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ACT Inc. Board, CEO Paid Higher Than Most Nonprofits


The Iowa City-based nonprofit organization that develops ACT college entrance tests pays its board and its top executive more than almost all other nonprofit organizations in the United States.

ACT Inc. pays its 14-member board of directors about $520,000 a year and its chairman and CEO Richard Ferguson a base salary of about $508,000 annually, according to a copyright story in the Des Moines Sunday Register.

Ferguson’s pay exceeds most of his peers who run like-sized for-profit testing or education businesses nationally and nearly all nonprofit executive directors around the country, according to ERI Economic Research Institute, a company that collects national data on for-profit and nonprofit compensation.

Students, school districts, states and other organizations pay more than $1.2 million a year in fees to ACT Inc.

“They don’t have any shareholders,” said Bob Schaeffer, public education director of FairTest, a critic of ACT. “So they have been drawing heavily on the fees students pay for these tests and using them to feather their own nest.”

Ferguson said ACT’s mission has grown significantly in recent years, and the company’s board compensation reflects that.

“We have this extremely engaged and active board,” he said. “That’s not true of most voluntary boards that people sit on.”

Directors were paid $37,000 to $53,000, according to the company’s 2005 tax return, its most recent available filing to the Internal Revenue Service.

“Those numbers are high,” said Bruce Hopkins, a Kansas City-based expert and author of several books on nonprofits. “I have not seen numbers like you are talking about before.”

ACT increased the compensation for its board in 2002, the same year it restructured its board and split the company into two divisions work force development and education.

The ACT board’s role is to optimize the company’s success as standardized testing becomes more widely used.

ACT has been encouraging policymakers to offer its college-entrance exams statewide in recent years, a move that is helping the company gain ground on rival SAT.

With the SAT is required only in the state of Maine, eight states require, or plan to require, the ACT exams for high school students as of this year, and a dozen are considering such a change, ACT officials said.

Ferguson’s base salary surpasses the $450,000 paid to the head of United Way of America, the country’s largest nonprofit in 2006, as well as that of President Bush, who makes a base salary of $400,000.

The average CEO salary for a similar company of the same size is $325,106, according to an analysis by Jim Brennan, a senior analyst at ERI Economic Research Institute.

The salary for the 30-plus-year company veteran is not unprecedented: The CEOs of Berlitz International and the Princeton Review are examples of individuals at similarly sized, for-profit companies elsewhere who earn like compensation, according to Brennan.

“But with numbers like that, they should be straight in the cross hairs of the IRS,” Brennan said. “I would be singling them out.”

Iowa Attorney General Tom Miller said Friday that his office, which has the authority to revoke the nonprofit status of companies, plans to look into the matter.

“We are not familiar with the specifics of ACT Inc.,” Miller said in a prepared statement. “Nevertheless, we are concerned when questions are raised about whether a nonprofit is fulfilling its charitable mission. We will contact ACT, Inc. and consult with the IRS to gather information about whether ACT, Inc. is complying with its obligations as a nonprofit corporation.”

Only three of the top 25 nonprofits in Iowa report compensating their board members. Of those three, none report paying directors as much as ACT, according to Guidestar records.

For example, the Iowa Health System, the state’s largest charitable, tax-exempt organization it includes 11 hospitals and 19,000 employees pays board members about $10,000 annually. The board members are asked to attend board meetings six times a year, as well as various subcommittee meetings.

The College Board, which owns but does not administer or develop the SAT, does not pay its board, although it reports higher revenues than ACT.

But ACT chief Ferguson said his company has few peers in the nonprofit sector. The only one he cited was Educational Testing Service, a tax-exempt company based in New Jersey that specializes in teacher readiness, graduate testing and administers the SAT and other tests.

“We’re in the same ballpark, I’m very sure of that,” said Ferguson.

Educational Testing Service paid its board members more than $576,833 during its fiscal year that ended in June 2005, Guidestar records show. Its CEO was paid $715,865. However, the company had more than four times the annual expenses of ACT, according to 2005 IRS forms.

Experts say IRS rules governing compensation for nonprofits’ boards of directors are much more strict than they were a decade ago. Rules explicitly prohibit excessive payments to those who “exercise substantial influence” over the affairs of a nonprofit and state that the value of any services rendered cannot exceed the value of the services received.

ACT was founded in 1959 by two faculty members at the University of Iowa who wanted to offer an alternative to the SAT, the college aptitude exam offered by the College Board Inc., a New York-based nonprofit.

Today, ACT has 1,400 employees, and has offices in 10 states, the District of Columbia, Australia, Europe and Asia. The company offers more than 100 work force readiness and assessment products. For-profit subsidiaries in its international offices offer proficiency programs for students about to enter English-language colleges and universities.

Ferguson said the company’s expansion stems from a goal of helping educators and employers prepare for 21st-century education and training needs. Board members, he said, are experts in their given areas who take their roles as directors seriously.

Others said the company’s leaders were tired of trailing competitors in what some have estimated to be a $250 billion-a-year industry.

“Quite frankly, I believe the leadership of the company was tired of playing second fiddle,” said FairTest’s Schaeffer. “So it went out and decided to buy itself a national image.”

On the Net: ACT Inc.:

Information from: The Des Moines Register,

The Associated Press

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