COFAR blog

(Research contributed by COFAR Intern Joseph Sziabowski)

Seven years after we published our first survey of the financial compensation of executives employed by corporate providers to the Department of Developmental Services (DDS), our updated survey shows some surprising and not-so-surprising changes.

What might not be surprising is that between Fiscal Years 2012 and 2020, total compensation of CEOs, executive directors, and other DDS provider executives doing business in Massachusetts rose from $102.4 million to $125.5 million. That is a 23% increase.

Also, the average compensation paid per executive rose from approximately $161,000 to $184,000 — a 14% increase.

This trend remained constant across almost all executive categories. Nominal and inflation-adjusted average compensation rose for virtually all executive positions.

(Click to enlarge the summary chart below of total and average compensation of DDS corporate provider executives in Fiscal 2020.)

(You can find our full survey results at DDS Corporate Provider Compensation Survey)

What seems surprising in our updated survey is that despite the increase in total executive compensation between Fiscal 2012 and 2020, the total number of corporate providers actually declined by almost half in those years. Lists of all DDS providers were obtained from DDS in 2014 and again this year under Public Records requests.

Our surveys involved examining the federal nonprofit tax returns (IRS Form 990) of the listed providers for the 2012 and 2020 fiscal years. (Form 990 tax returns for all nonprofits are available at ProPublica and on other sites).

In our latest survey, we also cross-checked data with Massachusetts online Uniform Financial Reports (UFRs) for 149 DDS-funded, corporate providers.

In filling out the IRS Form 990, nonprofit organizations are required to list total compensation of “officers, directors, trustees, key employees, and highest compensated employees.” Key employees must earn over $150,000 and meet a responsibility test, while highest compensated employees are employees other than key employees who earn over $100,000.

The primarily nonprofit corporate providers funded by DDS in Massachusetts provide a range of residential, day program, and other services in the DDS system. While some of these providers do business in other states as well as in Massachusetts, DDS pays more than $1.4 billion per year to the providers to run a network of hundreds of group homes in this state alone.

State responsible for paying approximately 70% of executive compensation

By COFAR’s estimates, the State of Massachusetts was responsible for paying up to $87.8 million of the total $125.5 million in compensation received by the provider executives in Fiscal 2020. (An explanation of our methodology for calculating state reimbursement of executive compensation is below.)

Transfer of assets from public to private ownership

We also found that as of the end of Fiscal Year 2020, the providers held more than $3.82 billion in total assets. During that year, those providers received $5.64 billion in total revenues from public and private sources in Massachusetts and other states.

Assets range from buildings to vehicles to cash reserves, which have largely been acquired by the providers through their use of taxpayer revenues. As such, the assets held by the providers represent a “troubling transfer of that wealth from public to private ownership,” said COFAR President Thomas J. Frain. “We as taxpayers largely paid for those assets, but we’re never getting them back.”

Executive compensation vastly outpaces direct-care wages

The continuing increases in compensation of the provider executives stand in sharp contrast to largely stagnant wages that have been paid to direct-care personnel employed by the providers over the past several years.

It was only on July 28 that Governor Baker signed the state’s Fiscal 2023 budget, which contains a first-ever provision requiring all corporate human services providers receiving state funding under a special reserve account to direct at least 75% of that funding to compensation for direct-care and front-line staff.

There has been scarce information available, however, as to how much the budget provision will raise direct-care wages, and when the additional funding for those increases will be made available.

Frain said he is not persuaded that the new funding will do much to decrease the size of the gap between executive and direct-care wages. Direct-care wages have averaged around $16 an hour in Massachusetts. “The corporate provider service model allows the executives to siphon off large amounts of money that never make it to the direct-care workers,” he said.

Number of providers declined, but total compensation increased

Apparently due to consolidations and mergers, the total number of providers contracting with DDS to provide residential and day program services dropped from 298 to 160 — a drop of 46% — between Fiscal 2012 and the present. (Our numbers are based on the sizes of the two provider lists obtained from DDS in 2014 and this year.)

The apparent reason for the total increase in executive compensation in the period from Fiscal 2012 to 2020 is that there are actually more executives working for fewer providers today than in 2012. The number of vice presidents, in particular, rose from 100 to 162, between Fiscal 2012 and 2020.

As a result, the total number of executives rose to 682 in Fiscal 2020, compared to 635 in Fiscal 2012, according to information contained in the IRS 990 forms we examined.

In other words, the mergers and consolidations among the provider organizations do not appear to have reduced the layer of executive bureaucracy that existed in the provider system in Fiscal 2012. That layer has only grown thicker.

This may be one of the reasons that the promise of taxpayer savings in privatizing DDS services has not been realized.

The latest COFAR survey examined the compensation of 98 CEOs and presidents, 71 executive directors, 79 CFOs, 40 COOs, 162 vice presidents, and 232 other executivess, all earning average salaries of over $100,000.

Other updated survey findings include the following:

• The average CEO compensation was $263,189 in Fiscal 2020, up from $210,227 in 2012. The average executive director compensation was $163,375, up from $130,835 in 2012.
• The highest paid president received $903,135 in compensation from The Seven Hills Foundation in Fiscal 2020. In addition, the president’s spouse, listed as the executive VP/CEO, received $391,798 from that organization in Fiscal 2020. Together, the couple received $1.3 million in compensation from Seven Hills.
• The former CEO of the Devereux Foundation stepped down from that position effective January 1, 2018, but continued to work for the organization. That official received $913,124 in Fiscal 2019 and $683,159 in Fiscal 2020 while averaging only 20 hours per week in the latter year, according to the organization’s IRS tax forms. In Fiscal 2020, the former and current CEO of Devereux received a combined $1.4 million in compensation.

(Click on chart below to enlarge.)

Our methodology for calculating state reimbursement of provider executives

State regulations (808 CMR 1.05 (24) Salaries of Officers and Managers) limit state reimbursements to providers for the cost of compensating their executives. Limited executive compensation data for each provider and allowable reimbursement by the state are included in online UFRs.

For fiscal Year 2020, the UFR Auditor’s Compliance Supplement established a cap on state reimbursement for executive compensation at $187,112. For any executive receiving compensation greater than the cap, that excess amount must come from sources other than the State of Massachusetts, according to the regulations.

The Compliance Supplement also states that state reimbursements of executive compensation must be prorated if human service executives devote less than full time to state programs.

The UFRs submitted by the providers, however, do not appear to clearly show the total amounts of compensation received by all executives working for those providers, or how much of that compensation is actually subject to reimbursement by the state.

OSD did not respond to a request from COFAR to clarify the Compliance Supplement methodology for calculating and prorating state reimbursements of executive compensation.

Based on the guidelines, we did our own calculations of the total state reimbursement due for each provider executive. Operating under an assumption that providers receiving a portion of their funding from out-of-state governments were not devoting full time to Massachusetts programs, we also calculated a prorated reimbursement for those providers. (See the Proration Rates tab in our full spreadsheet for our proration calculations).

We hope that by continuing to bring the issue of executive compensation to light via our periodic surveys, we can persuade the administration and Legislature to take steps to better oversee and limit that compensation.

We think the fact that total compensation paid to DDS provider executives has continued to rise even though the number of providers has dropped is one sign that the provider system is not subject to adequate financial management and oversight.