A recent private members bill introduced by Albina Guarnieri, Member of Parliament for Mississauga East, would give the Canada Revenue Agency the discretion to revoke the charitable status of a charity where it pays a single executive or employee annual compensation over $250,000. The threat of revocation would effectively deter charities from paying salaries and benefits over this cap. The proposed legislation would also allow the CRA to publish the name, job title and annual compensation of each charity’s five highest paid employees and executives. If passed, the legislation would be effective in 2011 and onward.

As this is a private members bill, no consultation was undertaken with the public or the charitable sector as to the content or impact of the proposed legislation.

Salary Cap

For many charities, the salary cap will not be an issue. Charity employees are often paid less than their counterparts in the for-profit sector. Other than a few isolated cases of high salaries which have been published by the media, it is not clear that charities are paying inappropriate salaries. The directors of a charity are usually unpaid volunteers. The directors have a fiduciary duty to ensure the charity’s funds are expended appropriately, and as part of this responsibility the directors oversee the salaries paid to employees. The charity’s directors consider the employee’s level of responsibility, the labour market and make compensation decisions. Some larger charities, including hospitals and universities, often need to pay higher salaries to attract skilled and experienced individuals.

The compensation cap raises several issues. Will charitable institutions need to break existing employment contracts? Will large charities be able to find qualified staff members willing to accept lower salaries? Will charities need to split up the responsibilities of existing jobs into several jobs to attract qualified people willing to work for the lower salary? Will the cap encourage charities to reduce their size and lose economies of scale? These issues should be considered before any legislation is passed.

Transparency

As for the disclosure of salaries, the T3010B Charity Information Return currently requires charities to indicate the pay range of their top 10 highest paid employees. The return includes 9 ranges from under $39,999 to over $350,000. Thus, donors currently have access to information about employee salaries. This new proposal would provide the exact amount within the range, the name of the individual receiving the compensation and the individual’s title. While transparency in the charitable sector is generally desirable, where the salaries are modest, the proposal to disclose individual salaries may be an unnecessary disclosure of personal information.

We will update you on the status of Bill C-470 as it proceeds.