senate Bill S4783A

2013-2014 Legislative Session

Relates to compensation of executives of certain not-for-profit corporations

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Archive: Last Bill Status - In Committee


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor

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Actions

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Assembly Actions - Lowercase
Senate Actions - UPPERCASE
Jun 20, 2014 committed to rules
May 19, 2014 advanced to third reading
May 14, 2014 2nd report cal.
May 13, 2014 1st report cal.675
Apr 28, 2014 print number 4783a
amend and recommit to investigations and government operations
Jan 08, 2014 referred to investigations and government operations
Jun 21, 2013 committed to rules
May 23, 2013 advanced to third reading
May 22, 2013 2nd report cal.
May 21, 2013 1st report cal.668
Apr 23, 2013 referred to investigations and government operations

Votes

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May 13, 2014 - Investigations and Government Operations committee Vote

S4783A
8
0
committee
8
Aye
0
Nay
1
Aye with Reservations
0
Absent
0
Excused
0
Abstained
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Investigations and Government Operations Committee Vote: May 13, 2014

aye wr (1)

May 21, 2013 - Investigations and Government Operations committee Vote

S4783
6
0
committee
6
Aye
0
Nay
3
Aye with Reservations
0
Absent
0
Excused
0
Abstained
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Committee Vote: May 21, 2013

Bill Amendments

Original
A (Active)
Original
A (Active)

Co-Sponsors

S4783 - Bill Details

See Assembly Version of this Bill:
A2120A
Current Committee:
Senate Rules
Law Section:
Executive Law
Laws Affected:
Amd §63, Exec L; amd §§202, 717, 719 & 720, add §§727 & 728, N-PC L
Versions Introduced in 2011-2012 Legislative Session:
S6930, A10733

S4783 - Bill Texts

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Relates to compensation of executives of certain not-for-profit corporations.

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BILL NUMBER:S4783 REVISED MEMO 05/30/13

TITLE OF BILL: An act to amend the executive law and the
not-for-profit corporation law, in relation to compensation of
executives of certain not-for-profit corporations

PURPOSE:

To provide clear and concise requirements and procedures to ensure
that compensation paid to executives at not-for-profits funded by the
State are reasonable and not excessive.

SUMMARY OF PROVISIONS:

Section 1 adds a new subdivision 14 to Section 63 of the Executive Law
which allows the Attorney General to prosecute all actions in
connection with section 728 of the Not-For-Profit Corporation Law.

Section 2 amends the Not-For-Profit Corporation Law to include within
the powers of a governing board the setting of compensation of
executives based on section 727.

Section 3 amends paragraph a of section 717 of the Not-For-Profit
Corporation Law to include language that any compensation provided to
directors, officers, employees and other agents of the corporation
shall be reasonable and, where applicable, is subject to section 727
of the Not-For-Profit Corporation Law.

Section 4 amends section 719 of Not-For-Profit Corporation Law to
include establishing reasonable compensation within the duties of
directors and officers, and may be held liable for breaching this
duty.

Section 5 amends section 719 of the Not-For-Profit Corporation Law to
require the repayment of the amount of any excessive compensation
provided in violation of section 727.

Section 6 amends section 720 of the Not-For-Profit Corporation Law to
include violations of section 727 within actions that may be brought
against directors or officers.

Section 7 amends the Not-For-Profit Corporation Law to include a new
section 727 that defines the compensation of executives, compensation,
executive and family member. It also requires that compensation
exchanged by a not-for-profit corporation for the performance of
services by an executive must be reasonable consider factors including
but not limited to: compensation levels at similar situated
organizations; availability of similar services in the geographic area
of the applicable service provider; current compensation surveys by
independent outside consultants or entities and actual written offers
from similar institutions competing for the services of the applicable
executive. These provisions are in addition to the Federal IRS
requirements.

Section 7 also requires that if a not-for-profit corporation receives
over twenty-five thousand dollars from the state the corporation must
annually submit completed internal revenue service form 990 or a


comparable form developed to the state and filed with the Attorney
General and these forms shall be publicly available upon request and
if the organization maintains a website it shall be posted on the
organizations website.

The Commissioners of Developmental Disabilities, Mental Health,
Alcoholism and Substance Abuse Service, Children and Family Services,
Health, Criminal Justice Services and the Director of the Office of
the Aging shall jointly develop a form for use by these not-for-profit
corporations who are not required by federal law to complete an
Internal Revenue Service form 990. This form will not require more
information than what is required on the 990 form. The Commissioners
will also promulgate regulations and establish a uniform procedure for
reviewing submitted forms and if determining compensation to be
excessive and in violation of the standards established in this
section, referring such cases to the Attorney General for further
inquiry.

Section 8 amends the Not-For-Profit Corporation Law by adding a new
section 728 which requires a written policy on various aspect of the
board, its composition and voting rights All written policies shall be
available for review by the Attorney General upon request.

JUSTIFICATION:

The majority of the Not-for-Profits in our State are complying with
Internal Revenue Service standards for executive compensation. In
addition there are a large number of organization executives that are
under-compensated for their dedication and service to our State's
residents.. Unfortunately there are few egregious actors who have
skirted current law and have utilized public funding for excessive
personal gain.

This legislation is intended to close current loopholes in State law
and provide a streamlined and fair system across the board for all
not-for-profit corporations in New York State while also providing
safeguards that can be reviewed by State Agencies, the Attorney
General and the public.

LEGISLATIVE HISTORY:

2011-12 S. 6930 Finance/A. 2120 Government Operations

FISCAL IMPLICATIONS:

Minimal.

EFFECTIVE DATE:

This act shall take effect on the 180th day after it shall have become
law; provided the Commissioners of the Office of People with
Developmental Disabilities, Mental Health, Alcoholism and Substance
Abuse Services, Children and Family Services, Health, Criminal Justice
Services and the Director of the office of Aging immediately take the
necessary steps to ensure that forms and regulations required in
section seven of the act are in place on the effective date; and
provided, further, the authority to promulgate regulations and make


rules is derived from an express or implicit statutory grant provided
by the legislature, all agencies and divisions and Departments of the
State are prohibited from promulgating regulations and making rules or
that otherwise address the extent and nature of a provider's
administrative costs and executive compensation, except as required
and necessary to implement the provision of section six of this act.

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                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  4783

                       2013-2014 Regular Sessions

                            I N  S E N A T E

                             April 23, 2013
                               ___________

Introduced  by  Sens.  MARCELLINO, RANZENHOFER -- read twice and ordered
  printed, and when printed to be committed to the Committee on Investi-
  gations and Government Operations

AN ACT to amend the executive law  and  the  not-for-profit  corporation
  law, in relation to compensation of executives of certain not-for-pro-
  fit corporations

  THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. Section 63 of the executive law is amended by adding a  new
subdivision 14 to read as follows:
  14.  PROSECUTE  ALL  ACTIONS  IN CONNECTION WITH SECTION SEVEN HUNDRED
TWENTY-SEVEN AND SEVEN HUNDRED TWENTY-EIGHT OF THE NOT-FOR-PROFIT CORPO-
RATION LAW.
  S 2. Subparagraph 12 of paragraph (a) of section 202 of  the  not-for-
profit corporation law is amended to read as follows:
  (12)  To  elect or appoint officers, employees and other agents of the
corporation, define their duties, fix their reasonable compensation  and
the  reasonable  compensation  of  directors, and to indemnify corporate
personnel.  Such  compensation  shall  be  commensurate  with   services
performed, AND SUBJECT, WHERE APPLICABLE, TO SECTION SEVEN HUNDRED TWEN-
TY-SEVEN (COMPENSATION OF EXECUTIVES).
  S  3.  Paragraph  (a) of section 717 of the not-for-profit corporation
law, as amended by chapter 490 of the laws of 2010, is amended  to  read
as follows:
  (a) Directors and officers shall discharge the duties of their respec-
tive  positions  in  good  faith and with the care an ordinarily prudent
person in a like position would exercise  under  similar  circumstances.
The  factors  set  forth in subparagraph one of paragraph (e) of section
552 (Standard of conduct in  managing  and  investing  an  institutional
fund),  if  relevant, must be considered by a governing board delegating
investment management of institutional funds  pursuant  to  section  514

