Management Compensation Disclosures in Private Colleges' and Universities' Forms 990: Reporting Strategies and Donor Reaction

Flynn, R. Steven, Journal of Academy of Business and Economics

ABSTRACT

The Internet presence of private colleges' and universities' Forms 990 and their disclosure of top management's compensation amounts have led to fears of declines in donor contributions to these institutions. This paper explores donor reaction to two possible reporting strategies to counter negative perceptions: a high measure of management's financial efficiency, and a high level of management's non-financial success. The study finds that while each measurement type may succeed in countering some negative donor reaction, high non-financial success levels may offset greater amounts, a potentially important discovery since many institutions fail to highlight significant non-financial achievements in Form 990.

1. INTRODUCTION

The reporting of top management compensation amounts in nonprofit organizations' Form 990, the comprehensive yearly informational return filed with the Internal Revenue Service (IRS) and now available on the Internet, has raised concerns that such disclosures may lead to declines in donor contributions (Evangelical Council for Financial Accountability, 1999). This fear may be especially great among private colleges and universities, since their presidential compensation amounts have recently come under the scrutiny of the popular media (See for example Lockman (2002)). Recognizing that all nonprofit organizations, including colleges and universities, may now need to justify their management compensation amounts (Evangelical Council for Financial Accountability, 1999), this paper explores, in an experimental setting, the potential success of two Form 990 reporting strategies in countering negative donor reaction: a high measure of management's financial efficiency; and a high level of non-financial success achieved under management's leadership. The paper's results, although couched in the context of private educational institutions, should interest all nonprofit organizations competing for donations in an increasingly skeptical donor environment.

2. LITERATURE REVIEW

Form 990 is the informational return that most tax-exempt organizations (501(c)(3) organizations) file with the IRS to provide evidence that they have not violated their tax-exempt status. The return, a voluminous report often spanning as many as 30 pages or more, consists of nine parts and one set of schedules. Part I, the Revenue, Expenses, and Changes in Net Assets or Fund Balances statement, reports the organization's revenue sources and total expenses. This section of the report classifies total …

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Publication information: Article title: Management Compensation Disclosures in Private Colleges' and Universities' Forms 990: Reporting Strategies and Donor Reaction. Contributors: Flynn, R. Steven - Author. Journal title: Journal of Academy of Business and Economics. Volume: 3. Issue: 1 Publication date: January 2004. Page number: 143+. © 2008 International Academy of Business and Economics. COPYRIGHT 2004 Gale Group.

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