CINCINNATI -- Judy Peppler made more money in 2014 than any other Cincinnati nonprofit executive outside the health care sector, WCPO research shows.
But her $638,009 in total compensation could still be seen as a bargain for the Downtown nonprofit with a national reputation for education reform.
That’s because three previous KnowledgeWorks CEOs were paid a combined $729,000 in 2013 and $1.2 million the year before that.
The nonprofit works with an outside consultant “to appropriately and reasonably” pay its leaders, KnowledgeWorks Board Chairman Steve Minter said in a prepared statement. The goal is “to attract and retain the unique talent and skills to further our mission to personalize learning and prepare students for college, career and civic life.”
While it might seem surprising that a nonprofit would shell out $2.8 million to its top executives over three years, a new WCPO analysis shows it’s not all that unusual in Cincinnati.
In fact, the region’s 100 largest nonprofits had 112 employees who made more than $500,000 in the most recent budget year for which tax records could be obtained. Details of those pay plans are available in this searchable database that includes nearly 600 executives at 109 nonprofits.
It’s a group that includes hospital systems, schools, family foundations, museums and social-service agencies. These tax-exempt entities rely on public donations and government grants to carry out their missions. But they don’t do it on the cheap.
The average salary of key officers and employees at the region's 100 biggest nonprofits is $331,358, while median pay -- the midpoint of all salaries in the database -- is $178,118.
Average total compensation for the highest-ranking officer in local nonprofits is $338,321, while median pay is $239,212 for this group.
There are 46 employees with annual compensation over $1 million. Most are physicians. All but one – Xavier University Basketball Coach Chris Mack – work for hospital systems or their affiliated medical practices.
Compensation consultant Tom Bailey said hospitals follow different standards than the rest of the nonprofit world. They’re complex organizations with multibillion dollar budgets, so it makes no sense to compare their pay to social-service agencies and museums, said Bailey, finance and marketing director for Armonk, N.Y.-based Total Compensation Solutions LLC.
All nonprofits are subject to IRS rules on “reasonable compensation,” which is defined as paying fair market value for the services rendered.
“They’re looking for whether you used a third party to study peer groups,” Bailey said. “They want the board or compensation committee to document their thought process about how they came to setting the pay.”
Talent recruiter Tom Gilman thinks Cincinnati nonprofits are in line with other Midwestern cities when it comes to how much they’re willing to spend on talent.
“They run very lean organizations,” said Gilman, managing partner and CEO at Gilman Partners, an executive search firm in Fairfax. “They’re able to attract some pretty talented people who recognize they could earn more in the private sector, but accept the lower salary because they view it as giving back.”
But Gilman and Bailey both said it’s unusual for nonprofits to pay their board members and for boards to authorize loans to top executives. WCPO found both kinds of payments in its review of IRS 990 forms.
KnowledgeWorks, for example, paid more than $60,000 to nine board members in 2014. It has since halted the practice of paying board members.
The most recent records at Talbert House show a $75,000 loan to CEO Neil Tilow. The agency said the loan, for a split-dollar insurance policy that allows an executive to obtain insurance coverage using employer funds, has been paid off.
KnowledgeWorks and Talbert House rank well above median pay levels for similarly sized nonprofits, based on national data obtained from GuideStar USA, which tracks data on 2.2 million nonprofits. So, WCPO took a deeper look at these two nonprofits and found some interesting perks.
These include social-club memberships and performance bonuses at both nonprofits. KnowledgeWorks paid $1.1 million in severance awards in the last three years. Talbert House awarded more than $1 million in deferred compensation to supplement the retirement plans of CEO Neil Tilow.
“That’s the kind of thing you would never get in a government position,” Hamilton County Auditor Dusty Rhodes said. “I know Neil. He’s a good man. He does a good job. But I think that pay is excessive.”
Rhodes said Talbert House owes a duty to keep executive pay reasonable and disclose it fully because it is heavily supported by tax dollars. Talbert House operates halfway houses and offers drug treatment and mental health services. Its annual report lists more than $50 million in revenue from government grants and contracts. That's more than 90 percent of its $53 million in total program revenue.
Exploring the Talbert House pay plan
Talbert House reported $1.6 million in total compensation for Tilow in the three years ending June 30, 2015, including a Queen City Club membership that costs $3,600 a year and performance bonuses totaling $483,600.
Talbert House also provides retention incentives for its 35-year CEO, who has worked for the agency since 1974. Tilow has two deferred compensation plans in place at the moment. The agency says one is worth $225,000; the other is worth $500,000. Tilow cashed out of a third plan in 2012 because of an IRS rule change. He collected more than $700,000 in the process.
“We don’t have a defined benefit (pension) program,” Tilow said. “So, it’s not like when you work for the county, where you get 50 to 60 percent of your wages (in retirement). We get what’s invested and what’s earned and that’s it. So, that’s the way of making sure I have a retirement program that will be enough for me to live on."