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD05075-01-3

S. 4783                             2

(Delegation  of investment management).  For purposes of this paragraph,
the term institutional fund is defined  in  section  551  (Definitions).
FURTHERMORE, ANY COMPENSATION PROVIDED TO DIRECTORS, OFFICERS, EMPLOYEES
AND  OTHER  AGENTS  OF  THE  CORPORATION  SHALL BE REASONABLE AND, WHERE
APPLICABLE, IS SUBJECT TO SECTION 727 (COMPENSATION OF EXECUTIVES).
  S 4. Paragraph (a) of section 719 of  the  not-for-profit  corporation
law is amended by adding a new subparagraph 6 to read as follows:
  (6)  THE  PROVISION  OF EXCESSIVE COMPENSATION TO DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS OF THE CORPORATION IN  VIOLATION  OF  SECTION
727 (COMPENSATION OF EXECUTIVES), WHERE APPLICABLE.
  S  5.  Paragraph  (d) of section 719 of the not-for-profit corporation
law is amended by adding a new subparagraph 6 to read as follows:
  (6) UPON REIMBURSEMENT TO THE CORPORATION OF THE AMOUNT OF ANY  EXCES-
SIVE  COMPENSATION PROVIDED IN VIOLATION OF SECTION 727 (COMPENSATION OF
EXECUTIVES), TO BE SUBROGATED TO THE RIGHTS OF THE CORPORATION AGAINST A
DIRECTOR, OFFICER, EMPLOYEE OR OTHER AGENT WHO  RECEIVED  THE  EXCESSIVE
COMPENSATION.
  S 6. Clauses (A) and (B) of subparagraph 1 of paragraph (a) of section
720  of  the  not-for-profit  corporation  law  are  amended  to read as
follows:
  (A) The neglect  of,  [or]  THE  failure  to  perform,  or  ANY  other
violation  of  his duties in the management and disposition of corporate
assets committed to his charge.
  (B) The acquisition by himself, transfer to others, loss or  waste  of
corporate  assets due to any neglect of, [or] THE failure to perform, or
ANY other violation of his duties, INCLUDING VIOLATIONS OF  SECTION  727
(COMPENSATION OF EXECUTIVES), PURSUANT TO SECTION 717 (DUTY OF DIRECTORS
AND OFFICERS).
  S  7.  The  not-for-profit  corporation law is amended by adding a new
section 727 to read as follows:
S 727. COMPENSATION OF EXECUTIVES.
  (A) DEFINITIONS. FOR THE PURPOSES OF THIS  SECTION,  UNLESS  OTHERWISE
EXPRESSLY STATED OR CONTEXT CLEARLY REQUIRES:
  (1)  "COMPENSATION"  MEANS  THE  AGGREGATE  VALUE OF ECONOMIC BENEFITS
CONFERRED IN EXCHANGE FOR THE PERFORMANCE OF SERVICES THAT ARE  INCLUDED
FOR PURPOSES OF DETERMINING REASONABLENESS UNDER SECTION 26 U.S.C. 4958,
AS  FURTHER  SPECIFIED  IN  26  CFR  S53.4958-4(B)(II)(B), OR SUCCEEDING
PROVISIONS.
  (2) "EXECUTIVE" MEANS ANY PERSON WHO HAS ULTIMATE  RESPONSIBILITY  FOR
IMPLEMENTING  THE DECISIONS OF THE GOVERNING BODY OR FOR SUPERVISING THE
MANAGEMENT, ADMINISTRATION, OR OPERATION OF THE ORGANIZATION, AS  REFER-
ENCED  IN  26  U.S.C.    S4958(F)(1)(A)  AND FURTHER SPECIFIED IN 26 CFR
S53.4958-3(C)(2), OR SUCCEEDING PROVISIONS.
  (3) "FAMILY MEMBER" MEANS A SPOUSE, SIBLING (BY WHOLE OR HALF  BLOOD),
SPOUSE  OF  A  SIBLING  (BY  WHOLE  OR HALF BLOOD), PARENT, GRANDPARENT,
CHILD, GRANDCHILD, GREAT-GRANDCHILD, AND SPOUSE OF A CHILD,  GRANDCHILD,
AND GREAT-GRANDCHILD.
  (B)  COMPENSATION  EXCHANGED  BY  A NOT-FOR-PROFIT CORPORATION FOR THE
PERFORMANCE OF SERVICES BY AN EXECUTIVE MUST BE  REASONABLE  CONSIDERING
FACTORS INCLUDING, BUT NOT LIMITED TO: COMPENSATION LEVELS PAID BY SIMI-
LARLY  SITUATED ORGANIZATIONS, WHETHER OR NOT THEY QUALIFY AS A NOT-FOR-
PROFIT CORPORATION AS DEFINED IN SECTION 102 (DEFINITIONS);  THE  AVAIL-
ABILITY  OF  SIMILAR  SERVICES  IN THE GEOGRAPHIC AREA OF THE APPLICABLE
PROVIDER OF SERVICES; CURRENT COMPENSATION SURVEYS COMPILED BY INDEPEND-
ENT OUTSIDE CONSULTANTS OR ENTITIES;  AND  ACTUAL  WRITTEN  OFFERS  FROM

S. 4783                             3

SIMILAR INSTITUTIONS COMPETING FOR THE SERVICES OF THE APPLICABLE EXECU-
TIVE.
  (1) FOR THE PURPOSES OF THIS SECTION, WHETHER AN ORGANIZATION IS SIMI-
LARLY  SITUATED  SHALL BE DETERMINED BASED ON FACTORS INCLUDING, BUT NOT
LIMITED TO:  GROSS ANNUAL REVENUE; GEOGRAPHIC LOCATION; AND THE DIVERSI-
TY AND COMPLEXITY OF PROGRAMS.
  (2)(A) IF A NOT-FOR-PROFIT CORPORATION RECEIVES OVER TWENTY-FIVE THOU-
SAND DOLLARS FROM THE STATE, THE NOT-FOR-PROFIT CORPORATION MUST ANNUAL-
LY SUBMIT A COMPLETED INTERNAL REVENUE SERVICE FORM 990, OR A COMPARABLE
FORM DEVELOPED PURSUANT TO SUBCLAUSE (I) OF CLAUSE (B) OF THIS  SUBPARA-
GRAPH, TO THE STATE AND FILED WITH THE ATTORNEY GENERAL.  SUCH COMPLETED
FORM  OR  INTERNAL  REVENUE SERVICE FORM 990 SHALL BE PUBLICLY AVAILABLE
UPON REQUEST AND IF THE ORGANIZATION MAINTAINS A WEBSITE,  IT  SHALL  BE
POSTED ON THE ORGANIZATION'S WEBSITE.
  (B)  THE  COMMISSIONERS  OF DEVELOPMENTAL DISABILITIES, MENTAL HEALTH,
ALCOHOLISM AND SUBSTANCE ABUSE SERVICES, CHILDREN AND  FAMILY  SERVICES,
HEALTH, CRIMINAL JUSTICE SERVICES AND THE DIRECTOR OF THE OFFICE FOR THE
AGING SHALL JOINTLY:
  (I)  DEVELOP  A  FORM FOR USE BY THOSE NOT-FOR-PROFIT CORPORATIONS WHO
ARE NOT REQUIRED BY FEDERAL LAW TO COMPLETE AN INTERNAL REVENUE  SERVICE
FORM  990.  SUCH  FORM SHALL REQUIRE NO MORE INFORMATION THAN THAT WHICH
MUST BE SUBMITTED ON INTERNAL REVENUE SERVICE FORM 990;
  (II) PROMULGATE REGULATIONS THAT ALLOW A NOT-FOR-PROFIT CORPORATION TO
SUBMIT ONE COMPLETED INTERNAL REVENUE SERVICE FORM 990, OR ONE COMPLETED
COMPARABLE FORM, THROUGH  THE  POSTAL  SERVICE  OR  ELECTRONICALLY,  FOR
DISTRIBUTION  TO ALL AGENCIES THAT PROVIDE FUNDING TO THE NOT-FOR-PROFIT
CORPORATION; AND
  (III) ESTABLISH UNIFORM PROCEDURES FOR REVIEWING SUBMITTED FORMS; AND,
UPON A DETERMINATION THAT EXECUTIVE COMPENSATION APPEARS TO BE EXCESSIVE
IN VIOLATION OF THE STANDARDS ESTABLISHED IN THIS SECTION, FOR REFERRING
SUCH CASES TO THE ATTORNEY GENERAL FOR FURTHER INQUIRY.
  (C) ANNUAL COMPENSATION EXCHANGED BY A NOT-FOR-PROFIT CORPORATION  FOR
THE  PERFORMANCE OF SERVICES BY AN EXECUTIVE SHALL BE CONSIDERED REASON-
ABLE IF IT DOES NOT EXCEED LEVEL I OF THE FEDERAL GOVERNMENT'S RATES  OF
BASIC  PAY  FOR  THE EXECUTIVE SCHEDULE PROMULGATED BY THE UNITED STATES
OFFICE OF PERSONNEL MANAGEMENT.
  (D) ANNUAL COMPENSATION EXCHANGED BY A NOT-FOR-PROFIT CORPORATION  FOR
THE  PERFORMANCE OF SERVICES BY AN EXECUTIVE THAT DOES EXCEED LEVEL I OF
THE FEDERAL GOVERNMENT'S RATES OF BASIC PAY FOR THE  EXECUTIVE  SCHEDULE
SHALL  BE PRESUMED TO BE REASONABLE IF THE FOLLOWING FOUR CONDITIONS ARE
SATISFIED:
  (1) THE COMPENSATION IS APPROVED IN  ADVANCE  BY  THE  GOVERNING  BODY
(I.E., THE BOARD OF DIRECTORS, BOARD OF TRUSTEES, OR EQUIVALENT CONTROL-
LING  BODY)  OF THE NOT-FOR-PROFIT CORPORATION THAT IS COMPOSED ENTIRELY
OF INDIVIDUALS WHO DO NOT HAVE A CONFLICT OF INTEREST  WITH  RESPECT  TO
THE COMPENSATION ARRANGEMENT.
  (A)  FOR  THE PURPOSES OF DETERMINING WHETHER THE REQUIREMENTS OF THIS
PARAGRAPH HAVE BEEN MET WITH RESPECT TO A SPECIFIC COMPENSATION ARRANGE-
MENT, AN INDIVIDUAL IS NOT INCLUDED IN THE GOVERNING  BODY  WHEN  IT  IS
REVIEWING A TRANSACTION IF THAT INDIVIDUAL MEETS WITH OTHER MEMBERS ONLY
TO  ANSWER  QUESTIONS, AND OTHERWISE RECUSES HIMSELF OR HERSELF FROM THE
MEETING AND IS NOT PRESENT DURING DEBATE AND VOTING ON THE  COMPENSATION
ARRANGEMENT.
  (B)  A MEMBER OF THE GOVERNING BODY DOES NOT HAVE A CONFLICT OF INTER-
EST WITH RESPECT TO A COMPENSATION ARRANGEMENT ONLY IF THE MEMBER:

