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New York Provides Guidance to State-funded Service Providers on Complying with Executive Order #38 and Related Regulations
Practical Law Legal Update 9-533-8285 (Approx. 5 pages)
New York Provides Guidance to State-funded Service Providers on Complying with Executive Order #38 and Related Regulations
by Practical Law Employee Benefits & Executive Compensation
| Published on 09 Jul 2013 • USA (National/Federal) |
New York State has issued guidance to assist individuals and entities that receive state funds or state-authorized payments comply with regulations implementing Executive Order #38, including limits on executive compensation. The guidance includes calculation worksheets with suggested methods for making certain required determinations and also sets out acceptable comparability factors and compensation surveys that can be used to determine compliance with executive compensation limits.
New Guidance on Executive Compensation Limits
Recently, the New York State Department of Health (DOH) and other state agencies (the Agencies) published final regulations implementing New York Governor Andrew Cuomo's Executive Order #38, which establishes limits on executive compensation for covered providers that receive state funding (see Legal Update, New York Adopts Final Regulations Limiting Executive Compensation for State-funded Service Providers).
New York State has now released more information to help covered service providers comply with Executive Order #38's limits, including:
- Preliminary Guidance that provides instructions on:
- the recommended processes for determining covered provider status;
- determining compliance with executive compensation and administrative expenses limitations;
- submitting the EO#38 Disclosure Form;
- filing a waiver application; and
- preparing a Corrective Action Plan (CAP).
- Four worksheets to help covered providers perform the calculations needed to comply with these new requirements. These worksheets include the:
- Covered Provider Determination Worksheet. This worksheet helps individuals and entities that receive state funds and state-authorized payments determine whether they are covered by Executive Order #38 and the final regulations;
- State Funds/State-Authorized Payments Calculation Worksheet. This worksheet helps covered providers calculate the amount of state funds and state-authorized payments they received during the applicable period;
- Administrative Expenses and Program Services Expenses Calculation Worksheet. This worksheet helps covered providers calculate the amount and percentage of their administrative expenses during a covered reporting period (CRP) to determine compliance with applicable limits; and
- Executive Compensation Calculation Worksheet. This worksheet helps covered providers calculate the amount of executive compensation provided to a covered executive during a CRP to determine compliance with applicable limits.
The Preliminary Guidance provides detailed instructions on using these worksheets.
Acceptable Compensation Surveys and Comparability Factors
Under the final regulations, a covered provider may not pay a covered executive more than $199,000 in state funds and state-authorized payments in a CRP unless it has been granted a waiver. However, a covered provider may choose to pay a covered executive more than $199,000 from all sources, not just state funds and state-authorized payments, if the compensation satisfies a safe harbor whereby the compensation is both:
- Below the 75th percentile for comparable executives in the field, as determined by a valid compensation survey.
- Reviewed and approved by the provider's board of directors (or compensation committee, with ratification by the board), which review includes an assessment of appropriate comparability data.
To determine whether executive compensation provided to a covered executive exceeds the 75th percentile of compensation for comparable executives, a covered provider must review the compensation of appropriate comparable executives within comparable providers. When conducting its review, the covered provider can either:
- Rely on a compensation survey that includes a reasonable number of comparable organizations providing similar services.
- Conduct its own compensation survey.
The Preliminary Guidance explains that any compensation survey should assist a covered provider in examining the following factors of comparability (which were referred to, but not listed, in the final regulations):
- Similarity to other organizations in:
- types of services rendered;
- scope of services rendered (the number of individuals served);
- size of annual budget;
- number of employees;
- geographic location of physical locations (for example, offices and service locations); and
- geographic location of services rendered.
- Availability of similar services within the geographic region.
- Similarity to other executives in:
- education levels;
- credentials and skills;
- tenure of experience;
- depth of experience in the field;
- length of time in similar positions;
- work schedule and level of full time equivalent;
- experience in the position;
- performance on the job; and
- functional comparability.
- Economic climate at the time the compensation was agreed to.
The Preliminary Guidance notes that valid comparability factors are not limited to those listed.
Covered providers may be asked to provide evidence that they examined these factors when submitting their EO#38 Disclosure Form or waiver application.
When using compensation surveys, covered providers should compare the compensation provided to their own covered executives using the same methodology used by the survey. However, if a covered provider cannot obtain or otherwise access an appropriate compensation survey to demonstrate whether its covered executive receives compensation that exceeds the 75th percentile of comparable executives in comparable organizations, it will receive assistance from its Lead Agency.
These same comparability factors must be considered by the covered provider's board of directors (or compensation committee) when reviewing and approving an executive's compensation from all sources in excess of $199,000. This assessment must also include an examination of:
- All forms and sources of an executive's compensation, including salary and fringe benefits, bonuses, deferred compensation, and pension and profit sharing plan contributions, among others.
- Whether an employment contract with an executive would best delineate responsibilities and anticipated compensation.
- Comparable organizations, which avoids an over-reliance on any one similar agency, but includes a larger sample of organizations.
- Comparable organizations and executives that measures the median rather than average compensation.
Practical Impact
The Preliminary Guidance and the accompanying worksheets should help covered providers comply with the executive compensation limits included in Executive Order #38 and the final regulations. Covered providers should use the new guidance on acceptable compensation surveys and comparability factors when conducting their compensation comparability analyses to:
- Determine whether executive compensation paid to a covered executive exceeds the 75th percentile of compensation for comparable executives.
- Justify the payment of executive compensation from all sources in excess of $199,000.