Many leaders of big charities get performance bonuses for providing sound fiscal stewardship of their charities.
But Brian Kelly, a New York video-game executive and philanthropist, wants to promote a new approach that ties progress on a charity’s mission to executive compensation.
For now Mr. Kelly is pushing the idea to charities seeking a cure for diabetes, a cause he embraced in 2006 after his son developed Type I diabetes at age 2. But he thinks the approach could work well beyond that cause, and he is teaching donors to raise more questions about compensation policies.
Large Groups Criticized
Mr. Kelly, co-chairman of the board of the gaming software developer Activision Blizzard, began to study the progress charities were making in finding a cure for the disease soon after his son was diagnosed. He was not thrilled with what he found.
So in 2011, with $1-million from his family foundation, he started a nonprofit called the Juvenile Diabetes Cure Alliance. Its goal is to persuade donors to demand that their money to diabetes groups be spent on research that’s headed toward finding a cure for Type I diabetes by 2025.
This month the alliance issued its second annual report that criticizes the nation’s largest diabetes nonprofits—the American Diabetes Association, the Diabetes Research Institute Foundation, JDRF, and Joslin Diabetes Center—because it says they don’t do enough to base executive bonuses on progress toward a cure for the disease.
“The major diabetes nonprofits pay a bonus to top executives apparently for building and improving their organizations rather than advancing cure progress,” the alliance’s report says. “Incentive compensation has arguably enabled these nonprofits to become more successful at raising money, but it has not been used to drive measurable progress toward a near-term cure for Type I diabetes.”
An Unlikely Solution
Several compensation experts say Mr. Kelly’s idea of tying a bonus to mission goals is intriguing but that it is unlikely to take root, given the complexities of nonprofits that work to find cures for diseases.
“Conceptually, I think he’s right. There’s no reason not to do it,” says Larry Reissman, a compensation expert at Buck Consultants. “But there’s a lot of practical challenges.”
Executives at the largest diabetes organizations, he says, should be rewarded for building large research networks of scientists and doctors and of donors and sponsors. Without such institutional efforts, he says, it’s hard to imagine a cure will be found.
“I would not be dismissive of those other responsibilities executives have and tying incentives to them,” Mr. Reissman said.
Promoting Good Health Habits
The charities attacked by Mr. Kelly share Mr. Reissman’s concerns. At the American Diabetes Association, executive director Larry Hausner, was paid $571,888 in 2012, including a nearly $78,000 bonus.
Stewart Perry, chairman of the American Diabetes Association’s executive-compensation committee, said in a statement that Mr. Kelly’s observations fail to take into account that his organization is focused on many things beyond finding a cure, including helping people learn how to prevent or reduce the effects of the disease through healthy eating and exercise.
Mr. Kelly also questioned JDRF, for paying no salary to its chief executive, Jeffrey Brewer.
“Innovation occurs when people have incentives,” Mr. Kelly said. “How does the board manage someone like that?”
Mr. Brewer, who is independently wealthy, does not need any financial incentive to find a cure for Type I diabetes, says Peter Cleary, a spokesman for the group.
Like Mr. Kelly, Mr. Brewer’s son suffers from Type I diabetes.
“To suggest that Jeffrey would be more motivated if he received a salary just doesn’t apply to his circumstances,” Mr. Cleary says. “Just having a child with a very serious life-threatening disease is motivation enough.”
Other executives at the charity, he says, do get bonuses tied to its success in ending Type 1 diabetes. “We’ve always stayed true to that mission,” he says. “All of our executive compensation is tied to performance.”
Representatives from Joslin and the Diabetes Research Institute Foundation could not be reached in time for comment. Joslin’s chief executive, John Brooks III, earned $450,162 but no bonus; the Diabetes Research Institute’s chief executive, Robert Pearlman, earned $493,095, including a nearly $25,000 bonus.
Mr. Kelly says he has no problem with executives receiving bonuses for their managerial prowess but that the major diabetes organizations owe it to donors to demonstrate more clearly the progress they have made to find remedies for the disease.
“Selling the cure is 90 percent of their solicitations,” Mr. Kelly said. “But they don’t have a definition of a cure and when it’s coming. Most donors think it’s coming in the next 10 years.”
A ‘Practical Cure’
Nonprofits that work on diabetes may soon get more questions from donors about pay.
The alliance has built a network of 6,000 donors to diabetes groups and equipped them with information about how to demand that their gifts are spent only on developing a “practical” cure for Type I diabetes.
By a practical cure, Mr. Kelly means numerous smaller medical developments that steadily improve the lives of people with diabetes by reducing the frequency of glucose monitoring, expanding the foods they can choose from, improving their sleep, and coming up with medications with fewer side effects. Such steps allow donors to track progress that is clearly defined.
He says promising a vague “idealized,” one-step cure for all of the complications of diabetes does not provide donors with any benchmarks to use when holding groups accountable.
Mr. Kelly’s group has set 2025 as a date to achieve all of those elements of an overall practical cure. And he has hired two Wall Street veterans to apply corporate research analysis to major diabetes groups to monitor their progress toward that goal.
While Mr. Kelly’s activism could soon influence donors to other medical causes, compensation experts have a lot of questions about his approach.
“Compensation should be tied to things the CEO can directly affect,” said Susan Egmont, an executive recruiter in Boston. “Can these CEOs be held directly accountable for finding a cure? Or does science and nature play a role that can’t necessarily move or change at will?”
Pete Smith, a compensation consultant for nonprofits, said the alliance’s proposed approach is “almost an insult” to all diabetes charities. He adds: Nonprofit executives would never say, “Hey, I will cure diabetes if you pay me more or pay me a big bonus.”