S. 4783                             4

  (I) IS NOT AN EXECUTIVE PARTICIPATING IN, OR  ECONOMICALLY  BENEFITING
FROM,  THE  COMPENSATION ARRANGEMENT; AND IS NOT A FAMILY MEMBER OF SUCH
AN EXECUTIVE;
  (II)  IS NOT IN AN EMPLOYMENT RELATIONSHIP SUBJECT TO THE DIRECTION OR
CONTROL OF ANY EXECUTIVE, OR THE FAMILY MEMBER OF ANY EXECUTIVE, PARTIC-
IPATING IN OR ECONOMICALLY BENEFITING FROM THE COMPENSATION ARRANGEMENT;
  (III) DOES NOT  RECEIVE  COMPENSATION  OR  OTHER  PAYMENT  SUBJECT  TO
APPROVAL  BY  ANY  EXECUTIVE,  OR  THE  FAMILY  MEMBER OF ANY EXECUTIVE,
PARTICIPATING  IN  OR  ECONOMICALLY  BENEFITING  FROM  THE  COMPENSATION
ARRANGEMENT;
  (IV)  HAS  NO MATERIAL FINANCIAL INTEREST AFFECTED BY THE COMPENSATION
ARRANGEMENT; AND
  (V) DOES NOT APPROVE A TRANSACTION PROVIDING ECONOMIC BENEFITS TO  ANY
EXECUTIVE,  OR  THE FAMILY MEMBER OF ANY EXECUTIVE, PARTICIPATING IN THE
COMPENSATION ARRANGEMENT, WHO IN TURN HAS APPROVED  OR  WILL  APPROVE  A
TRANSACTION PROVIDING ECONOMIC BENEFITS TO THE MEMBER.
  (2) THE GOVERNING BODY OBTAINED AND RELIED UPON APPROPRIATE DATA AS TO
COMPARABILITY PRIOR TO MAKING ITS DETERMINATION.
  (A)  A  GOVERNING  BODY  HAS  APPROPRIATE DATA AS TO COMPARABILITY IF,
GIVEN THE KNOWLEDGE AND EXPERTISE OF ITS  MEMBERS,  IT  HAS  INFORMATION
SUFFICIENT  TO  DETERMINE  WHETHER  THE  COMPENSATION ARRANGEMENT IN ITS
ENTIRETY IS REASONABLE. RELEVANT INFORMATION INCLUDES, BUT IS NOT LIMIT-
ED TO: COMPENSATION LEVELS PAID  BY  SIMILARLY  SITUATED  ORGANIZATIONS,
WHETHER  OR  NOT THEY QUALIFY AS A NOT-FOR-PROFIT CORPORATION AS DEFINED
IN SECTION ONE HUNDRED TWO (DEFINITIONS); THE  AVAILABILITY  OF  SIMILAR
SERVICES  IN THE GEOGRAPHIC AREA OF THE APPLICABLE PROVIDER OF SERVICES;
CURRENT COMPENSATION SURVEYS COMPILED BY INDEPENDENT FIRMS;  AND  ACTUAL
WRITTEN  OFFERS  FROM SIMILAR INSTITUTIONS COMPETING FOR THE SERVICES OF
THE APPLICABLE EXECUTIVE.
  (B) HOWEVER,  FOR  SMALL  ORGANIZATIONS  WITH  ANNUAL  GROSS  RECEIPTS
(INCLUDING  CONTRIBUTIONS)  OF  LESS  THAN ONE MILLION DOLLARS REVIEWING
COMPENSATION ARRANGEMENTS, THE GOVERNING BODY WILL BE CONSIDERED TO HAVE
APPROPRIATE DATA AS TO COMPARABILITY IF IT HAS DATA ON COMPENSATION PAID
BY THREE COMPARABLE PROVIDERS OF SERVICES IN THE SAME OR SIMILAR  COMMU-
NITIES FOR SIMILAR SERVICES.
  (I)  FOR  THE PURPOSES OF DETERMINING WHETHER THE ABOVE RULE FOR SMALL
ORGANIZATIONS APPLIES, AN ORGANIZATION MAY CALCULATE  ITS  ANNUAL  GROSS
RECEIPTS  BASED  ON  AN  AVERAGE  OF ITS GROSS RECEIPTS DURING THE THREE
PRIOR TAXABLE YEARS. IF ANY  APPLICABLE  NOT-FOR-PROFIT  CORPORATION  IS
CONTROLLED  BY  OR CONTROLS ANOTHER ENTITY, THE ANNUAL GROSS RECEIPTS OF
SUCH ORGANIZATIONS MUST BE AGGREGATED TO DETERMINE APPLICABILITY.
  (II)  FOR  PURPOSES  OF  THIS  PARAGRAPH,  CONTROL  BY  AN  APPLICABLE
NOT-FOR-PROFIT CORPORATION MEANS:
  1. IN THE CASE OF A STOCK CORPORATION, OWNERSHIP (BY VOTE OR VALUE) OF
MORE THAN FIFTY PERCENT OF THE STOCK IN SUCH CORPORATION;
  2.  IN THE CASE OF A PARTNERSHIP, OWNERSHIP OF MORE THAN FIFTY PERCENT
OF THE PROFITS INTERESTS OR CAPITAL INTERESTS IN THE PARTNERSHIP;
  3. IN THE CASE OF A NONSTOCK ORGANIZATION (I.E., AN ENTITY IN WHICH NO
PERSON HOLDS A PROPRIETARY INTEREST), THAT AT LEAST FIFTY PERCENT OF THE
DIRECTORS OR TRUSTEES  OF  THE  NOT-FOR-PROFIT  CORPORATION  ARE  EITHER
REPRESENTATIVES  (INCLUDING  TRUSTEES,  DIRECTORS, AGENTS, OR EMPLOYEES)
OF, OR DIRECTLY OR INDIRECTLY CONTROLLED BY,  AN  APPLICABLE  TAX-EXEMPT
ORGANIZATION; OR
  4.  IN  THE  CASE  OF  ANY  OTHER ENTITY, OWNERSHIP OF MORE THAN FIFTY
PERCENT OF THE BENEFICIAL INTEREST IN THE ENTITY.

