Universities Give IRS a Bigger Picture

The continuing march toward greater transparency in business makes its mark on nonprofit universities this week, when they are required for the first time to include the value of certain nontaxable benefits in the annual IRS reports of executive compensation. The changes, made to IRS Form 990, require not-for-profit institutions to provide greater disclosure on many fronts, including compensation, governance, conflicts of interest, and activities outside the United States.

Martin Howard, Boston University vice president for financial affairs and treasurer, says IRS Form 990 routinely requires nonprofit institutions to report the compensation of officers, trustees, key employees, and the five highest paid employees. For this year’s filing, says Howard, the IRS has broadened its disclosure requirements to include governance policies and procedures and also requires nonprofits to report certain kinds of nontaxable benefits, such as the value of University housing and the value of tuition remission, which is a benefit available to all BU employees whose children are admitted as undergraduates to the University.

Last year, for example, President Robert A. Brown’s aggregate compensation and benefits as defined by the IRS was $804,639, a figure that does not include the value of housing. This year’s reported aggregate compensation, which includes $257,447 for housing, was $1,043,292, even though Brown’s salary, like that of other highly compensated BU employees, was frozen in 2009. Other administrators who live in University housing include Executive Vice President Joseph Mercurio, whose housing is valued at $157,399, and Provost David Campbell, whose housing is valued at $121,771. The value of University-provided housing is based on the opinions of independent real estate professionals and accounts for the properties as if they were used entirely as private residences, not for University functions.

Robert A. Knox (CAS’74, GSM’75), chair of the Board of Trustees, says he supports the move toward greater transparency, which started eight years ago with the passage of the Sarbanes-Oxley Act and has been championed by Senator Charles Grassley (R-Iowa), as well as the Obama administration. “I don’t think this is a bad thing,” says Knox. “What has happened is the not-for-profits are following the governance best practices of the corporate world.”

“As someone sitting on more than 25 boards, I’m very confident that we have a solid and thoughtful process for reviewing executive compensation,” he says. “We have an executive compensation committee that can only be made up of members of the board who do not have any business dealings with the University.”

Knox says the process for determining executive compensation begins at the start of every calendar year. “The compensation committee gathers information using an outside compensation consultant,” he says. “We look at our peer institutions, roughly 30 peer institutions that are similar in scale and location. They are in urban markets and they are research-based. Tufts is in there, too, because it’s local. We have an outside consultant do a survey for very specific and precise job titles.”

Brown prepares performance appraisals for each of the positions reviewed, Knox says, and the Board of Trustees writes a separate, detailed performance appraisal of the president every year.

“In the corporate world that I come from, requirements similar to the new 990 provisions have been in place for some time,” says Knox. “It’s certainly not a bad thing for people to know exactly what all these items are.”

The changes to Form 990, which expand the focus beyond financial data to the work of the governing body, encourage the Board of Trustees to work in closer partnership with University management to ensure that the organization’s governance is effective, up-to-date, and properly explained to the public. The form asks, for example, for broader explication of the use of best practices in governance policies and procedures and for more information about the level of independence of the board, as well as business transactions and family relationships that might compromise the board’s independence. The goal of these changes is to provide the public with a better understanding of the organization’s structure, operations, and use of resources.

Read Boston University’s Form 990 filing here.

Art Jahnke can be reached at jahnke@bu.edu.