A national philanthropy watchdog group wants a state investigation into what it describes as "suspicious and potentially illegal" salaries and activities by trustees of the St. Paul-based Otto Bremer Foundation, whose pay rivals that of CEOs at other foundations.

The National Committee for Responsive Philanthropy (NCRP) sent a letter to Minnesota Attorney General Lori Swanson saying three trustees of the foundation violated "many principles of good governance" by removing the executive director and taking control themselves. It pointed to the trustees' decision to increase their own compensation by more than 1,000 percent in a decade.

"I certainly don't think Mr. Bremer would have envisioned this level of compensation," Aaron Dorfman, NCRP executive director, said on Friday.

The foundation declined to make the trustees available for comment, but a spokesman said the compensation was justified by the foundation's unusual position as a bank holding company.

Jon Austin, a media consultant representing the foundation, said the foundation's structure as a bank holding company and investment manager made comparisons with other philanthropic organizations "difficult if not impossible." Trustee salaries have increased to reflect their duties, he said.

The late banker Otto Bremer established the nonprofit charitable trust in 1944, transferring ownership of his bank holdings to the foundation. According to the foundation website, "This farsighted act ensured that a significant portion of the banks' earnings would be reinvested in communities."

Randi Roth, former executive director of the Bremer Foundation

In 2013, the foundation provided approximately $38 million in grants and "program-related investments" to support more than 700 projects "that respond to community interests," Austin said.

The foundation owns 92 percent of the stock of Bremer Financial Corp. and manages a $130 million investment portfolio. The three trustees are full-time employees of the foundation who "directly and actively manage the foundation staff who are accountable to the trustees who are in turn accountable to the regulatory agencies that oversee them," Austin wrote.

Dorfman didn't buy it. "The complicated structure involving the foundation and the bank, and the potential for abuse that comes along with it, makes it even more important that the trustees follow best practices for good governance, and they are now in violation of so many I've lost count," he said.

Executive director ousted

The trustees are drawing attention because they recently ousted executive director Randi Roth, who had been running the foundation. The trustees said they would take over her duties.

Roth didn't return a call seeking comment.

The Washington, D.C.-based philanthropy watchdog called the actions "especially dubious."

"He wants the money to benefit people in the community, not make the trustees rich," Dorfman said of Bremer.

In 2004, all three trustees were paid $41,500. In 2012, trustee Brian Lipschultz, who replaced his father that year, was paid $456,468. Daniel Reardon was paid $453,151. Trustee Charlotte Johnson was paid $284,417. In addition, each of the three earns $90,000 from serving on the board of trustees for the bank, Austin said.

Although there have been "no fundamental changes in how they've operated" since 2004, their salaries were increased to reflect the scope of their duties, Austin said.

According to a recent compensation report for the Mc­Knight Foundation, the average salary for the CEO of a large Minnesota foundation was almost $300,000. The Bremer Foundation is one of the state's largest.

4 percent cap

The compensation appears to fit the rules laid out by Bremer when he created the trust.

He said there would be no more than three trustees and "a trustee, if he claims it, shall receive as compensation for his services in the management of the trust estate [an amount] not to exceed 4 percent of the cash income of the trust." The trustee compensation falls under that cap.

When Bremer founded the trust, however, Dorfman said 4 percent was a smaller sum than it is now. The salaries earned by the trustees reach far beyond the median private foundation trustee compensation of $24,000 recently reported by the Chronicle of Philanthropy, he said.

Swanson's office wouldn't comment on whether she is looking into the arrangement.

Even if Swanson were to investigate, former Attorney General Mike Hatch said the office's powers are limited when it comes to trustees and a private foundation. For a successful legal challenge to trustee compensation, Swanson would have difficulty proving "inurement," which is essentially theft, he said.

Dorfman, however, said there are remedies if Swanson finds abuses even though compensation rules are "fuzzy."

Rochelle Olson • 612-673-1747 @rochelleolson