The Former Executive Director’s Employment Contract Did Not Establish Effective Performance Measures and May Have Provided Her With Excessive Compensation.

Audit found former executive director's compensation was almost 80 percent higher than that of the second-highest-paid executive director in a sample of executive directors in comparable academic settings.

Overview

The most recent employment contract that DLA’s board executed with the former executive director provided significant contractual pay increases that were not based on any performance evaluations or the achievement of specified performance metrics or goals. It also gave her salary and health insurance benefits that appeared to be excessive. This apparently excessive compensation reduced the amount of funding that could have been available for educational support to help improve students’ academic performance.

On May 10, 2016, DLA’s board executed an employment contract with its former executive director that covered the period July 1, 2015 through June 30, 2017. This contract provided guaranteed salary adjustments that included a $15,000 pay increase ($173,950 to $188,950) on August 15, 2015 that was retroactive to July 1, 2015. After this adjustment, the contract went on to adjust the former executive director’s fiscal year 2016 salary from $188,950 to $207,845 (an additional 10% increase that was retroactive to July 1, 2015) and then an approximately 13% pay increase for 2017 that brought her fiscal year 2017 salary to $235,485. These guaranteed pay increases were provided to the former executive director at a time when DESE was concerned about the academic performance of the school’s students. In fact, on February 16, 2018, DESE’s acting commissioner noted in a memorandum to the members of the Board of Elementary and Secondary Education,

I . . . have concerns about the lack of improvement in student academic results during the charter term. As a grade 6–8 school, DLA has administered both the MCAS [Massachusetts Comprehensive Assessment System] and the Next-Generation MCAS to students during this charter term, and assessment performance has declined.

In addition, this contract provided benefits that appeared to be excessive. We compared the former executive director’s salary with those of four executive directors at other Massachusetts charter schools with similar grade levels and student populations as of June 30, 2017, as detailed below.

Analysis of Executive Directors’ Salaries

Charter School	Location	Grade Levels	Enrollment	Salary	Salary per Student
DLA	Dorchester	6–8	216	$235,488	$1,090
Cape Cod Lighthouse Charter School	Harwich	6–8	260	$131,234	$505
Hill View Montessori Charter Public School	Haverhill	K–8	306	$126,123	$412
Christa McAuliffe Charter School	Framingham	6–8	396	$123,000	$311
Marblehead Community Charter Public School	Marblehead	4–8	230	$120,500	$524

As shown above, the former executive director’s annual salary was almost 80% higher than that of the second-highest-paid executive director in a comparable academic setting.

The contract also provided other benefits that appeared to be excessive:

• It provided for fully paid family health, dental, and vision insurance for life, which creates a potential future financial liability for the school. The contracts with the executive directors of the four other charter schools in our analysis did not provide this benefit. Further, employees of Commonwealth public charter schools, after completing a minimum length of service, are eligible to participate in post-retirement insurance administered through the Commonwealth’s Group Insurance Commission, so this benefit was unnecessary.
• It allowed her to retain what it termed “technological hardware” that she used during her employment that was purchased with DLA funds, including “cell phone(s), computer(s) and all other similar technology.” The contracts we examined for four other executive directors did not include ownership transfer of such items upon their departure.

Authoritative Guidance

According to 603 CMR 1.06, promulgated by DESE, a charter school’s board of trustees is responsible for the following:

Boards of trustees must fulfill their fiduciary responsibilities, including but not limited to, the duty of loyalty and duty of care. . . . The responsibilities of boards of trustees shall include, but are not limited to the following . . .

e) Hiring, evaluating, and removing, if necessary, qualified personnel to manage the charter school’s day-to-day operations and holding these administrators accountable for meeting specified goals.

To meet these responsibilities, DLA’s board should do the research necessary to establish fair but not excessive compensation for its executive director.

In addition, according to the website of the National Council of Nonprofits,⁴

The board of directors is responsible for hiring, and establishing the compensation (salary and benefits) of the executive director / [chief executive officer] by identifying compensation that is ”reasonable and not excessive,” but that also is attractive enough to retain the best possible talent to lead the organization. The recommended process for determining the appropriate compensation is to conduct a review of what similarly-sized peer organizations, in the same geographic location, offer their senior leaders.

