The New York State Department of Health and a number of other state departments have just issued a revised set of proposed regulations to limit spending for executive compensation and administrative costs at state-funded not-for-profit and for-profit service providers. These regulations were originally proposed back in May to become effective January 1, 2013, although the revised proposals would push the effective date back to April 1 of next year. (For more on the original proposals, see “New York Issues Proposed Regulations Limiting Executive Compensation at State-Funded Organizations,” Executive Compensation Bulletin, June 28, 2012.)
In general, the regulations are designed to bar covered service providers from using more than $199,000 in state funds to pay executive compensation, but providers could decide to use other funds to pay executives if certain conditions are met. Covered providers may also apply for a waiver of the compensation limits in certain limited situations. The regulations would apply to all not-for-profit and for-profit service providers that receive more than $500,000 in support from or through New York State on average each year and receive at least 30% of their annual in-state revenues from state funds or state-authorized funds.
The proposed regulations provide standards to be used in determining whether a covered service provider’s executive compensation and administrative expenses are within certain limits. They also offer a process for obtaining waivers from the limits. Many organizations will find it necessary to benchmark their executive compensation against survey data in order to qualify for the maximum available limit or to request a waiver from the limit. Covered organizations located in any state that are receiving funds from or through the State of New York will want to ensure that they are ready to comply with the new limits by the April 1 implementation date. For 2013, those needing a waiver from the limit on executive compensation will need to file their applications no later than January 2, 2013.
The agencies will accept any additional comments on the proposed rule through December 14, 2012, and one agency issuing these regulations has scheduled public hearings for December 17 and 19, although we don’t expect significant changes before the regulations become final. We understand that additional guidance on the implementation system (including a list of approved surveys and waiver process guidelines) may be issued before the rules take effect.
Watch for an Executive Compensation Bulletin providing full details on the recent proposed rules in the near future.
Russ Hall and Stephen Douglas are executive compensation experts in Towers Watson’s Research and Innovation team, based in White Plains, New York. Lisa Perlmutter is a senior executive compensation consultant in Towers Watson’s New York office and Heidi Töppel is a senior executive compensation consultant in our Boston office. Email firstname.lastname@example.org, email@example.com, firstname.lastname@example.org, email@example.com or firstname.lastname@example.org.