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Proposed New York Regulations Would Limit Executive Compensation

By Tyrone P. Thomas

On May 16th, Governor Cuomo announced the issuance of proposed regulations by several New York State agencies which limit administrative costs and executive compensation for entities receiving State funding or State-authorized payments. The proposed regulations arise from Executive Order No. 38, which generally restricts covered organizations from spending more than $199,000 in State funds on executive compensation.

The draft regulations, which would become effective January 1, 2013, are of particular interest to large non-profit organizations supported by State funding.  With limited exceptions, entities which receive 30% of its annual funding from the State and have received at least $500,000 in State subsidies for the current year and the prior two years will be subject to the regulations.

The compensation limit for covered executives includes cash and noncash payments or benefits, such as wages, bonuses, housing, cars, below-market loans, educational benefits, family travel and use of an organization’s property.  Mandatory benefits, such as health insurance premiums and pension contributions, are excluded.  Covered organizations may request a waiver from the $199,000 compensation limit, provided that it meets certain prerequisites, including approval of the compensation by a board consisting of at least two independent directors and performing a review of comparability data.

Going forward, employers subject to these requirements will face mandatory annual reporting.  The required disclosures include amount of public funds received and the compensation of its executives and highest-paid employees.

The proposed regulations are open for public comment.  As the higher paying non-profit jobs are typically in the fields of health and higher education, this set of administrative rules should be followed with keen attention in those industries.  We will provide further guidance as these regulations are finalized.

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Martha Zackin