Swallow the money


“Annual income twenty pounds
Annual expenditure nineteen nineteen and six,
Result: happiness
Annual income twenty pounds
Annual expenditure twenty ought and six,
Result: misery”

Mr Micawber
(David Copperfield, Charles Dickens)

If Mr Micawber was ICANN’s bookkeeper, his waistcoat buttons would be popping.

ICANN’s 2014 tax return (IRS form 990) shows a net trading loss. The true picture is somewhat masked by ICANN’s new gTLD cash windfall. In 2013, ICANN turned over $230 million and spent over $120 million, and made a slight profit in 2014. Result: happiness.

But ICANN prudently keeps new gTLD income and expenditure separate from its regular business. If you disregard new gTLD money, ICANN’s income in 2014 was $84 million, expenses $113 million. Result: misery.

Except it’s not misery, because ICANN still has a stack of cash ($340m in current assets) in the bank, and this seems to have loosened its financial stays.

In a recent paper [pdf] for the Global Commission on Internet Governance, I argue that ICANN needs a membership in order to improve its accountability. The paper provides evidence that ICANN’s financial controls are weak. Sadly, the recently published tax form only increased those concerns.

ICANN - income vs expenses

Staff salaries – not your average not for profit

The average pay per staff member at ICANN in 2014 was over $187,000.  Even excluding top executive pay, on average ICANN employees earned $169,000, an increase of $25,000 (10 per cent) per head since 2013. This is against a backdrop of continuing recession in US, and an inflation rate of less than one per cent.

Transparency concerns: gaps in senior team disclosure

ICANN’s tax return discloses the salaries of 34 people, including directors and some executives. US tax authorities require companies to disclose the salaries of directors, officers and key employees. It is surprising not to see some of the CEO’s direct reports in there – such as the Senior Advisors on Governmental Engagement, Strategy, Global Stakeholder Engagement, and the Chief Innovation and Information Officer. No reason is given for these omissions.

Women are short-changed (comparatively)

Analysis of the top executive salaries that are disclosed, reveals a gender gap: ICANN’s top women are paid on average 35 per cent less than their male counterparts. The figures are skewed by the three highest earners (all male), but even excluding the top three, ICANN’s women executives earned on average $17,000 less than their male counterparts.

Salary bills are a risk to long-term viability

Staff salaries are now 55 per cent of turnover (excluding gTLD income) posing potential threats for ICANN’s future financial wellbeing. ICANN’s staff salaries have never been such a high percentage of turnover. It’s true that ICANN has received a huge cash windfall in the form of gTLD applications, but it’s not prudent to increase annual outgoings on the basis of a one-off lump sum. Registrations in the new gTLDs that have launched are not yet generating enough fee income for ICANN to justify permanent increase in expenditure, such as  commitment to staff salaries.

ICANN costsTravel and meetings expenses – through the roof

Another shocker is ICANN’s travel spend, which rose by a staggering 85 per cent in 2014 to $17 million. That’s 20 per cent of ICANN’s income. There is little detail in the tax return as to how the travel spend breaks down. Yes, ICANN relies on community volunteers, and travel support helps recognise this. My paper argues that travel support is an area where strict financial accountability should be observed, as “soft power” derived from such financial support is difficult to quantify.

In 2014, the average cost per ICANN public meeting was $6 million, compared with $3.2 million in 2013.  The community needs to understand how this money was spent, and who the recipients of the extra travel and meeting costs have been.

What do the ratios say?

Financial analysts have a toolkit of ratios which reveal a company’s profitability, capital growth and solvency. While, thanks to its substantial cash reserves, ICANN remains almost rudely solvent, its profitability ratios (excluding new gTLD income and expenses) have declined. Net profit margin, which indicates the effectiveness of its financial controls, has declined from 15 per cent in 2013, to -35 per cent in 2014. Return on capital invested decreased from around 10 per cent for 2009-2011 to -8 per cent in 2014, suggesting poor efficiency in use of capital

ICANN profitabilityWhy ICANN needs a membership

Members of a non-profit exercise important governance functions, which are explored in “Bridging the trust gap”. These include residual financial oversight. Mostly, it’s pretty formulaic. Occasionally, things kick off, like when British Gas shareholders brought a live pig to its Annual General Meeting in a protest against executive pay.

Importantly, membership rights provide the script for company meetings, forcing directors to explain the company’s financial performance to people who have the power to fire them. All this is a valuable check on executive power. A company that’s unable to balance its books, as Mr Micawber knew, is heading for misery. ICANN’s failure to take evasive action, and double digit percentage rises, are warning flags which indicate fragile governance controls. If ICANN is to be ready to cut its umbilical cord with the US Government, it needs to do better.

Emily Taylor serves on the Global Commission on Internet Governance Research Advisory Network.


  • July 9, 2015

    Kevin Murphy

    Interesting stuff. I’d be interested to know how the average staff salaries were calculated. I’ve been unable to replicate the numbers using the last tax return.

  • July 10, 2015

    Emily Taylor

    Thanks Kevin. When calculating the average pay, I tried to resolve any ambiguity in ICANN’s favour, so I assumed that in addition to the 217 ’employees’ stated on the form, there were an another 29 individuals (members of the governing body (16) plus (13) declared to be independent). The basis for adding the 29 is that directors are not strictly speaking employees, and that it’s clear from the form that directors are paid. In this way, there are potentially 246 individuals sharing $46 million, or $187,000 each (rounded down). An alternative reading (harsher to ICANN) is that there are only 217 staff (and that figure includes all members of the governing body) or that there are 233 individuals (217 staff + 16 members of governing body – the 13 ‘independents’ being a subset of the 16). If so, the average salary would be higher.

    • July 10, 2015

      Kevin Murphy

      Got it, thanks.

      I wasn’t sure where you were getting the employee numbers from. By my reading, the 217 seems to be for “calendar year 2013″, whereas the dollar amounts are for its fiscal year 2014, which ends six months later. ICANN budgeting documents show a substantially larger headcount at the end of FY14, closer to 300, which would bring the average salary down.

      I’m no expert in US tax forms, however, so I may be way off the mark.

  • July 11, 2015

    Emily Taylor

    Generally Accepted Accounting Principles (GAAP) require that information is consistent. It would breach the consistency principle to report revenues/expenditure for one period, and staff costs for a different period. I also can’t see any incentive to do so.

    Budgets are budgets. Tax forms carry legal obligations to be accurate, and they deal with historic actuals rather than planned future expenditure.

    In any event, GAAP requires consistency of approach year on year. So, whatever approach is taken on reporting staff numbers, we can say with confidence that it will be the same. Year on year comparison reveals high percentage increases in staff costs.