How Hershey charity director fees rose to half a million

When Leroy S. Zimmerman was named in late 2002 to the board of the small state-chartered Pennsylvania bank that managed the assets of the Hershey charity for disadvantaged youth, the post paid about $35,000 a year and came with restrictions.

Governance reforms to take effect the next year would limit Zimmerman, a former attorney general and powerful Republican, to only that one fee-paying board in the Hershey charitable realm. But this would change. In June 2003, Mike Fisher, then the attorney general, ended the one-board limit.

Within four years, Zimmerman had added two additional fee-paying Hershey boards to his portfolio of responsibilities and his compensation soared into the hundreds of thousands of dollars.

For the tax year that ended July 31, 2010, Zimmerman, 76, earned $500,000 - for the second consecutive year. His total compensation on Hershey-related boards in less than a decade is $1.9 million.

Zimmerman's latest compensation was disclosed last month in an IRS 990 document and comes as the Office of Attorney General continues to investigate the charity for its 2006 purchase of a golf course, the details of which were reported by The Inquirer last October.

The IRS records, along with court documents filed in Dauphin County in early 2011, show how Zimmerman's Hershey-related directors fees, modest in 2003 and 2004, grew to lucrative by 2008.

Zimmerman's overall influence in Hershey matters expanded with his board directorships and his compensation. He is chairman of the board of the Hershey Trust Co. and the only person seated on all four Hershey boards, one of which, the one overseeing the Hershey School, is unpaid.

Zimmerman's tenure is marked by a $70 million renovation and expansion of the Hershey Hotel and land acquisitions besides the golf course. Some of the decisions have drawn criticism that money was being spent that could have been used to expand the enrollment of the Hershey School.

As the most politically influential person on the Hershey Trust Co. board, Zimmerman was in a position to have himself nominated to the other paying boards.

Zimmerman's compensation was paid by for-profit companies controlled or owned by the Hershey charity - the Hershey Trust Co., the Hershey Entertainment & Resort Co., and the Hershey Co. chocolate giant. The companies fund the highly acclaimed free Hershey School for impoverished children, though only the chocolate company provides substantial profits to help operate the school.

The small trust bank, the Hershey Trust Co., is the trustee of the $7.5 billion philanthropic legacy of Milton and Catherine Hershey and other bank board members also have benefited from Fisher's rule change.

Philadelphia-area investment manager James Nevels, the former chairman of the Philadelphia School Reform Commission, earned $541,519 in the latest tax reporting period as a director on the bank and candy company boards. Nevels is the nonexecutive chairman of the candy company. His total compensation over four years was $1.2 million.

Hershey Trust spokeswoman Connie McNamara said in a written response to questions that Zimmerman's "compensation is based on three distinct boards with separate and distinct responsibilities.. . . It is absolutely false to portray his entire compensation as in service of a charity." She noted that Zimmerman relinquished his seat on the Hershey candy company earlier this year - a role that paid him $205,000 in 2010. That will shrink his compensation to fees from two boards.

The responsibilities of the boards are substantial and McNamara used as an example Zimmerman's position as the chairman of Hershey Entertainment - a company that owns an amusement park, hotels, golf properties, and a professional hockey team.

"The notion of aggregating Mr. Zimmerman's compensation over multiple years is purposefully inflammatory. The rest of the world talks about annual compensation," McNamara said.

Zimmerman's compensation grew at a time that the Hershey School, the charitable legacy of Milton and Catherine Hershey, greatly expanded enrollment. Now at an all-time high of 1,800 students, the institution notes its student body is up about 50 percent during the Zimmerman years. It's "the most dramatic growth spike in the school's history," McNamara said.

"We have managed the Hershey Trust to be a thriving philanthropy that is growing its fulfillment of its mission," Zimmerman told The Inquirer last year.

Then-AG Tom Corbett announced an investigation into the Hershey charity while he was successfully campaigning for governor in October. The focus of the investigation was the charity's 2006 purchase of the Wren Dale Golf Club for $12 million, or two or three times its appraised value. An investor in the money-losing golf course was former Hershey Co. CEO Richard Lenny.

The Office of Attorney General is now led by Linda Kelly, who was appointed by Corbett. The governor is considered close to Zimmerman, the state's first elected attorney general.

"Given our ongoing investigation involving the Hershey Trust, we cannot comment at this time," AG spokesman Nils Frederiksen said last week.

Suzanne Ross McDowell, an attorney with Steptoe & Johnson L.L.P. in Washington and chair of the exempt organization committee of the American Bar Association's Tax Section, said that the IRS and Congress have been concerned about the level of compensation in some charities because "there is a feeling that compensation is creeping up."

"The ultimate question the IRS wants to know is whether the compensation is reasonable," McDowell said. That would be determined, she said, on "what would similarly situated persons earn."

Directors fees to compensate Zimmerman and others are paid by for-profit companies owned or controlled by the charity and those fees are comparable to those of similar companies, the organization stated in its tax document.

The candy company director fees are about $200,000 a year and the fees at the Hershey Entertainment company are about $100,000. On many boards, additional money can be earned for leading a committee or chairing the board.

Court and IRS documents show the trend of director fees at the Hershey Trust Co. have escalated to the current $120,000 from $49,000 in 2003.

A 2006 compensation study for the Hershey Trust Co. by Towers Perrin used a "publicly traded peer group" to compare directors fees. The study looked at the directors fees at 27 companies that included FMC Corp., SEI Investments Co., and Quaker Chemical. The average compensation for the companies in the study was $121,500.

The study separately looked at 17 foundations such as the J. Paul Getty Trust, the Rockefeller Foundation, the Robert Wood Johnson Foundation, and the Pew Charitable Trusts. The average compensation was $25,270. Because the Hershey trustees "have dual responsibilities at the Trust and the Hershey School, their role and time commitment are more comparable to public companies," the study said in its introduction.

McNamara said on Friday the Towers Perrin report was dated.

In late May, the Hershey Trust Co. sold its profit-making private wealth-management operation with about $1 billion to the Bryn Mawr Bank Corp. for $18.5 million. The trust bank is now left with about $7.5 billion in charitable assets for which it is the trustee. There are 11 members, including Zimmerman, on its board.

McNamara said Friday, "The Hershey Trust Co. periodically reviews Board compensation and engages third-party consultants to conduct compensation studies. The sale of the Private Wealth Management Group will be included as a factor in the next Board compensation review."

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