A state grant last summer reshaped the nonprofit founded by Congressional candidate Sam Bennett from one run out of her Allentown home to one with office space, a staff and a six-figure salary she played a role in setting.

How Properties of Merit came to Executive Director Bennett's $110,000 salary goes against Internal Revenue Service guidelines and raises questions about the organization's -- and Bennett's -- decision-making.

The organization picked three people -- Bennett among them -- to determine a fair wage. It ignored budget size when researching salaries at similar organizations. And it counted future volunteers as employees, comparing itself to organizations with 100 or more staffers.

What emerged was a salary for Bennett, a Democratic candidate in the 2008 election for the 15th Congressional district seat, that exceeds that of most other executive directors from comparable Lehigh Valley organizations, whether measured by mission or budget.

In an interview, Bennett defended her pay and the process used to set it. She said because Properties of Merit expects to rapidly expand statewide, it was difficult to find comparable organizations when setting her salary.

The most recent federal tax forms show that no Allentown, Bethlehem or Easton-based organization with expenses under $500,000 paid its top executive more than $100,000, according to GuideStar, which operates the largest database of nonprofit organizations and foundations.

"Anybody who is a candidate for the position should not be on the [compensation] committee or provide information for the committee to consider," said Tish Mogan, standards for excellence officer at the Pennsylvania Association of Nonprofit Organizations.

Properties of Merit's 2007 budget totals $351,000, a third of which comes from a state grant and the remainder from individual and corporate contributions. The organization pays Bennett, one of two people on staff, more than the heads of the Alliance for Building Communities and the local Habitat for Humanity -- whose budgets together total $2.5 million -- combined.

No one on the 12-member Properties of Merit board voted against the salary, but it raised some eyebrows.

"I thought it was a little steep," said member David Evans, who was not on the compensation committee. In a similar position as Bennett, Evans serves as the executive director of the Housing Association & Development Corp. based in Allentown, where he earned $63,065 in fiscal year 2005.

"I very gently tried to point out how this would be viewed," he said.

Board member Ralph S. Graber said there was "some uneasiness" about Bennett's salary.

But board President Jim Molchany, who led the compensation committee, said he heard no complaints from board members about the salary.

"They certainly didn't say anything," he said. "I was afraid it might even go higher."

Pat Solt, who joined the board after the salary vote, said, "All I know is the woman works like a dog. In my estimation [her salary] probably isn't enough."

Executive compensation has been a concern for the IRS in recent years as cases have come to light of some nonprofits paying their executives exorbitant sums. The Smithsonian Institution, for example, finds itself explaining to donors the $900,000-plus compensation and lavish expense account it gave its top executive.

In 2002, new IRS guidelines went into effect: Compose the executive compensation committee of independent persons, and review comparable salaries from similar organizations in similar locations.
Properties of Merit ignored those guidelines when it put Bennett on the three-person compensation committee, which also included Molchany and board member Bobbie Rudolph. Bennett acknowledges helping to set the criteria that determined a salary range for the committee to consider, which ended up between $102,355 and $178,000. Minutes were not taken from the compensation committee meetings.
"Obviously I played a role in discussing it with the board," said Bennett, a two-time mayoral candidate in Allentown and former executive director of the Mayfair Festival of the Arts.

But Bennett said she didn't discuss what salary to recommend to the board and didn't vote on the measure.

"I had nothing to do with picking my own compensation," Bennett said. "That wouldn't be appropriate."
Bennett, who founded the organization in New York in the 1980s and then moved it to Allentown in 1999, said that because the organization's goal is to reach communities across Pennsylvania, it was appropriate to draw comparisons from other statewide nonprofits when setting her salary. Because of the organization's expected rapid expansion, she said, it was difficult to find comparable nonprofits.
"We are a hybrid. We are unusual. There isn't anybody like us out there," Bennett said. "And it was a challenge trying to find something that we thought fit."

Molchany said the organization wanted to set a salary that was commensurate with where Properties of Merit planned to be years down the road.

"We had to have a salary that would be attractive to someone in case down the line Sam was no longer [with the organization]," Molchany said. "We had to have a class act organization. We expect to grow, that is the whole point of this thing."

That logic drew criticism from Bob Ottenhoff, president and CEO of GuideStar.

