Los Angeles Times reporter Alan Zarembo found unusually high executive pay and a tangle of additional compensation (ranging from rent to legal fees) that make executives at Tarzana Treatment Center some of the best-paid nonprofit leaders around.
The $45-million-a-year business, which has aggressively pursued lucrative government contracts, paid out salaries as high as $428,057 for the chief operating officer, a number which does not take into account deferred compensation and other activities. Part of the property leased by the center is owned by four board members, in an arrangement which nets them $2.7 million in rental fees annually. The CEO earned $330,372 for 32 hours a work a week, not including his share of the rent or the $237,965 in legal fees he earned in 2007 as part of an ongoing contract.
Frances Hill, a professor at the University of Miami specializing in nonprofit tax law, said conflicts of interest were inherent at Tarzana because the chief executive wears so many other hats: chairman of the board, lawyer and landlord.
“My jaw is dropping over this,” she said.
All of this appears to be legal, though “anathema” to a nonprofit’s mission, Zaremba found. The IRS allows this sort of self-dealing as long as the nonprofit can show that it gets better rates than it would on the open market, and government caps on executive pay for its contractors don’t apply because much of the compensation comes from non-government revenues. The leader of a nonprofit watchdog group asks “If the executives weren’t paid so much, ‘how many more services could be provided to people who need them?'”
Numbers on the rehab center’s effectiveness remain elusive, as they do for many such organizations, but Zaremba quotes a patient praising its professionalism and a positive review from a local official.