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The office of Social Vocational Services, which provides job training, housing and other assistance for people with developmental disabilities, is in Torrance. (Christina House / For The Times / October 16, 2009) |
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Edward Dawson started his business from scratch in 1978. He and his wife, Marcia, built it into a $63-million-a-year enterprise with offices throughout California.
The couple, who earned more than $7 million in salary and deferred compensation in the last five years, now own a villa overlooking the beach in Palos Verdes and other real estate worth millions of dollars.
FOR THE RECORD:
Nonprofit's wealthy owners: An article in Monday's Section A about a nonprofit company, Social Vocational Services, run by a Palos Verdes couple included a garbled sentence that should have read, "In 1999, the Dawsons arranged to sell SVS to ResCare Inc., a for-profit company headquartered in Kentucky." (The garble said "not sure you kno" in place of "ResCare.") —
Theirs is a classic tale of entrepreneurial success -- except their wealth comes from running a nonprofit that is sustained by taxpayer dollars.
The company, Social Vocational Services, provides job training, life skills instruction and group housing for people with developmental disabilities -- an industry that relies on low-wage workers and government handouts.
The Dawsons made their millions while navigating the murky boundaries of nonprofit law. By definition, nonprofit companies exist for the public good. Federal law says that executive pay must be "reasonable" -- a vague standard that regulators and watchdogs say essentially allows nonprofits to set their own limits.
While the state is slashing the budget for the developmentally disabled, it places no ceiling on how much executives like the Dawsons can earn. In addition to their pay, they collect more than $700,000 a year for renting properties to SVS, including a San Francisco condominium for their own use.
Their financial practices were unusual enough to prompt an investigation by the state attorney general in 2000 into whether SVS' board of directors was placing the Dawsons' personal gain above the nonprofit's public mission.
But after the investigation ended in 2004 with a confidential settlement -- obtained last month by The Times through the Public Records Act -- the board gave them raises. Over the next four years, Edward Dawson's salary as chief executive jumped from $368,508 to $872,311.
Determining what constitutes "reasonable" compensation under the law can come down to a debate among experts.
"These cases are often challenging to prosecute because there is no bright line for what constitutes reasonable compensation," said Belinda Johns, head of the charitable trusts section of the California attorney general's office.
Pushing for stricter rules on nonprofit executive pay, Sen. Charles E. Grassley (R-Iowa) recently told the Senate Finance Committee that boards have "rubber-stamped compensation packages which they know to be unreasonable."
Earlier, SVS was among five nonprofits nationwide singled out in a 2005 report on employment programs for the disabled by the U.S. Senate's Commission on Health, Education, Labor and Pensions.
The commission found their executives benefited from excessive compensation, lavish perks or self-dealing -- conducting business with one's own company.
But the law is also open to interpretation on self-dealing. It's allowed if the board considers other options and finds them less beneficial to the company.
"If you have good lawyering and you are very brazen, you can work around things," said Jim Fishman, a law professor at Pace University in New York.
Frances Hill, a law professor at the University of Miami who reviewed the 2004 settlement for The Times, called the agreement "insufficient" because it left the Dawsons too much room to keep enriching themselves.
The Dawsons did not return calls seeking comment and refused to see a reporter who visited their headquarters in Torrance. SVS board members could not be reached.
A lawyer for SVS, Savery Nash, said the Dawsons believe they should be compensated as if they worked in the private sector, an idea now embraced by many nonprofits, notably hospitals and arts organizations.
The couple, who earned more than $7 million in salary and deferred compensation in the last five years, now own a villa overlooking the beach in Palos Verdes and other real estate worth millions of dollars.
FOR THE RECORD:
Nonprofit's wealthy owners: An article in Monday's Section A about a nonprofit company, Social Vocational Services, run by a Palos Verdes couple included a garbled sentence that should have read, "In 1999, the Dawsons arranged to sell SVS to ResCare Inc., a for-profit company headquartered in Kentucky." (The garble said "not sure you kno" in place of "ResCare.") —
Theirs is a classic tale of entrepreneurial success -- except their wealth comes from running a nonprofit that is sustained by taxpayer dollars.
The company, Social Vocational Services, provides job training, life skills instruction and group housing for people with developmental disabilities -- an industry that relies on low-wage workers and government handouts.
The Dawsons made their millions while navigating the murky boundaries of nonprofit law. By definition, nonprofit companies exist for the public good. Federal law says that executive pay must be "reasonable" -- a vague standard that regulators and watchdogs say essentially allows nonprofits to set their own limits.
While the state is slashing the budget for the developmentally disabled, it places no ceiling on how much executives like the Dawsons can earn. In addition to their pay, they collect more than $700,000 a year for renting properties to SVS, including a San Francisco condominium for their own use.
Their financial practices were unusual enough to prompt an investigation by the state attorney general in 2000 into whether SVS' board of directors was placing the Dawsons' personal gain above the nonprofit's public mission.
But after the investigation ended in 2004 with a confidential settlement -- obtained last month by The Times through the Public Records Act -- the board gave them raises. Over the next four years, Edward Dawson's salary as chief executive jumped from $368,508 to $872,311.
Determining what constitutes "reasonable" compensation under the law can come down to a debate among experts.
"These cases are often challenging to prosecute because there is no bright line for what constitutes reasonable compensation," said Belinda Johns, head of the charitable trusts section of the California attorney general's office.
Pushing for stricter rules on nonprofit executive pay, Sen. Charles E. Grassley (R-Iowa) recently told the Senate Finance Committee that boards have "rubber-stamped compensation packages which they know to be unreasonable."
Earlier, SVS was among five nonprofits nationwide singled out in a 2005 report on employment programs for the disabled by the U.S. Senate's Commission on Health, Education, Labor and Pensions.
The commission found their executives benefited from excessive compensation, lavish perks or self-dealing -- conducting business with one's own company.
But the law is also open to interpretation on self-dealing. It's allowed if the board considers other options and finds them less beneficial to the company.
"If you have good lawyering and you are very brazen, you can work around things," said Jim Fishman, a law professor at Pace University in New York.
Frances Hill, a law professor at the University of Miami who reviewed the 2004 settlement for The Times, called the agreement "insufficient" because it left the Dawsons too much room to keep enriching themselves.
The Dawsons did not return calls seeking comment and refused to see a reporter who visited their headquarters in Torrance. SVS board members could not be reached.
A lawyer for SVS, Savery Nash, said the Dawsons believe they should be compensated as if they worked in the private sector, an idea now embraced by many nonprofits, notably hospitals and arts organizations.
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