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Reprise: Compensation for directors of non-profits

Posted Sep 02 2009 5:40pm
Some time back, I raised the issue of compensation for members of non-profit boards, particularly those of insurance companies in Massachusetts, noting:

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?

Apparently, people with lots more statutory authority than I have had similar questions. Our Attorney General, Martha Coakley, has issued an announcement through her Division Chief David Spackman that she intends to have her Non-Profit Organizations/Public Charities Division investigate this practice, noting:

In the area of director compensation, we will address the unusual practice of compensating otherwise independent directors at four of our eight charitable health care insurers. The basis for compensation has not, to the Division's knowledge, ever been clearly articulated to the public and we are asking each of the current boards to take a fresh look at the practice. If the practice is to continue at any of them, it should do so only on the basis of a sound and well considered foundation, for which the benefits and risks have been fully explored and appropriately considered, and in a manner in which the independence of the board has beenpreserved.

The announcement also suggests a more thorough and contemporaneous review of insurance company and hospital executive compensation, also a welcome step. As I would expect, the Attorney General takes a measured and thoughtful approach to the issue, but she also reminds us of the overall context and the need to be especially diligent:

Today's announcement should not be construed as an attempt to substitute the judgmentof the Division for that of committed, knowledgeable and diligent boards. The most expensivemistake an organization can make is to place the wrong person at the helm or the wrong peoplein the board room. The charitable sector needs to compete for executive talent with the for profitsector in an employment marketplace often insensitive to tax or charitable status. Our mosteffective managers will be and should be fairly compensated and we acknowledge that the resultsof the most perfect of compensation systems will be found offensive by some. Members of ourcharitable boards should be talented, qualified and experienced. Nevertheless, unless thisDivision and our charitable boards address these issues head on, particularly given recenteconomic trends and the serious crisis in health care costs, the discretion now vested in ourboards is more and more likely to be subjected to far more dramatic externally imposed limitsand controls.
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