S. 4783                             5

  (3) THE GOVERNING BODY ADEQUATELY DOCUMENTED THE BASIS FOR ITS  DETER-
MINATION CONCURRENTLY WITH MAKING THAT DETERMINATION.
  (A)  FOR  A DECISION TO BE DOCUMENTED ADEQUATELY, THE WRITTEN OR ELEC-
TRONIC RECORDS OF THE GOVERNING BODY MUST NOTE:
  (I) THE TERMS OF THE TRANSACTION THAT WAS APPROVED, AND  THE  DATE  IT
WAS APPROVED;
  (II)  THE MEMBERS OF THE GOVERNING BODY WHO WERE PRESENT DURING DEBATE
ON THE TRANSACTION THAT WAS APPROVED, AND THOSE WHO VOTED ON IT;
  (III) THE COMPARABILITY DATA OBTAINED AND RELIED UPON BY THE GOVERNING
BODY, AND HOW THE DATA WAS OBTAINED; AND
  (IV) ANY ACTIONS TAKEN WITH RESPECT TO  CONSIDERATION  OF  THE  TRANS-
ACTION BY ANYONE WHO IS OTHERWISE A MEMBER OF THE GOVERNING BODY BUT WHO
HAD A CONFLICT OF INTEREST WITH RESPECT TO THE TRANSACTION.
  (B)  IF THE GOVERNING BODY DETERMINES THAT REASONABLE COMPENSATION FOR
A SPECIFIC ARRANGEMENT IS HIGHER OR LOWER THAN THE RANGE OF COMPARABILI-
TY DATA OBTAINED, THE GOVERNING BODY  MUST  RECORD  THE  BASIS  FOR  ITS
DETERMINATION.  FOR  A  DECISION  TO BE DOCUMENTED CONCURRENTLY, RECORDS
MUST BE PREPARED BEFORE THE LATER OF THE NEXT MEETING OF  THE  GOVERNING
BODY  OR  SIXTY  DAYS AFTER THE FINAL ACTION OR ACTIONS OF THE GOVERNING
BODY ARE TAKEN. RECORDS MUST BE REVIEWED AND APPROVED BY  THE  GOVERNING
BODY AS REASONABLE, ACCURATE AND COMPLETE WITHIN A REASONABLE TIME PERI-
OD THEREAFTER.
  (4)  THE  COMPENSATION PROVIDED TO THE EXECUTIVE BY THE GOVERNING BODY
DOES NOT EXCEED THE HIGHEST COMPENSATION PROVIDED BY A  SIMILARLY  SITU-
ATED ORGANIZATION FOR SIMILAR SERVICES, AS IDENTIFIED IN THE COMPARABIL-
ITY DATA, BY MORE THAN TEN PERCENT.
  (E) IF THE FOUR CONDITIONS OF PARAGRAPH (D) OF THIS SECTION ARE SATIS-
FIED,  THEN  THE PERSON OR ENTITY BRINGING AN ACTION FOR RELIEF PURSUANT
TO SECTION SEVEN HUNDRED TWENTY OF THIS ARTICLE MAY REBUT  THE  PRESUMP-
TION THAT ARISES UNDER PARAGRAPH (D) OF THIS SECTION ONLY IF IT DEVELOPS
SUFFICIENT CONTRARY EVIDENCE TO REBUT THE PROBATIVE VALUE OF THE COMPAR-
ABILITY  DATA  RELIED  UPON  BY  THE GOVERNING BODY. WITH RESPECT TO ANY
FIXED PAYMENT, REBUTTAL EVIDENCE IS  LIMITED  TO  EVIDENCE  RELATING  TO
FACTS  AND CIRCUMSTANCES EXISTING ON THE DATE THE PARTIES ENTER INTO THE
CONTRACT PURSUANT TO WHICH THE PAYMENT IS MADE (EXCEPT IN THE  EVENT  OF
SUBSTANTIAL   NONPERFORMANCE).  WITH  RESPECT  TO  ALL  OTHER  PAYMENTS,
REBUTTAL EVIDENCE MAY INCLUDE FACTS AND CIRCUMSTANCES UP TO AND  INCLUD-
ING THE DATE OF PAYMENT.
  (F)  A  NOT-FOR-PROFIT CORPORATION IS PROHIBITED FROM: (1) ENGAGING IN
ANY ACT THAT THE INTERNAL  REVENUE  SERVICE  DETERMINES  CONSTITUTES  AN
"EXCESS  BENEFIT TRANSACTION" UNDER SECTION 4958 OF THE INTERNAL REVENUE
CODE; OR (2) ENGAGING IN ANY ACT THAT WOULD CONSTITUTE AN "EXCESS  BENE-
FIT  TRANSACTION"  UNDER  THE  STANDARDS OF SECTION 4958 OF THE INTERNAL
REVENUE CODE.
  S 8. The not-for-profit corporation law is amended  by  adding  a  new
section 728 to read as follows:
S 728. WRITTEN POLICY REQUIRED.
  (A)  THE  GOVERNING  BODY OF A NOT-FOR-PROFIT CORPORATION SHALL HAVE A
WRITTEN POLICY ON:
  (1) EMPLOYEES SERVING ON SUCH GOVERNING  BODY,  THEIR  VOTING  RIGHTS,
RECUSAL  FROM DECISIONS OF THE GOVERNING BODY, AND THE PERCENTAGE OF THE
MEMBERSHIP OF THE GOVERNING BODY THAT MUST BE INDEPENDENT OF THE  ORGAN-
IZATION;
  (2)  HIRING OF FAMILY MEMBERS OF EMPLOYEES AND GOVERNING BODY MEMBERS;
AND
  (3) CONFLICT OF INTEREST COVERING BUSINESS INTERESTS.

S. 4783                             6

  (B) EMPLOYEES OF A NOT-FOR-PROFIT CORPORATION ARE PROHIBITED FROM:
  (I) SERVING AS THE CHAIR OF SUCH ORGANIZATION'S GOVERNING BODY; AND
  (II) SERVING AS A VOTING MEMBER OF SUCH ORGANIZATION'S GOVERNING BODY.
  (C)  NO  PERSON WHO IS RELATED TO ANY EXECUTIVE AS DEFINED IN SUBPARA-
GRAPH TWO OF SUBPARAGRAPH (A) OF SECTION  727  (COMPENSATION  OF  EXECU-
TIVES)  OR  ANY MEMBER OF A GOVERNING BODY BY BLOOD OR MARRIAGE SHALL BE
EMPLOYED BY SUCH ORGANIZATION, EXCEPT WITH THE APPROVAL OF TWO-THIRDS OF
THE MEMBERS OF THE GOVERNING BODY.
  (D) ALL WRITTEN POLICIES REQUIRED IN PARAGRAPH  (A)  OF  THIS  SECTION
SHALL BE AVAILABLE FOR REVIEW BY THE ATTORNEY GENERAL UPON REQUEST.
  S 9. This act shall take effect on the one hundred eightieth day after
it shall have become a law; provided, however, that the commissioners of
the  offices  for people with developmental disabilities, mental health,
alcoholism and substance abuse services, children and  family  services,
health, criminal justice services and the director of the office for the
aging  shall immediately take the necessary actions to ensure that forms
and regulations required by section seven of this act are  in  place  on
such  effective  date;  and  provided, further, whereas the authority to
promulgate regulations and make rules is  derived  from  an  express  or
implicit  statutory  grant  provided  by  the legislature, all agencies,
divisions and departments  of  the  state  are  hereby  prohibited  from
promulgating  regulations  and  making rules pursuant to section 8.38 of
title 9 of the official compilation of the New  York  Codes,  Rules  and
Regulations,  or  that  otherwise  address  the  extent  and nature of a
provider's administrative costs and executive  compensation,  except  as
required  and  necessary  to  implement the provisions of section six of
this act.