"To me I don't quite get that one. You are setting a salary for right now," Ottenhoff said. "You always have the opportunity to reset the budget based on changes of resources or scope. The decision now has to be based on what the organization is right now or what you are expecting the person to do this year."

Nonprofit compensation experts say the two most important variables in determining organizations to compare to are type and size. In both cases, Properties of Merit's decisions raise questions.

The organization, which rewards homeowners who take exceptional care of their homes with a reception and small prizes such as rakes and other giveaways, and initiates community clean-up efforts, is perhaps best described as a neighborhood improvement organization or one that encourages revitalization. Yet in establishing Bennett's salary, it looked at statewide foundations as similar. Foundations give out grants. Properties of Merit doesn't.

It also reviewed salary information for chambers of commerce, despite the fact that chambers are not charitable organizations. And Properties of Merit is.

Both comparisons appear faulty, said Marcus Owens, a tax lawyer with the Washington, D.C., firm of Caplin & Drysdale who ran the tax- exempt division of the IRS for 10 years in the 1990s.

"It does cause one to wonder exactly what aspects of this person's job at the charity caused a chamber of commerce to pop into mind," Owens said.

The Greater Lehigh Valley Chamber of Commerce, with 24 employees and a $2.4 million budget, paid its president and CEO Anthony Iannelli a total compensation package of $175,000 in the 2005-2006 fiscal year.

Asked about whether it was appropriate to use chambers of commerce as a guide to determine Bennett's salary, Rudolph, a compensation committee member, said, "That would probably not be a good comparison."

Properties of Merit said it did not include budget amount as a comparable factor in looking at similar organizations because the nonprofit expects to "be in a constant state of growth over the next several years." The organization's budget, as outlined in its proposed budgets through 2009, is projected to increase 35 percent over the next two years. In 2009, its cash and in-kind expenses are expected to total $473,000.

Looking for organizations of comparable size, Properties of Merit focused on number of employees.But instead of reviewing organizations with small staffs -- Properties of Merit recently hired its second employee -- the nonprofit looked at organizations with 100 or more employees, believing that its projected total of 100-plus volunteers put it in that size category. Bennett estimates each volunteer works between 10 and 20 hours per month.

"I thought to myself," board member Evans said, "by that argument the director of Habitat for Humanity ought to be worth a billion."

SAM BENNETT BIOGRAPHY

2006: Named director and CEO of the new statewide Properties of Merit of Pennsylvania Inc., an organization she brought to Allentown in 1999
2005-06: Regional sales manager, The Morning Call
2001 and 2005: Ran unsuccessfully for Democratic nomination for Allentown mayor
2001-04: Executive director Mayfair Festival of the Arts
2000-Present: Principal, Bennett Consulting
1993-99: Marketing executive, Bell Atlantic
Bachelor's degree in studio art from State University of New York, Oneonta
Married Martin Ulloa Estrada; three children
COMPENSATIONS FOR COMPARISON
A sample of other compensation packages -- salary plus benefits - - at Lehigh Valley nonprofits:
Alliance for Building Communities
Total expenses: $1.5 million
Top executive's compensation: Less than $50,000
Lehigh Valley Habitat for Humanity
Total expenses: $1 million
Top executive's compensation: $56,226
Communities in Schools of the Lehigh Valley
Total expenses: $1.4 million
Top executive's compensation: $86,264
Allentown Economic Development Corp.
Total expenses: $1.6 million
Top executive's compensation: $87,056
VIA of the Lehigh Valley
Total expenses: $6.8 million
Top executive's compensation: $81,025
Historic Bethlehem Partnership
Total expenses: $1.3 million
Top executive's compensation: $63,010
Child Advocacy Center of Lehigh County
Total expenses: $381,544
Top executive's compensation: $59,303
Sing Out Corp.
Total expenses: $306,328
Top executive's compensation: $54,903
Community Action Committee of the Lehigh Valley
Total expenses: $12 million
Top executive's compensation: $96,512
Da Vinci Discovery Center of Science & Technology
Total expenses: $2 million
Top executive's compensation: $112,685
Greater Lehigh Valley Chamber of Commerce
Total expenses: $2.4 million
Top executive's compensation: $175,039

Sources: Organizations' most recent tax filing on GuideStar; numbers based on either 2005 or 2006 filings