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Compensation for directors of non-profits

Posted Oct 21 2008 12:50am
I have been trying to think through an issue, and I am wondering if you can help. Recently, after the state's insurance companies made a required filing with the Insurance Commissioner, I noticed a story by Jeffrey Krasner in the Boston Globe that talked about compensation of Board members at the three major non-profit insurance companies in Massachusetts. It noted:

Blue Cross-Blue Shield's directors are ... paid, unlike those at most nonprofits, earning from $47,400 to $53,900 a year.

At Harvard Pilgrim Health Care, ... [d]irectors earn from about $20,000 to $30,000 a year.

Tufts Health Plan... [d]irectors earn between $11,500 and $29,000.

I think Mr. Krasner is correct that trustees and directors of most non-profits do not get paid, but there are exceptions. I personally serve on the board of one that does pay its directors. This is ISO-New England, the non-profit that supervises transactions within and reliability of the region's electric utility transmission system. ISO recruits board members with strong business background from around the country -- the kind of people who would ordinarily serve on for-profit companies -- and requires them to travel from their home cities at least once a month to Holyoke. Therefore, like the other regional ISOs in the US, it pays board members fees of the sort they might receive on a for-profit board. (Rest assured that I immediately endorse all checks I receive for this service, along with any other fees or honorariums I receive for any other outside activities, to BIDMC.)

I suppose one could make the same argument with regard to compensating board members of the insurance companies. While I do not believe that most of those members travel from outside of the region, they are the caliber of people who could easily have served on for-profit boards, and so there is an opportunity cost for them in the amount of time they devote to these non-profit corporations.

But -- and this is the big "but" -- the people who serve on the BIDMC Board and the boards of the other major hospitals in Boston are also of that caliber, i.e., major business and community leaders who incur an opportunity cost by spending time in service to those non-profits. They are expected to carry out their governance responsibilities with the same standard of care with regard to financial matters, senior executive compensation, audits, and compliance as those serving on insurance company boards, but also with special responsibility for the quality and safety of patient care.

I think we would think it somehow untoward if hospital board members were compensated. Going further, we would certainly be offended to learn that board members of other public charities like religious institutions, colleges and universities, day care centers, or town sports leagues were compensated. And yet, in each case, we expect those board members to meet a high standard of care with regard to their fiduciary responsibilities.

I do not write this to give any sense that I begrudge the insurance company board members their annual retainer and meeting fees, but I wonder how the custom evolved that they should be paid. Has it always been such, or is this a recent development? Is there is anything special expected of them in return for that payment that we do not expect of unpaid board members serving other non-profits? Looking forward, should we extend this compensation practice to other major non-profit organizations that demand a high standard of care from their board members?
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