The Great Pay Debate: Should Nonprofit Hospital Board Members Receive Compensation?

What's the difference between a nonprofit hospital board member and a nonprofit hospital board member who gets paid?

Ideally, not a whole lot. Both are business and/or community leaders lending their expertise to a healthcare organization with the aim of improving care. Yet, in recent years, there has been a slight uptick in compensation for these board members. In 2009, 10.2 percent of nonprofit hospitals and health systems reported compensating all or some of their board members, according to Governing the Value Journey: A Profile of Structure, Culture, and Practices of Boards in Transition, The Governance Institute's 2013 Biennial Survey of Hospitals and Healthcare Systems. That percentage increased to 15.5 percent in 2013.

This increase in nonprofit board member compensation is a trend experts expect will continue to grow, albeit at a less-than-hurried pace. The decision to compensate board members is not a one-size-fits-all model, but there are certain considerations to address in determining the best practice for each organization.

Bidding for top talent
Given that boards oversee essentially all operations of an organization, offering compensation for nonprofit hospital board members may be a tactical strategy to attract top talent. Jim Gauss, chairman of board services at executive search firm Witt/Kieffer, says a desire to select the best board members may be contributing to the incremental increase in compensation.

"Boards that we're working with are becoming more diligent about the specific skill sets they're seeking on their boards, whether that be, for example, someone with a clinical background, an IT background or a particular expertise in finance," Mr. Gauss says. "As an outgrowth of the skill set review boards are doing and recruiting those kinds of people, they're slowly coming to the conclusion that to compete for these kinds of people, they need to address the compensation issue."

Such talent may already be serving on other boards or working on other projects, and many are already gainfully employed, so CEOs and board chairs now have to discuss ways to attract and recruit these experts, and compensation may be one way of doing so, Mr. Gauss says.

Ron Seifert, vice president and executive compensation expert with Hay Group, a global management consulting firm, agrees, suggesting the debate about compensating boards follows a long discussion of competencies and candidate pool, though he adds there are a number of tactics for recruiting top talent to a hospital board outside of compensation. "Organizations need to be asking themselves how do they connect with those folks, get their attention and have them vested in the success of the organization. That's the kernel of the issue. Then you may be talking about money. You may be talking about other modes of connectivity. It could be anything."

Who's paying?
Attracting top talent is less of an issue for some types of hospitals than others. Some may not need to offer compensation, and some may not be able to afford compensation.

Mark Madden, senior vice president of executive search at B. E. Smith, a healthcare executive search firm, says community hospitals and hospital districts with strong community connections may find less sway in offering compensation. Local community business people bring the desired level of expertise to the board and have a "vested interest" in working with the health needs of the community, as it may pave the way for further business development.

Conversely, Mr. Gauss says medium- to large-sized regional and national health systems may be more likely to pay their board members based on the heightened time requirement and extra preparation for board meetings, such as reviewing documents and finances and preparing agendas. Furthermore, these larger health systems also tend to be more desirous of the specific skill sets and look to draw talent from outside their communities, he adds.

"Just because you can doesn't mean you should, and just because you should doesn't mean you can," Mr. Seifert says.

Covering the basics
In the cases where compensation is a consideration, the question begs: How much?

As is customary for most boards, members are generally reimbursed or compensated for costs associated with board requirements, such as travel and conference costs. For boards providing additional compensation, though, the dollar amount is widely varied.

B. E. Smith COO Tim Morgan says he generally sees compensation confined to less than $5,000. The aforementioned Government Institute survey also found 67.6 percent of respondents who compensated their boards capped pay at the same amount.

However, some reports indicate board members are sometimes paid in the tens of thousands of dollars range, such as Bend, Ore.-based St. Charles Health System, which reportedly paid board director Dennis Dempsey $27,500 in 2012, according to the health system's 2012 Form 990. St. Charles started paying board members in 2011, and, interestingly, Mr. Dempsey's weekly hours spent on board activities doubled from five to 10 after he started receiving pay, as indicated by the 2011 and 2012 Forms 990. The same went for a handful of other board members. Whether hours worked and compensation are correlated, it's difficult to say, but it reflects expert consensus that hospital boards are under increasingly higher demands in terms of time commitment, expertise and responsibilities, and reimbursement may be a way to acknowledge that.

The board member/hospital relationship
Also worthy of considering in the nonprofit hospital board member discussion is the fiduciary nature of a board member's relationship with an organization. By definition of a fiduciary agreement, the board member is responsible for fulfilling his or her duties for the betterment of the organization, without regard for his or her needs. Compensation may create, or appear to create, a symbiotic relationship instead of one of commensalism.

In a similar vein, public perception of the hospital board may be tainted with the prospect of money, as the public may question the motives of board members upon learning they are being paid. Mr. Seifert of Hay Group says while compensating board members "is likely to raise an eyebrow in any community," it shouldn't dictate whether or not hospitals decide to pay board members.

Mr. Gauss of Witt/Kiefer says a number of board members will turn around and donate whatever compensation they receive directly back to the hospital foundation, demonstrating not only a commitment to the hospital, but also indicating that they aren't doing what they do just for the money.

Great expectations
Communities, patients and hospitals expect a great deal from their boards, as they should, and compensation shouldn't necessarily change what is expected of board members who are paid. As it is, many boards are currently functioning at a high level without receiving compensation, Mr. Gauss says. In terms of future expectations, "I would not say pay in and of itself is going to require people to spend more time on board businesses. The fact of the matter is boards are going to have to spend more time on board business than they have in the past anyway. I just call it a useful tool," he says.

And compensation isn't the end-all, be-all of the conversation. The issue boils down to how hospitals can assemble the highest quality board to ensure the best care for their patients and communities, and B. E. Smith's Mr. Madden doesn't see compensation at the crux of the issue.

"If there would have been a discovery at some point saying compensation would influence the strength and quality of the board, it would have gone up substantially, and we would see more hospitals and health systems compensating board members," he says. "When you sit in front of many boards like we do and observe the overall commitment they have with the organizations, it has nothing to do with the money at all."

More Articles on Board Compensation:

10 Latest Stories on Healthcare Executive Compensation
Hospital System Board Compensation and Expenses: 15 Statistics
Is it Time to Pay Hospital Board Members?


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