Tilow doesn't have a pension plan, but he does have a 403(b) retirement plan. Talbert House said it pays about $15,000 into it each year
Talbert House Board Chair Cathy Crain said Tilow's deferred compensation plans are aimed at retaining a CEO who grew the nonprofit from 600 clients to 36,000 since 1982.
Its last 35 years of growth could not have happened “without someone of Neil’s tenure and stature and capability for innovative and impactful leadership, “ she said. “We felt as a board that this was a way of retaining our executive CEO and have no problem doing it at all.”
Talbert House board member Fred Joffe said Tilow’s pay is the result of a benchmarking process that compares Tilow’s pay against similar agencies and an annual scorecard in which Tilow is measured against goals he sets with the board every spring. Chicago’s Gateway Foundation and Louisville’s Dismas Charities are two of the agencies used in the benchmarking process. Both paid their CEOs more than Tilow in the most recent year for which returns could be obtained, but neither disclosed the kind of deferred compensation Tilow receives.
“It’s a direct result of the boards of those organizations made of people who make a large amount of money,” Rhodes said. “If you’ve got a lawyer making two, three million a year and he’s on a board, $500,000 isn’t going to seem like a lot to him. I think that’s what’s been happening.”
Nonprofit shrinks, compensation grows
KnowledgeWorks is another agency that Talbert House includes in its benchmarking process for CEO. It pays the Hay Group, a well-known compensation consulting firm, to evaluate pay plans for Peppler and her direct reports.
“It’s something we take very seriously,” Peppler said. “We try to be diligent looking across the peer group and making sure that we’re in line.”
KnowledgeWorks has undergone a dramatic transformation in the last five years as it exited the student loan business and spun off one of its subsidiaries, New Technology Network LLC, into a freestanding nonprofit. The nonprofit began in 1991 as a specialty loan program to help Ohio college students reduce their cost of borrowing. As it branched into education reform, the management team also evolved. Four different people held the CEO job in the 25 months before Peppler took the helm in 2013. Tax records show KnowledgeWorks paid $1.1 million in severance since 2013, including $685,086 to former CEO Brian Ross.
Here’s a breakdown of total pay to Peppler and her CEO predecessors:
Ross, a former Cincinnati Bell chief financial officer, received $1.25 million in the two budget years ending June 30, 2014. Ross joined KnowledgeWorks as board member in 2007, becoming president in 2010 and replacing founding CEO Chad Wick in 2011. Ross resigned in December 2012.
Chad Wick, a veteran local bank executive, has served as a board member, president emeritus and treasurer since stepping down as the founding CEO of KnowledgeWorks in June 2011. He received $207,550 for six months of service as treasurer in 2014 and $407,175 as “Founder & Director” in the 12 months ending June 30, 2013.
Board member Timothy Tuff received $134,969 over two years ending June 30, 2014, including eight months as interim CEO, replacing Ross.
Peppler was paid $189,620 in her five months on the job and $638,009 in year two.
Peppler’s total compensation in 2015 was 2.9 times the national median for CEOs of similarly-sized public foundations, based on data provided by GuideStar USA.
But Peppler said KnowledgeWorks is more than just a foundation that awards grants. It also provides services to help school districts implement new curricula. And it conducts research and public advocacy to promote individualized learning. Among the peers it uses in evaluating pay includes the Brookings Institution in Washington, the Points of Light Foundation in Atlanta and the Lumina Foundation in Indianapolis. All three are larger than KnowledgeWorks, which had annual expenses of $23.8 million in 2015.
Brookings, with $107.9 million in 2015 expenses, paid CEO Strobe Talbott $764,564.
Points of Light President Tracy Hoover made $241,331 in 2014, with annual expenses of $27.2 million.
Jamie Merisotis made $759,295 in 2015 while managing the Lumina Foundation’s $65.2 million budget.
Peppler wasn’t eligible for a first-year bonus because she started three weeks into the budget year. Her second-year pay included $117,476 for retirement and deferred compensation and a $99,692 bonus for her work on the restructuring.
Peppler said KnowledgeWorks is more focused and better equipped to help school districts implement needed reforms. It’s also smaller, with 65 employees, compared to 146 in June 2015 and an expense budget of about $12 million going forward about half of what it was 18 months ago. But that’s not the only area of shrinkage.
“When I came up for my contract renewal, we did make a downward adjustment” of about 20 percent, Peppler said. “I was willing to take a lower base pay because I think it’s reflective of the smaller organization that we have going forward.”
WCPO used GuideStar USA’s online search tool to rank Cincinnati-area nonprofits by revenue, then downloaded the most recent IRS 990 form for each nonprofit.
From each tax return, we pulled pay information from Part VII, Section A, Column D, or “Reportable compensation from the organization.” To avoid double counting, we included pay from affiliates of the named nonprofits only if pay was also disclosed first in Column D.
We gathered revenue and expense information from each nonprofit’s tax return in the same fiscal year in which the executive pay was reported.
We compared pay and expense data to median pay estimates from GuideStar’s 2016 Nonprofit Compensation Report.