Co-Sponsors

S4783A (ACTIVE) - Bill Details

See Assembly Version of this Bill:
A2120A
Current Committee:
Senate Rules
Law Section:
Executive Law
Laws Affected:
Amd §63, Exec L; amd §§202, 717, 719 & 720, add §§727 & 728, N-PC L
Versions Introduced in 2011-2012 Legislative Session:
S6930, A10733

S4783A (ACTIVE) - Bill Texts

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Relates to compensation of executives of certain not-for-profit corporations.

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BILL NUMBER:S4783A

TITLE OF BILL: An act to amend the executive law and the not-for-profit
corporation law, in relation to compensation of executives of certain
not-for-profit corporations

PURPOSE: To provide clear and concise requirements and procedures to
ensure that compensation paid to executives at not-for-profits funded by
the State are reasonable and not excessive.

SUMMARY OF PROVISIONS:

Section 1 adds a new subdivision 14 to Section 63 of the Executive Law
which allows the Attorney General to prosecute all actions in connection
with section 728 of the Not-For-Profit Corporation Law.

Section 2 amends the Not-For-Profit Corporation Law to include within
the powers of a governing board the setting of compensation of execu-
tives based on section 727.

Section 3 amends paragraph a of section 717 of the Not-For-Profit Corpo-
ration Law to include language that any compensation provided to direc-
tors, officers, employees and other agents of the corporation shall be
reasonable and, where applicable, is subject to section 727 of the Not-
For-Profit Corporation Law.

Section 4 amends section 719 of Not-For-Profit Corporation Law to
include establishing reasonable compensation within the duties of direc-
tors and officers, and may be held liable for breaching this duty.

Section 5 amends section 719 of the Not-For-Profit Corporation Law to
require the repayment of the amount of any excessive compensation
provided in violation of section 727.

Sections 6 and 7 amends section 720 of the Not-For-Profit Corporation
Law to include violations of section 727 within actions that may be
brought against directors or officers.

Section 8 amends the Not-For-Profit Corporation Law to include a new
section 727 that defines the compensation of executives, compensation,
executive and family member. It also requires that compensation
exchanged by a not-for-profit corporation for the performance of
services by an executive must be reasonable consider factors including
but not limited to: compensation levels at similar situated organiza-
tions; availability of similar services in the geographic area of the
applicable service provider; current compensation surveys by independent
outside consultants or entities and actual written offers from similar
institutions competing for the services of the applicable executive.
These provisions are in addition to the Federal IRS requirements.

Section 8 also requires that if a not-for-profit corporation receives
over twenty-five thousand dollars from the state the corporation must

annually submit completed internal revenue service form 990 or a compa-
rable form developed to the state and filed with the Attorney General
and these forms shall be publicly available upon request and if the
organization maintains a website it shall be posted on the organizations
website.

The Commissioners of Developmental Disabilities, Mental Health, Alcohol-
ism and Substance Abuse Service, Children and Family Services, Health,
Criminal Justice Services and the Director of the Office of the Aging
shall jointly develop a form for use by these not-for-profit corpo-
rations who are not required by federal law to complete an Internal
Revenue Service form 990. This form will not require more information
than what is required on the 990 form. The Commissioners will also
promulgate regulations and establish a uniform procedure for reviewing
submitted forms and if determining compensation to be excessive and in
violation of the standards established in this section, referring such
cases to the Attorney General for further inquiry.

Section 9 amends the Not-For-Profit Corporation Law by adding a new
section 728 which requires a written policy on various aspect of the
board, its composition and voting rights. All written policies shall be
available for review by the Attorney General upon request.

JUSTIFICATION: The majority of the Not-for-Profits in our State are
complying with Internal Revenue Service standards for executive compen-
sation. In addition there are a large number of organization executives
that are under-compensated for their dedication and service to our
State's residents. Unfortunately there are few egregious actors who have
skirted current law and have utilized public funding for excessive
personal gain.

This legislation is intended to close current loopholes in State law and
provide a streamlined and fair system across the board for all not-for-
profit corporations in New York State while also providing safeguards
that can be reviewed by State Agencies, the Attorney General and the
public.

LEGISLATIVE HISTORY: 2011-12: S.6930 Finance/A.2120 Government Oper-
ations

FISCAL IMPLICATIONS: Minimal.

EFFECTIVE DATE: This act shall take effect on the one hundred eightieth
day after it shall have become a law; provided, however, that the
commissioners of the offices for people with developmental disabilities,
mental health, alcoholism and substance abuse services, children and
family services, health, criminal justice services and the director of
the office for the aging shall immediately take the necessary actions to
ensure that forms and regulations required by section eight of this act
are in place on such effective date; and provided, further, whereas the
authority to promulgate regulations and make rules is derived from an
express or implicit statutory grant provided by the legislature, all

agencies, divisions and departments of the state are hereby prohibited
from promulgating regulations and making rules pursuant to section 8.38
of title 9 of the official compilation of the New York Codes, Rules and
Regulations, or that otherwise address the extent and nature of a
provider's administrative costs and executive compensation, except as
required and necessary to implement the provisions of section six of
this act; and provided further, that the amendments to clauses (A) and
(B) of subparagraph 1 of paragraph (a) of section 720 of the not-for-
profit corporation law made by section seven of this act shall take
effect on the same date in the same manner as chapter 549 of the laws of
2013, takes effect.

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                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                 4783--A

                       2013-2014 Regular Sessions

                            I N  S E N A T E

                             April 23, 2013
                               ___________

Introduced  by  Sens.  MARCELLINO, RANZENHOFER -- read twice and ordered
  printed, and when printed to be committed to the Committee on Investi-
  gations and Government Operations -- recommitted to the  Committee  on
  Investigations  and  Government  Operations  in accordance with Senate
  Rule  6,  sec.  8  --  committee  discharged,  bill  amended,  ordered
  reprinted as amended and recommitted to said committee

AN  ACT  to  amend  the executive law and the not-for-profit corporation
  law, in relation to compensation of executives of certain not-for-pro-
  fit corporations

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1. Section 63 of the executive law is amended by adding a new
subdivision 14 to read as follows:
  14. PROSECUTE ALL ACTIONS IN CONNECTION  WITH  SECTION  SEVEN  HUNDRED
TWENTY-SEVEN AND SEVEN HUNDRED TWENTY-EIGHT OF THE NOT-FOR-PROFIT CORPO-
RATION LAW.
  S  2.  Subparagraph 12 of paragraph (a) of section 202 of the not-for-
profit corporation law is amended to read as follows:
  (12) To elect or appoint officers, employees and other agents  of  the
corporation,  define their duties, fix their reasonable compensation and
the reasonable compensation of directors,  and  to  indemnify  corporate
personnel.   Such  compensation  shall  be  commensurate  with  services
performed, AND SUBJECT, WHERE APPLICABLE, TO SECTION SEVEN HUNDRED TWEN-
TY-SEVEN (COMPENSATION OF EXECUTIVES).
  S 3. Paragraph (a) of section 717 of  the  not-for-profit  corporation
law,  as  amended by chapter 490 of the laws of 2010, is amended to read
as follows:
  (a) Directors and officers shall discharge the duties of their respec-
tive positions in good faith and with the  care  an  ordinarily  prudent
person  in  a  like position would exercise under similar circumstances.
The factors set forth in subparagraph one of paragraph  (e)  of  section

