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Recently, New York Governor Andrew Cuomo and Attorney General Eric Schneiderman have separately announced proposals that may significantly impact executive compensation practices of New York nonprofits. Other important changes, intended to improve nonprofits' governance practices and reduce regulatory and cash flow burdens, have also been proposed. 
Governor Cuomo’s Executive Order

On January 18, 2012 Governor Cuomo issued an Executive Order[1] that directed state agencies to adopt rules limiting the use of state funds to reimburse excessive executive compensation and administrative costs of companies with state contracts. In particular, the Executive Order requires covered state agencies to adopt rules that will limit the use of state funds to reimburse nonprofit or for-profit companies that contract with the state in two different ways:
  • State funds cannot be used to reimburse the compensation of any executive of a contracting party in an amount in excess of $199,000 per year. 
  • At least 75% of state funding must be applied to the provision of direct care or services, as opposed to administrative costs. This minimum percentage will increase 5% annually until a minimum “cost ratio” of 85% will be required beginning April 1, 2015.
The Executive Order doesn’t define which executives of contracting companies will be subject to the $199,000 compensation cap, nor does it specify the components of covered executives’ “compensation” that will be limited. Furthermore, although the Order states that the compensation cap can be waived “under appropriate circumstances and upon a showing of good cause,” it includes no guidance on what circumstances might qualify. 
Violations of the new requirements will constitute grounds for terminating or not renewing state contracts. 
The Governor’s proposals are also reflected in his proposed 2012 budget,[2] and are currently being considered by the Senate Committee on Investigations and Government Operations. 

Attorney General Schneiderman’s Reform Proposal

Unrelated to Governor Cuomo's Executive Order, Attorney General Eric Schneiderman recently announced his own reform plan for New York nonprofits, based on a report prepared by more...

[1]The Executive Order can be viewed here: http://www.governor.ny.gov/press/1182011EO .
[2]The budget "briefing book" can be found here: http://publications.budget.ny.gov/eBudget1213/fy1213littlebook/BriefingBook.pdf.    

If you have any questions about issues relating to nonprofit corporations, including nonprofit executive compensation, or to nonprofit governance generally, please contact Michele O. Heffernan at 716.843.3850 or mheffernan@jaeckle.com, Robert W. Patterson at 716.843.3910 or rpatterson@jaeckle.com, or Raymond Reichert at 716.843.3886 or rreichert@jaeckle.com.

This Jaeckle Employee Benefits Alert, prepared by the attorneys at Jaeckle Fleischmann & Mugel, LLP, is intended for general information purposes only and should not be considered legal advice or an opinion on specific facts. For more information on these issues, contact one of the attorneys listed above or your existing Firm contact. Prior results do not guarantee a similar outcome. The invitation to contact is not a solicitation for legal work in any jurisdiction in which the contacted attorney is not admitted to practice. Any attorney/client relationship must be confirmed in writing. 
Copyright 2011. All Rights Reserved.  Jaeckle Fleischmann & Mugel, LLP.  Buffalo, NY.