On January 18, 2012, Governor Andrew Cuomo signed an executive order capping the amount of state funds that contractors may spend on executive compensation.  The order affects for-profit and nonprofit organizations that receive payments from New York State to provide services.

Governor Cuomo's order limits reimbursement for any executive's compensation to $199,000 per year.  The order also requires that at least 75% of state funds be used for services, not administrative costs.  That number will increase to 85% by 2015. 

"[I]n certain instances, providers of services that receive state funds or state-authorized payments have used such funds to pay for excessive administrative costs and outsized compensation for their senior executives, rather than devoting a greater proportion of such funds to providing direct cares or services to their clients," Governor Cuomo wrote.  "[S]uch abuses involving public funds harm both the people of New York who are paying for such services, and those persons who must depend upon such services to be available and well-funded[.]"

Failure to comply with the order may result in termination or non-renewal of state funds.

Organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code are already subject to Internal Revenue Service standards regarding executive compensation.  For guidance on setting executive compensation, please see this discussion on the Charity Lawyer Blog and this 2007 legal alert from the D.C. Pro Bono Bar.

Please contact the Partnership's New York office with any questions at (914) 328-0674.