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD05075-04-4

S. 4783--A                          2

552  (Standard  of  conduct  in  managing and investing an institutional
fund), if relevant, must be considered by a governing  board  delegating
investment  management  of  institutional  funds pursuant to section 514
(Delegation  of investment management).  For purposes of this paragraph,
the term institutional fund is defined  in  section  551  (Definitions).
FURTHERMORE, ANY COMPENSATION PROVIDED TO DIRECTORS, OFFICERS, EMPLOYEES
AND  OTHER  AGENTS  OF  THE  CORPORATION  SHALL BE REASONABLE AND, WHERE
APPLICABLE, IS SUBJECT TO SECTION 727 (COMPENSATION OF EXECUTIVES).
  S 4. Paragraph (a) of section 719 of  the  not-for-profit  corporation
law is amended by adding a new subparagraph 6 to read as follows:
  (6)  THE  PROVISION  OF EXCESSIVE COMPENSATION TO DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS OF THE CORPORATION IN  VIOLATION  OF  SECTION
727 (COMPENSATION OF EXECUTIVES), WHERE APPLICABLE.
  S  5.  Paragraph  (d) of section 719 of the not-for-profit corporation
law is amended by adding a new subparagraph 6 to read as follows:
  (6) UPON REIMBURSEMENT TO THE CORPORATION OF THE AMOUNT OF ANY  EXCES-
SIVE  COMPENSATION PROVIDED IN VIOLATION OF SECTION 727 (COMPENSATION OF
EXECUTIVES), TO BE SUBROGATED TO THE RIGHTS OF THE CORPORATION AGAINST A
DIRECTOR, OFFICER, EMPLOYEE OR OTHER AGENT WHO  RECEIVED  THE  EXCESSIVE
COMPENSATION.
  S 6. Clauses (A) and (B) of subparagraph 1 of paragraph (a) of section
720  of  the  not-for-profit  corporation  law  are  amended  to read as
follows:
  (A) The neglect  of,  [or]  THE  failure  to  perform,  or  ANY  other
violation  of  his duties in the management and disposition of corporate
assets committed to his charge.
  (B) The acquisition by himself, transfer to others, loss or  waste  of
corporate  assets due to any neglect of, [or] THE failure to perform, or
ANY other violation of his duties, INCLUDING VIOLATIONS OF  SECTION  727
(COMPENSATION OF EXECUTIVES), PURSUANT TO SECTION 717 (DUTY OF DIRECTORS
AND OFFICERS).
  S 7. Clauses (A) and (B) of subparagraph 1 of paragraph (a) of section
720  of the not-for-profit corporation law, as amended by chapter 549 of
the laws of 2013, are amended to read as follows:
  (A) The neglect  of,  [or]  THE  failure  to  perform,  or  ANY  other
violation  of  his duties in the management and disposition of corporate
assets committed to his charge.
  (B) The acquisition by himself, transfer to others, loss or  waste  of
corporate  assets due to any neglect of, [or] THE failure to perform, or
ANY other violation of his duties INCLUDING VIOLATIONS  OF  SECTION  727
(COMPENSATION OF EXECUTIVES), PURSUANT TO SECTION 717 (DUTY OF DIRECTORS
AND OFFICERS).
  S  8.  The  not-for-profit  corporation law is amended by adding a new
section 727 to read as follows:
S 727. COMPENSATION OF EXECUTIVES.
  (A) DEFINITIONS. FOR THE PURPOSES OF THIS  SECTION,  UNLESS  OTHERWISE
EXPRESSLY STATED OR CONTEXT CLEARLY REQUIRES:
  (1)  "COMPENSATION"  MEANS  THE  AGGREGATE  VALUE OF ECONOMIC BENEFITS
CONFERRED IN EXCHANGE FOR THE PERFORMANCE OF SERVICES THAT ARE  INCLUDED
FOR PURPOSES OF DETERMINING REASONABLENESS UNDER SECTION 26 U.S.C. 4958,
AS  FURTHER  SPECIFIED  IN  26  CFR  S53.4958-4(B)(II)(B), OR SUCCEEDING
PROVISIONS.
  (2) "EXECUTIVE" MEANS ANY PERSON WHO HAS ULTIMATE  RESPONSIBILITY  FOR
IMPLEMENTING  THE DECISIONS OF THE GOVERNING BODY OR FOR SUPERVISING THE
MANAGEMENT, ADMINISTRATION, OR OPERATION OF THE ORGANIZATION, AS  REFER-

S. 4783--A                          3

ENCED  IN  26  U.S.C.    S4958(F)(1)(A)  AND FURTHER SPECIFIED IN 26 CFR
S53.4958-3(C)(2), OR SUCCEEDING PROVISIONS.
  (3)  "FAMILY MEMBER" MEANS A SPOUSE, SIBLING (BY WHOLE OR HALF BLOOD),
SPOUSE OF A SIBLING (BY  WHOLE  OR  HALF  BLOOD),  PARENT,  GRANDPARENT,
CHILD,  GRANDCHILD, GREAT-GRANDCHILD, AND SPOUSE OF A CHILD, GRANDCHILD,
AND GREAT-GRANDCHILD.
  (B) COMPENSATION EXCHANGED BY A  NOT-FOR-PROFIT  CORPORATION  FOR  THE
PERFORMANCE  OF  SERVICES BY AN EXECUTIVE MUST BE REASONABLE CONSIDERING
FACTORS INCLUDING, BUT NOT LIMITED TO: COMPENSATION LEVELS PAID BY SIMI-
LARLY SITUATED ORGANIZATIONS, WHETHER OR NOT THEY QUALIFY AS A  NOT-FOR-
PROFIT  CORPORATION  AS DEFINED IN SECTION 102 (DEFINITIONS); THE AVAIL-
ABILITY OF SIMILAR SERVICES IN THE GEOGRAPHIC  AREA  OF  THE  APPLICABLE
PROVIDER OF SERVICES; CURRENT COMPENSATION SURVEYS COMPILED BY INDEPEND-
ENT  OUTSIDE  CONSULTANTS  OR  ENTITIES;  AND ACTUAL WRITTEN OFFERS FROM
SIMILAR INSTITUTIONS COMPETING FOR THE SERVICES OF THE APPLICABLE EXECU-
TIVE.
  (1) FOR THE PURPOSES OF THIS SECTION, WHETHER AN ORGANIZATION IS SIMI-
LARLY SITUATED SHALL BE DETERMINED BASED ON FACTORS INCLUDING,  BUT  NOT
LIMITED TO:  GROSS ANNUAL REVENUE; GEOGRAPHIC LOCATION; AND THE DIVERSI-
TY AND COMPLEXITY OF PROGRAMS.
  (2)(A) IF A NOT-FOR-PROFIT CORPORATION RECEIVES OVER TWENTY-FIVE THOU-
SAND DOLLARS FROM THE STATE, THE NOT-FOR-PROFIT CORPORATION MUST ANNUAL-
LY SUBMIT A COMPLETED INTERNAL REVENUE SERVICE FORM 990, OR A COMPARABLE
FORM  DEVELOPED PURSUANT TO SUBCLAUSE (I) OF CLAUSE (B) OF THIS SUBPARA-
GRAPH, TO THE STATE AND FILED WITH THE ATTORNEY GENERAL.  SUCH COMPLETED
FORM OR INTERNAL REVENUE SERVICE FORM 990 SHALL  BE  PUBLICLY  AVAILABLE
UPON  REQUEST  AND  IF THE ORGANIZATION MAINTAINS A WEBSITE, IT SHALL BE
POSTED ON THE ORGANIZATION'S WEBSITE.
  (B) THE COMMISSIONERS OF DEVELOPMENTAL  DISABILITIES,  MENTAL  HEALTH,
ALCOHOLISM  AND  SUBSTANCE ABUSE SERVICES, CHILDREN AND FAMILY SERVICES,
HEALTH, CRIMINAL JUSTICE SERVICES AND THE DIRECTOR OF THE OFFICE FOR THE
AGING SHALL JOINTLY:
  (I) DEVELOP A FORM FOR USE BY THOSE  NOT-FOR-PROFIT  CORPORATIONS  WHO
ARE  NOT REQUIRED BY FEDERAL LAW TO COMPLETE AN INTERNAL REVENUE SERVICE
FORM 990. SUCH FORM SHALL REQUIRE NO MORE INFORMATION  THAN  THAT  WHICH
MUST BE SUBMITTED ON INTERNAL REVENUE SERVICE FORM 990;
  (II) PROMULGATE REGULATIONS THAT ALLOW A NOT-FOR-PROFIT CORPORATION TO
SUBMIT ONE COMPLETED INTERNAL REVENUE SERVICE FORM 990, OR ONE COMPLETED
COMPARABLE  FORM,  THROUGH  THE  POSTAL  SERVICE  OR ELECTRONICALLY, FOR
DISTRIBUTION TO ALL AGENCIES THAT PROVIDE FUNDING TO THE  NOT-FOR-PROFIT
CORPORATION; AND
  (III) ESTABLISH UNIFORM PROCEDURES FOR REVIEWING SUBMITTED FORMS; AND,
UPON A DETERMINATION THAT EXECUTIVE COMPENSATION APPEARS TO BE EXCESSIVE
IN VIOLATION OF THE STANDARDS ESTABLISHED IN THIS SECTION, FOR REFERRING
SUCH CASES TO THE ATTORNEY GENERAL FOR FURTHER INQUIRY.
  (C)  ANNUAL COMPENSATION EXCHANGED BY A NOT-FOR-PROFIT CORPORATION FOR
THE PERFORMANCE OF SERVICES BY AN EXECUTIVE SHALL BE CONSIDERED  REASON-
ABLE  IF IT DOES NOT EXCEED LEVEL I OF THE FEDERAL GOVERNMENT'S RATES OF
BASIC PAY FOR THE EXECUTIVE SCHEDULE PROMULGATED BY  THE  UNITED  STATES
OFFICE OF PERSONNEL MANAGEMENT.
  (D)  ANNUAL COMPENSATION EXCHANGED BY A NOT-FOR-PROFIT CORPORATION FOR
THE PERFORMANCE OF SERVICES BY AN EXECUTIVE THAT DOES EXCEED LEVEL I  OF
THE  FEDERAL  GOVERNMENT'S RATES OF BASIC PAY FOR THE EXECUTIVE SCHEDULE
SHALL BE PRESUMED TO BE REASONABLE IF THE FOLLOWING FOUR CONDITIONS  ARE
SATISFIED:

