 percent above the average for nonprofits with budgets of $25 million to $50 million. Greenpath's revenue in 2014 was $39.5 million, close to the midpoint of the range.

At No. 3 agency Clearpoint Credit Counseling Solutions, which merged with a larger Atlanta-based agency at the end of 2013, retirement and other deferred compensation helped swell CEO Christopher Honenberger's total compensation to $817,000, more than double the $351,000 average for comparably sized agencies. His contract was renegotiated as part of the merger and amounts to be paid in 2015 were recorded in the 2014 report, according to the 990 - suggesting that the 2014 windfall was a one-time event. His base annual pay was $258,000.

"There's enough variance between the averages and what people are paying, the industry should be looking into this," Smith said. Since a substantial part of their income comes from fees paid by people who are financially struggling, credit counseling agencies "should be very careful about the optics of what're doing."

CEO pay at top credit counseling agencies

A league of their own

Credit counseling agencies straddle a line between charities and the business world. Their counselors help struggling debtors avoid home foreclosure and repay credit card loans; they also provide pre-bankruptcy courses for debtors who are throwing in the towel.

Funding for their operations comes partly from lenders who are being repaid; partly from taxpayer-backed government programs - and partly from the fees paid by struggling debtors. For example, a credit card repayment plan called a "debt management plan" can carry fees of up to $50 a month and typically last three to five years, if successful. If you run into trouble paying your credit card bills, the card issuer is likely to refer you to a credit counseling agency - if you don't find one on your own first.

The amount agencies raise from debtors isn't disclosed, but industry guidelines say that debtors pay about half of "program service" revenue from debt management plans. MMI's program service revenue from debt management was $33 million in 2014.

Income from debtors is crucial to credit counseling, industry groups say. "I think there's been a perception that because we're helping people in financial distress that everything should be free," said Jeff Faulkner, vice president of the National Foundation for Credit Counseling, an industry group whose members include MMI. "But if that's the case, we can't provide the services."

Agencies also need to compete for capable executives, he said, especially as the economic recovery shrinks the debt problems that the organizations were designed to address. Agencies are scrambling to diversify their services and reduce their dependence on traditional counseling, as consumers' problems with credit card debt diminish.

"The industry is not operating in a vacuum," Faulkner said.

But organizations that benefit from federal tax exemption because they perform a nonprofit mission cannot then turn around and say they need to operate like for-profit companies, Miniutti said. That's especially true when part of their funding comes from debtors on their way to bankruptcy, or who are fighting to avoid it. "When they see the CEO is making that much and they're struggling ... it can be shocking," she said.

Pay for performance

Asked why he sought a bigger paycheck than President Herbert Hoover, Babe Ruth reportedly said, "I had a better year than he did." Like athletes, nonprofit companies link pay to performance, although they measure success very differently. Nonprofits focus on the number of people they help and the impact they have on the problem they were designed to fight, while staying financially sound themselves.

At MMI, however, the pay for performance link in 2013 and 2014 seems weak, as the organization was not hitting balls out of the park either year. Its $54.5 million in 2014 revenue - a barometer of debt repaid and debtors helped - was down 26 percent from the year before and 36 percent lower than 2012. Payroll for nonexecutives plunged by one-third in 2014 as downsizing hit counseling staff.

"If you don't have the calls coming in, you don't need the counselors," Hand said in an interview.

Despite the cutbacks, expenses exceeded revenue, leaving a budget shortfall of $4.4 million in 2014 and $3.2 million in 2013.

Like other agencies, MMI is developing programs aimed at student loan borrowers, whose $1.2 trillion debt load constitutes a large and growing consumer problem. Progress has been slow, however, as funding sources to support the agencies' student loan counseling programs have yet to emerge - other than the struggling debtors themselves. Student services contributed $278,000 in revenue in 2014, according to MMI's Form 990 report to the IRS.

"I'm still not sure what's going to happen with student loan counseling," Hand said. "It's still not funded by anyone but the borrower."

How much is too much?

To be sure, some nonprofit executives make more than Hand, even a great deal more. Mark Wallace, head of Texas Children's Hospital in Houston, made $5 million total compensation in 2014. But the hospital is a much bigger organization than MMI, with $1.6 billion in revenue. Peter Gelb, top officer of the New York Metropolitan Opera, received $2.1 million total compensation. The organization's $288 million income came largely from well-heeled opera goers.

MMI was a small agency that was running out of money when Hand took charge in 2000. Under his leadership it stabilized and grew into the largest of the credit counseling agencies as it absorbed other organizations in mergers. Hand said that his bonuses in 2013 and 2014 were partly in recognition of his past accomplishments, as well as a retention move by the agency, although he declined to characterize the bonuses as catch-up payments. He received no bonus in 2015, he said.

Smith, the compensation consultant, said Hand's total pay in 2014 and 2013 exceeded what he would recommend as a reward for exceptional performance. Nonprofit boards might set a new CEO's pay around the bottom 25 percent threshold of comparable sized organizations, then adjust it to the top 25 percent after the executive proves worthy, Smith said. But rarely does pay vault into the top 10 percent.

Under IRS rules, nonprofits should set pay at a "reasonable" level, which they are left to determine without pay caps or guidelines. As long as an independent board sets pay by evaluating performance in light of what comparable organizations pay, the amount is deemed to meet the "reasonable" standard.

The IRS may challenge pay that pushes the boundaries, but rarely does. "There are over 1 million charities today, and the IRS is not well resourced," Miniutti said. "Even the IRS says they're woefully underfunded and understaffed."

See related:The business of credit counseling

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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