The United Way of Compensating Executives

On February 27, 1992 William Aramony’s tenure as president of United Way of America (UWA) came to an abrupt alt. In response to growing dissension at local United Way chapters across the country, coupled with donor a media calls for his withdrawal. Aramony resigned form his position as head of the largest charity organization in the United States.

The media attention to which Aramony referred consisted of allegations of misuse of funding and excessive compensation. In addition to a $463,000 annual compensation package and a $4.4 million retirement package, Aramony allegedly enjoyed a fist class only travel budget and annually spent about $40,000 for trans-Atlantic Concorde flights and nearly $100,000 for limousine services.

Many people balked at these numbers and questioned how an executive of a non-profit charity organization could possibly rationalize such ‘outrageous’ expenses and compensation. We are hearing from people that they’re concerned that any money they are giving to charity is being wasted, noted Geoffery Edwards president of the United Way of the National Capital Area. They were really concerned that we might suffer from the adverse publicity.

Although preliminary investigations during December 1991 did not find any wrong doing by Aramony, he nevertheless submitted his resignation He left in an attempt to minimize negative fallout on the organization. Many people such as Walter Annenburg, who donated $450,000 to he United Way in 1991, believed that Aramony had to leave to prevent negative repercussions or the UWA organization and its affiliates. It’s definitely the right thing to do given the circumstances, pressure and questions that United Way has to deal with. People will remember these charges for several years down the road.

UWA definitely felt the blow of the Aaramony scandal. This kind of stuff leaves you grief stricken. It doesn’t just affect the United Way of America it affects local United Ways, it could affect local senior citizen and day care centers. It affects every single one who is involved in the charitable field in this country. We are all diminished and the public trust has been diminished. During 1992, contributions to United Way chapters dropped for the first time since 1946. It was estimated that the United way network as a whole raised $66 million dollars less in pledges in 1992 that it did in 1991 – a 2.5% decline. The scandal has tarred and feathered the United Way’s motherhood-and-apple pie image. For the first time UWA was under scrutiny.

Recovering from the scandal presented an imposing challenge for the company, but one that the organization faced head on. In response to public concern the UWA conducted an investigation and published a report that detailed numerous financial abuses by its management during the prior five years. In addition, UWA board suspended Aramony’s $4.4 million retirement package. Aramony appeared on ABC’s Nightline and attempted to speak up on his own behalf. During his tenure he increased UWA fundraising to $3.1 billion and established a powerful marketing alliance with the National Football League through which the UWA received millions of dollars worth of free advertising. But in the end, even Aramony realized he had made at least one mistake. He did not pay enough attention to detail or to the way some of his actions and his personnel styles could have been perceived by certain people.

Since the Aramony experience, many changes have taken place at UWA. Managers are now held responsible for their budgets and are monitored monthly by senior vice-presidents. Coach travel is mandated for all business trips (including the president’s), and a daily meal allowance has been set. Perhaps most important, individuals can now pledge directly to the charity of their choice through the UWA. It’s going to be a rough couple of years stated UWA President Elaine L Chao, shortly after taking control of the organization. The old way of doing things has got to change – the old boy network and the whole culture.

What happened at UWA reflects concern that has affected corporate America as a whole and not just non-profit organizations. The UWA experience serves as a lesson for all companies, as the 1990s bear witness to a general public outcry against lavish executive compensation packages. While any people argue that executives must receive compensation commensurate with the responsibility they carry, contend that discretion must still be used. As Aramony learned, perceptions are extremely important.