Friday, April 15, 2011

Mass. AG Asks for Legislation to Limit NP Board Payments

Yesterday, Massachusetts Attorney General Coakley issued a report pressing for legislation that would allow her to prohibit fees paid to board members of nonprofit health insurers.  The report notes that most nonprofit charities in Massachusetts have volunteer boards, so the industry norm is to have unpaid directors. The report also notes that paying directors creates a potential conflict of interest. Further, the report expresses concern that paying board members further blurs the distinction between nonprofit and for profit health organizations.  

The AG contacted four insurers and gave them a chance to response to the AG's concerns about payments to board members.  Two of the four, Blue Cross Blue Shield of Massachusetts and Fallon Community Health Plan of Worchester, suspended payments to their directors, but Harvard Pilgrim Health Care and Tufts Health Plan did not.  Both say that the payments are justified and are necessary to attract top qualify board members.  They will continue to pay board members amounts ranging from $20,000 to $60,000 with one director receiving more than $80,000 a year.  For a list of compensation paid to directors at these two nonprofits, go here.) 

The AG's report responds to justifications for paying directors sent to the AG by the four health insurers. One of the arguments the AG dismisses is an argument that because the health insurers are organized as 501c)(4)s rather than (c)(3)s, they should be given more leeway in compensating directors.  The AG acknowledges that this distinction (no fundraising) distinguishes them from 501(c)(3) charities, but the AG does not think that has any bearing on the issue of compensation.

The report concludes with statements of the two actions the AG's office will take.  Beginning next year the office will require that every public charity that compensates its independent directors file an annual report, stating the basis and rationale for the practice.  The AG will make public an annual report from its office that will include the statement from the public charity, the director compensation levels, and the AG's evaluation of the charity's report.

The second step the AG will take is to file legislation "to authorize our office to prohibit your organizations from continuing to compensate directors without proper oversight."  Under the legislation, charities that intend to compensate directors must obtain approval from the AG's office in advance, and the AG will grant approval only to those charities that have a clear and convincing rationale for compensating directors.

To read the Boston Globe story, go here.  


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