S. 4783--A                          4

  (1)  THE  COMPENSATION  IS  APPROVED  IN ADVANCE BY THE GOVERNING BODY
(I.E., THE BOARD OF DIRECTORS, BOARD OF TRUSTEES, OR EQUIVALENT CONTROL-
LING BODY) OF THE NOT-FOR-PROFIT CORPORATION THAT IS  COMPOSED  ENTIRELY
OF  INDIVIDUALS  WHO  DO NOT HAVE A CONFLICT OF INTEREST WITH RESPECT TO
THE COMPENSATION ARRANGEMENT.
  (A)  FOR  THE PURPOSES OF DETERMINING WHETHER THE REQUIREMENTS OF THIS
PARAGRAPH HAVE BEEN MET WITH RESPECT TO A SPECIFIC COMPENSATION ARRANGE-
MENT, AN INDIVIDUAL IS NOT INCLUDED IN THE GOVERNING  BODY  WHEN  IT  IS
REVIEWING A TRANSACTION IF THAT INDIVIDUAL MEETS WITH OTHER MEMBERS ONLY
TO  ANSWER  QUESTIONS, AND OTHERWISE RECUSES HIMSELF OR HERSELF FROM THE
MEETING AND IS NOT PRESENT DURING DEBATE AND VOTING ON THE  COMPENSATION
ARRANGEMENT.
  (B)  A MEMBER OF THE GOVERNING BODY DOES NOT HAVE A CONFLICT OF INTER-
EST WITH RESPECT TO A COMPENSATION ARRANGEMENT ONLY IF THE MEMBER:
  (I) IS NOT AN EXECUTIVE PARTICIPATING IN, OR  ECONOMICALLY  BENEFITING
FROM,  THE  COMPENSATION ARRANGEMENT; AND IS NOT A FAMILY MEMBER OF SUCH
AN EXECUTIVE;
  (II) IS NOT IN AN EMPLOYMENT RELATIONSHIP SUBJECT TO THE DIRECTION  OR
CONTROL OF ANY EXECUTIVE, OR THE FAMILY MEMBER OF ANY EXECUTIVE, PARTIC-
IPATING IN OR ECONOMICALLY BENEFITING FROM THE COMPENSATION ARRANGEMENT;
  (III)  DOES  NOT  RECEIVE  COMPENSATION  OR  OTHER  PAYMENT SUBJECT TO
APPROVAL BY ANY EXECUTIVE,  OR  THE  FAMILY  MEMBER  OF  ANY  EXECUTIVE,
PARTICIPATING  IN  OR  ECONOMICALLY  BENEFITING  FROM  THE  COMPENSATION
ARRANGEMENT;
  (IV) HAS NO MATERIAL FINANCIAL INTEREST AFFECTED BY  THE  COMPENSATION
ARRANGEMENT; AND
  (V)  DOES NOT APPROVE A TRANSACTION PROVIDING ECONOMIC BENEFITS TO ANY
EXECUTIVE, OR THE FAMILY MEMBER OF ANY EXECUTIVE, PARTICIPATING  IN  THE
COMPENSATION  ARRANGEMENT,  WHO  IN  TURN HAS APPROVED OR WILL APPROVE A
TRANSACTION PROVIDING ECONOMIC BENEFITS TO THE MEMBER.
  (2) THE GOVERNING BODY OBTAINED AND RELIED UPON APPROPRIATE DATA AS TO
COMPARABILITY PRIOR TO MAKING ITS DETERMINATION.
  (A) A GOVERNING BODY HAS APPROPRIATE  DATA  AS  TO  COMPARABILITY  IF,
GIVEN  THE  KNOWLEDGE  AND  EXPERTISE OF ITS MEMBERS, IT HAS INFORMATION
SUFFICIENT TO DETERMINE WHETHER  THE  COMPENSATION  ARRANGEMENT  IN  ITS
ENTIRETY IS REASONABLE. RELEVANT INFORMATION INCLUDES, BUT IS NOT LIMIT-
ED  TO:  COMPENSATION  LEVELS  PAID BY SIMILARLY SITUATED ORGANIZATIONS,
WHETHER OR NOT THEY QUALIFY AS A NOT-FOR-PROFIT CORPORATION  AS  DEFINED
IN  SECTION  102  (DEFINITIONS); THE AVAILABILITY OF SIMILAR SERVICES IN
THE GEOGRAPHIC AREA OF THE  APPLICABLE  PROVIDER  OF  SERVICES;  CURRENT
COMPENSATION  SURVEYS  COMPILED BY INDEPENDENT FIRMS; AND ACTUAL WRITTEN
OFFERS FROM SIMILAR INSTITUTIONS  COMPETING  FOR  THE  SERVICES  OF  THE
APPLICABLE EXECUTIVE.
  (B)  HOWEVER,  FOR  SMALL  ORGANIZATIONS  WITH  ANNUAL  GROSS RECEIPTS
(INCLUDING CONTRIBUTIONS) OF LESS THAN  ONE  MILLION  DOLLARS  REVIEWING
COMPENSATION ARRANGEMENTS, THE GOVERNING BODY WILL BE CONSIDERED TO HAVE
APPROPRIATE DATA AS TO COMPARABILITY IF IT HAS DATA ON COMPENSATION PAID
BY  THREE COMPARABLE PROVIDERS OF SERVICES IN THE SAME OR SIMILAR COMMU-
NITIES FOR SIMILAR SERVICES.
  (I) FOR THE PURPOSES OF DETERMINING WHETHER THE ABOVE RULE  FOR  SMALL
ORGANIZATIONS  APPLIES,  AN  ORGANIZATION MAY CALCULATE ITS ANNUAL GROSS
RECEIPTS BASED ON AN AVERAGE OF ITS  GROSS  RECEIPTS  DURING  THE  THREE
PRIOR  TAXABLE  YEARS.  IF  ANY APPLICABLE NOT-FOR-PROFIT CORPORATION IS
CONTROLLED BY OR CONTROLS ANOTHER ENTITY, THE ANNUAL GROSS  RECEIPTS  OF
SUCH ORGANIZATIONS MUST BE AGGREGATED TO DETERMINE APPLICABILITY.