Finally, the Massachusetts Attorney General’s Guide for Board Members of Charitable Organizations states, “In setting compensation, you should consider the performance of your [chief executive] and senior managers and the compensation provided to other similarly situated executives in the field.”

Reasons for Excessive Compensation

According to the board’s chair, the former executive director’s salary and other compensation were established based on compensation provided to executive directors of other Massachusetts charter schools. However, the chair could not provide us with documentation related to any analysis that the board may have conducted to establish the former executive director’s compensation, nor did the board minutes give any detailed description of how this compensation was determined. DLA’s board does not have a documented process for establishing the executive director’s compensation that included measurement of performance.

Recommendations

1. DLA’s board should develop and document a formal process for evaluating its executive director’s compensation that includes an analysis of comparable positions at charter schools of similar size.
2. DLA’s board should tie increases in its executive director’s compensation to performance metrics that include measurable outcomes, including student academic performance.

Auditee’s Response

As explained above, the total compensation package paid to the former ED for 2005/2017 academic year [sic] was atypical, but reasonable given the uniqueness of the circumstances. Notwithstanding the State Auditor’s Office . . . claims to the contrary, the Board conducted periodic performance reviews of the former ED, using Board-on-Track as an evaluation instrument, which the Board considered in determining her compensation. The Board also recognized the former ED’s accomplishments as measured by the school attaining either a level 1 or a level 2 rating. On the opposite end of the spectrum, it is noteworthy that a school achieving a Level 5 rating could place the school under receivership. That was never the case with DLA. Notwithstanding the Level-1 to Level-2 reduction, the former ED’s performance remained at a high level and her unswerving dedication to improvement and the quality of her efforts were outstanding. The Board does not believe that the salary was ”excessive” when the former ED’s entire body of work is considered.

Respectfully, the comparison of executive director salaries is flawed. First, [OSA] in its preliminary finding of its audit during the exit meeting admitted that it did not factor in years of service as a basis for increased compensation. Increasing an employee’s compensation based on years of service is a common human resources practice across all professions, including education. Comparing compensation of an Executive Director solely based on grade level and number of students, without factoring in years of service is the equivalent to comparing the average first year teacher salary to the average salary of a teacher entering year 20 because they happened to be employed at a school that has the same grade levels and number of students. Second, in its analysis of the Executive Director salaries, none of the four comparators listed were from the Boston school district, where the cost of living is high and where salaries for qualified educators are competitive. Nor does [OSA] offer details about the employment histories of the comparators to allow for any meaningful analysis, for example, of their length of employment and how successful they were in their performance relative to the former ED. Third, as evidenced by recent [Boston] Globe articles, the former ED was by no means the highest paid Executive Director in the Commonwealth. That being the case, [OSA], without further assessment, cannot credibly conclude that her compensation under these circumstances was excessive.

Auditor’s Reply

OSA believes that the compensation DLA gave its former executive director under her most recent contract was excessive. Our analysis showed not only that the former executive director’s annual salary was almost 80% higher than that of the second-highest-paid executive director in a comparable academic setting, but also that she was provided with other benefits—such as fully paid family health, dental, and vision insurance for life and retention of her technological hardware—that are not available to other government employees.

In its response, DLA states that its board conducted periodic performance reviews of the former executive director that it considered in determining her compensation. However, there is no documentation to substantiate this assertion. Further, we reviewed the former executive director’s performance evaluations during our audit and question how they could have been used for this purpose, because they lacked any information on her performance goals and accomplishments. It is also unclear to OSA how this information was considered in establishing her annual compensation because, as noted above, her employment contract provided significant guaranteed annual pay increases regardless of her performance, which were provided to her during a period when DESE was concerned about its students’ academic performance.

OSA’s assessment of the former executive director’s compensation is not flawed. Our analysis did consider years of service and education of people in comparable positions. DLA is correct in pointing out that the salaries used in our analysis were for executive directors who did not work in the Boston Public Schools district. However, according to the document Boston Public Schools at a Glance 2016–2017, which was published by Boston Public Schools’ Communications Office, the average salary for middle-school administrators in the district was $119,358 during the 2016–2017 academic year, which is about half the amount DLA paid its former executive director during the last year of her contract.

4.    This council is an advocate for nonprofit organizations that shares best practices and offers nonprofits advice on advancing their missions.

Date published:	November 19, 2018