State-funded provider execs paid more than $80m a year

More than 550 executives working for some 250 state-funded corporate providers of services to people with developmental disabilities in Massachusetts received a total of $80.5 million in annual compensation as of Fiscal Year 2012, based on nonprofit federal tax reports surveyed by COFAR.

The average compensation among all 559 executives surveyed was $143,969 per year. Among CEOs, the average compensation was $185,809, while executive directors were paid an average of $127,164 in salary and benefits.

According to the COFAR survey, provider executives making over $100,000 a year on average included 97 executive directors, 92 CEOs, 71 chief financial officers, 31 chief operating officers, and 83 vice presidents.  CEOs or presidents of 14 providers made over $300,000 each.

“I think few people realize what the real cost of privatized care is in Massachusetts,” COFAR President Thomas Frain said.  “Do Massachusetts taxpayers really need to be paying hundreds of corporate executives millions of dollars for grossly duplicative duties?  This makes no sense at all.”

COFAR has long been critical of efforts by the Patrick administration and the Romney administration before it to outsource residential and other services to providers without adequate oversight of the growing privatized system. The system appears to have become top-heavy with corporate executives who do not provide direct-care services, but who nevertheless draw large salary and benefits packages.

Most of the providers surveyed are under contract to the Department of Developmental Services, which manages or provides services to people with intellectual disabilities who are over the age of 22.  Frain noted that DDS pays more than $1 billion a year in contracts to service providers, which operate group homes and provide day programs, transportation and other services to tens of thousands of intellectually disabled persons in the DDS system.

State regulations capped state payments to provider executives at approximately $149,000, as of Fiscal Year 2011.  The average compensation among the surveyed executives was slightly less than that amount.  Money earned by executives above the state cap is supposed to come from sources other than state funds.

But while the state cap on executive salaries is intended to limit the total amount of state funds going into the pockets of provider executives, COFAR has reported that the state may not receive complete information on the total compensation paid to provider executives and may not have the capacity to oversee their finances adequately.  Also, COFAR has raised concerns that increasing amounts of money going to provider executives has not translated into higher pay for direct-care workers in Massachusetts.

The state auditor reported last year that in one case involving the May Institute, a DDS provider, hundreds of thousands of dollars in state funds had been paid to company executives in excess of the regulatory cap. COFAR’s executive compensation survey found that the May Institute CEO received $404,900 in compensation in FY 2011 and that a total of 12 company executives were paid a total of $2.5 million that year.

At $404,900, the May Institute CEO was the fifth highest paid CEO on COFAR’s list. Community Systems, Inc. topped the COFAR list of the highest paid CEOs, with two employees listed on the company’s federal tax filing as serving as company CEOs in FY 2011 and drawing combined compensation of $526,755.  Second on the list was Morgan Memorial Goodwill, whose CEO was listed as making $464,572 in FY 2012.

Community Systems federal tax filing states that the company, which is based in Forestdale, MA, took in $14.4 million in revenues in Fiscal Year 2011.  Of that amount, the company received $11.6 million from DDS, according to a 2011 financial report filed with the state’s Operational Services Division.

(The Community Systems OSD report lists only compensation in FY 2011 for two executive directors and does not list the company CEOs.  As a result, OSD appears to have disallowed only $21,000 in funding to the company as having been earned above the regulatory compensation cap.  This appears to confirm COFAR’s  finding that the OSD receives incomplete information from providers on executive compensation.)

In addition to the CEOs listed on the Community Systems federal tax report, two employees were listed as executive directors of the company that year and made a combined total of $276,538.  The OSD report lists the two executive directors of the company as having made only $154,473.

The following chart, based on COFAR’s survey of some 250 providers, shows 30 of the providers with the top earning CEOs (click on it to enlarge).