Is it Time to Pay Hospital Board Members?

Consolidation, healthcare reform and possible talent shortages on the board mean many board members are devoting more time to their meetings, duties and fiduciary responsibilities. Does this mean its time to pay them?

Although board compensation is common in many other industries, very few hospitals and health systems have paid their board members in the past, according to a whitepaper from the Governance Institute and executive search firm Witt/Kieffer.

About 15 percent of nonprofit hospitals and health systems paid their board directors in 2011, up from 10 percent in 2009. Of the 15 percent that said all or some of their board members are compensated, 73 percent said compensation was less than $5,000.

More than 30 percent of respondents said hospitals and health systems would be better able to recruit and retain directors if board members were compensated, but only 15 percent agreed that boards are likely going to have to pay directors in the future, according to the whitepaper.

Organizations pursuing board compensation programs should work closely with legal counsel to ensure the program is compliant and meets the "rebuttable presumption of reasonableness," similar to that of nonprofit executive compensation.

The rebuttable presumption shifts to the Internal Revenue Services' burden of proving that a particular transaction or compensation package with an insider was excessive. If an organization doesn't meet the rebuttable presumption of reasonableness assessment, the board must prove to the IRS, if questioned, that the compensation was reasonable.

Boards pursuing a compensation plan should also:

• Be able to indicate how paying board members will benefit the organization and/or community.
• Determine what is considered "reasonable" compensation and why.
• Use independent experts when determining pay.
• Determine which board member will be compensated — the chair, board of officers or all board members?
• Figure out the compensation structure — whether it's a flat fee, a retainer fee, per diem or a formula for pay — and determine any tax implications.
• Assess the potential impact of compensation on directors' "independence."

Furthermore, hospital or health system CEOs cannot vote on or approve the board compensation plan or monetary amounts, as they are employed and compensated by the board. For formalized feedback, boards can construct a committee made up of people who will not receive or benefit from the proposed compensation. These people can include former board members, public officials and community members who can weigh in on the pay plan in a process that closely resembles the rebuttable presumption process, according to the whitepaper.

More Articles on Hospital Boards:

Study: U.S. Hospital Boards Less Engaged in Quality Than English Counterparts
5 Hospital and Health System CEOs on Board Alignment
Strategic Planning in the C-Suite and Board Room: How Hospital Leaders Can Jointly Develop a Roadmap for Success

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