March 8, 2016; Tampa Bay Times
Yesterday, NPQ published an article entitled “What Drives Executive Compensation?” Today, we are taking a look at the issue of board compensation, wondering how connected the two are and what the correlation may be to the use of external compensation consultants.
Here is a case in point. Tampa General Hospital, which primarily serves a low-income population, has a 15-member board made up of local notables. Many of the board members are quite wealthy, but that didn’t stop them from voting themselves annual compensation ranging from $15,000 to $30,000. The board meets six times and members serve on committees and attend strategic retreats with hospital staff. Reportedly, the change was made after a compensation consultant, there to do a periodic review of salary levels, suggested there was a “small but growing trend” in that direction. We would like to see the research on that.
Board chairman John Brabson, Jr., who recently retired as CEO of Lykes Insurance, put the proposal forward, but neither he nor any other board member made themselves available for comment on the shift.
Hospital spokesman John Dunn said, “The board believes this is a useful tool to have in the future as the hospital world expands and the hospital gets a lot more complex. There may be a time when you have to consider paying board members with different types of expertise.” I am not sure why. Hospitals use the expertise of external people all the time without having them on their central decision-making body. This sounds like the hospital is considering electing a group of paid consultants.
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Chris Thompson, the director of research and evaluation at BoardSource, says that according to its research, the proportion of all trustees who are compensated in the form of honoraria or fees is indeed small, but it has not been seen to have grown over the years. And although some may feel that this might be a solution to board recruitment, in the process, they may be tearing out the heart of board service, which depends upon the willingness of community members to clearly place the community’s best interests above their own by engaging in free service.
The vote here prompted one board member, David A. Straz, Jr., to resign. A prominent local philanthropist who has served on the board for almost 20 years, Straz was the only board member present who logged a “no” vote, and he seems quite clear on his reasons.
“I think it’s a horrible idea,” Straz said. “Tampa General is a very important community asset. Those of us in the community need to donate our services to make those kinds of things better for all of our people in the community.”
In 2011, NPQ covered another case about the pay of board members. This one had a higher profile and concerned an extraordinarily high severance package made to an exiting CEO by a board. Martha Coakley, then the Massachusetts Attorney General, was outraged by the compensation of the trustees in that case, saying, “Voluntary service by board members is the practice at the overwhelming majority of public charities, and for good reason…Compensation of board members raises concerns about maintaining board independence and ensuring the proper use of charitable funds.”
Coakley also expressed concern that paying board members can muddy the fiduciary responsibility of board members to the public by inserting a measure of self-interest into the equation.—Ruth McCambridge