S. 4783--A                          5

  (II)  FOR  PURPOSES  OF  THIS  PARAGRAPH,  CONTROL  BY  AN  APPLICABLE
NOT-FOR-PROFIT CORPORATION MEANS:
  1. IN THE CASE OF A STOCK CORPORATION, OWNERSHIP (BY VOTE OR VALUE) OF
MORE THAN FIFTY PERCENT OF THE STOCK IN SUCH CORPORATION;
  2.  IN THE CASE OF A PARTNERSHIP, OWNERSHIP OF MORE THAN FIFTY PERCENT
OF THE PROFITS INTERESTS OR CAPITAL INTERESTS IN THE PARTNERSHIP;
  3. IN THE CASE OF A NONSTOCK ORGANIZATION (I.E., AN ENTITY IN WHICH NO
PERSON HOLDS A PROPRIETARY INTEREST), THAT AT LEAST FIFTY PERCENT OF THE
DIRECTORS OR TRUSTEES  OF  THE  NOT-FOR-PROFIT  CORPORATION  ARE  EITHER
REPRESENTATIVES  (INCLUDING  TRUSTEES,  DIRECTORS, AGENTS, OR EMPLOYEES)
OF, OR DIRECTLY OR INDIRECTLY CONTROLLED BY,  AN  APPLICABLE  TAX-EXEMPT
ORGANIZATION; OR
  4.  IN  THE  CASE  OF  ANY  OTHER ENTITY, OWNERSHIP OF MORE THAN FIFTY
PERCENT OF THE BENEFICIAL INTEREST IN THE ENTITY.
  (3) THE GOVERNING BODY ADEQUATELY DOCUMENTED THE BASIS FOR ITS  DETER-
MINATION CONCURRENTLY WITH MAKING THAT DETERMINATION.
  (A)  FOR  A DECISION TO BE DOCUMENTED ADEQUATELY, THE WRITTEN OR ELEC-
TRONIC RECORDS OF THE GOVERNING BODY MUST NOTE:
  (I) THE TERMS OF THE TRANSACTION THAT WAS APPROVED, AND  THE  DATE  IT
WAS APPROVED;
  (II)  THE MEMBERS OF THE GOVERNING BODY WHO WERE PRESENT DURING DEBATE
ON THE TRANSACTION THAT WAS APPROVED, AND THOSE WHO VOTED ON IT;
  (III) THE COMPARABILITY DATA OBTAINED AND RELIED UPON BY THE GOVERNING
BODY, AND HOW THE DATA WAS OBTAINED; AND
  (IV) ANY ACTIONS TAKEN WITH RESPECT TO  CONSIDERATION  OF  THE  TRANS-
ACTION BY ANYONE WHO IS OTHERWISE A MEMBER OF THE GOVERNING BODY BUT WHO
HAD A CONFLICT OF INTEREST WITH RESPECT TO THE TRANSACTION.
  (B)  IF THE GOVERNING BODY DETERMINES THAT REASONABLE COMPENSATION FOR
A SPECIFIC ARRANGEMENT IS HIGHER OR LOWER THAN THE RANGE OF COMPARABILI-
TY DATA OBTAINED, THE GOVERNING BODY  MUST  RECORD  THE  BASIS  FOR  ITS
DETERMINATION.  FOR  A  DECISION  TO BE DOCUMENTED CONCURRENTLY, RECORDS
MUST BE PREPARED BEFORE THE LATER OF THE NEXT MEETING OF  THE  GOVERNING
BODY  OR  SIXTY  DAYS AFTER THE FINAL ACTION OR ACTIONS OF THE GOVERNING
BODY ARE TAKEN. RECORDS MUST BE REVIEWED AND APPROVED BY  THE  GOVERNING
BODY AS REASONABLE, ACCURATE AND COMPLETE WITHIN A REASONABLE TIME PERI-
OD THEREAFTER.
  (4)  THE  COMPENSATION PROVIDED TO THE EXECUTIVE BY THE GOVERNING BODY
DOES NOT EXCEED THE HIGHEST COMPENSATION PROVIDED BY A  SIMILARLY  SITU-
ATED ORGANIZATION FOR SIMILAR SERVICES, AS IDENTIFIED IN THE COMPARABIL-
ITY DATA, BY MORE THAN TEN PERCENT.
  (E) IF THE FOUR CONDITIONS OF PARAGRAPH (D) OF THIS SECTION ARE SATIS-
FIED,  THEN  THE PERSON OR ENTITY BRINGING AN ACTION FOR RELIEF PURSUANT
TO SECTION 720 (ACTIONS AGAINST DIRECTORS, OFFICERS AND  KEY  EMPLOYEES)
MAY  REBUT  THE  PRESUMPTION  THAT  ARISES  UNDER  PARAGRAPH (D) OF THIS
SECTION ONLY IF IT DEVELOPS SUFFICIENT CONTRARY EVIDENCE  TO  REBUT  THE
PROBATIVE  VALUE  OF THE COMPARABILITY DATA RELIED UPON BY THE GOVERNING
BODY. WITH RESPECT TO ANY FIXED PAYMENT, REBUTTAL EVIDENCE IS LIMITED TO
EVIDENCE RELATING TO FACTS AND CIRCUMSTANCES EXISTING ON  THE  DATE  THE
PARTIES  ENTER  INTO  THE CONTRACT PURSUANT TO WHICH THE PAYMENT IS MADE
(EXCEPT IN THE EVENT OF SUBSTANTIAL NONPERFORMANCE). WITH RESPECT TO ALL
OTHER PAYMENTS, REBUTTAL EVIDENCE MAY INCLUDE FACTS AND CIRCUMSTANCES UP
TO AND INCLUDING THE DATE OF PAYMENT.
  (F) A NOT-FOR-PROFIT CORPORATION IS PROHIBITED FROM: (1)  ENGAGING  IN
ANY  ACT  THAT  THE  INTERNAL  REVENUE SERVICE DETERMINES CONSTITUTES AN
"EXCESS BENEFIT TRANSACTION" UNDER SECTION 4958 OF THE INTERNAL  REVENUE
CODE;  OR (2) ENGAGING IN ANY ACT THAT WOULD CONSTITUTE AN "EXCESS BENE-

S. 4783--A                          6

FIT TRANSACTION" UNDER THE STANDARDS OF SECTION  4958  OF  THE  INTERNAL
REVENUE CODE.
  S  9.  The  not-for-profit  corporation law is amended by adding a new
section 728 to read as follows:
S 728. WRITTEN POLICY REQUIRED.
  (A) THE GOVERNING BODY OF A NOT-FOR-PROFIT CORPORATION  SHALL  HAVE  A
WRITTEN POLICY ON:
  (1)  EMPLOYEES  SERVING  ON  SUCH GOVERNING BODY, THEIR VOTING RIGHTS,
RECUSAL FROM DECISIONS OF THE GOVERNING BODY, AND THE PERCENTAGE OF  THE
MEMBERSHIP  OF THE GOVERNING BODY THAT MUST BE INDEPENDENT OF THE ORGAN-
IZATION;
  (2) HIRING OF FAMILY MEMBERS OF EMPLOYEES AND GOVERNING BODY  MEMBERS;
AND
  (3) CONFLICT OF INTEREST COVERING BUSINESS INTERESTS.
  (B) EMPLOYEES OF A NOT-FOR-PROFIT CORPORATION ARE PROHIBITED FROM:
  (1) SERVING AS THE CHAIR OF SUCH ORGANIZATION'S GOVERNING BODY; AND
  (2) SERVING AS A VOTING MEMBER OF SUCH ORGANIZATION'S GOVERNING BODY.
  (C)  NO  PERSON WHO IS RELATED TO ANY EXECUTIVE AS DEFINED IN SUBPARA-
GRAPH TWO OF SUBPARAGRAPH (A) OF SECTION  727  (COMPENSATION  OF  EXECU-
TIVES)  OR  ANY MEMBER OF A GOVERNING BODY BY BLOOD OR MARRIAGE SHALL BE
EMPLOYED BY SUCH ORGANIZATION, EXCEPT WITH THE APPROVAL OF TWO-THIRDS OF
THE MEMBERS OF THE GOVERNING BODY.
  (D) ALL WRITTEN POLICIES REQUIRED IN PARAGRAPH  (A)  OF  THIS  SECTION
SHALL BE AVAILABLE FOR REVIEW BY THE ATTORNEY GENERAL UPON REQUEST.
  S  10.  This  act  shall  take effect on the one hundred eightieth day
after it shall have become a law; provided, however,  that  the  commis-
sioners  of  the  offices  for  people  with developmental disabilities,
mental health, alcoholism and substance  abuse  services,  children  and
family  services,  health, criminal justice services and the director of
the office for the aging shall immediately take the necessary actions to
ensure that forms and regulations required by section eight of this  act
are  in place on such effective date; and provided, further, whereas the
authority to promulgate regulations and make rules is  derived  from  an
express  or  implicit  statutory  grant provided by the legislature, all
agencies, divisions and departments of the state are  hereby  prohibited
from  promulgating regulations and making rules pursuant to section 8.38
of title 9 of the official compilation of the New York Codes, Rules  and
Regulations,  or  that  otherwise  address  the  extent  and nature of a
provider's administrative costs and executive  compensation,  except  as
required  and  necessary  to  implement the provisions of section six of
this act; and provided further, that the amendments to clauses  (A)  and
(B)  of  subparagraph  1 of paragraph (a) of section 720 of the not-for-
profit corporation law made by section seven  of  this  act  shall  take
effect  on  the  same  date and in the same manner as chapter 549 of the
laws of 2013, takes effect.

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