Nonprofit boards continue to seek fresh strategies to recruit and enhance the alignment of their board members with the strategic imperatives of their organizations. Recruiting and retaining experienced board members is becoming more difficult. Challenges include:
- Substantial time required for board and committee meetings, as well as for a mix of community and fund-raising events
- Growing complexity of information to be mastered for board decision-making
- Uncertainty about the scope of board member liability in an era of risk-based contracting, growing physician and executive compensation, and expanded regulatory oversight of patient quality and safety
- Poorly run meetings
- Members who come underprepared for the complexities of board and committee work
- Reliance on a growing number of older members as it becomes more difficult to attract younger leaders engaged in establishing families and careers
- New complexities around building and governing community health partnerships with unfamiliar population segments and community organizations
Nonprofit board compensation remains flat
For the past 20 years, hospitals have debated board member compensation as a variable to help attract, motivate and align the work of their governing body participants. Board compensation remains, however, an imperfect strategy.
A 2017 survey by The Governance Institute identified the following trends in board compensation:
- Twelve percent of respondents reported that their board chair receives compensation (up one percentage point from 2015), and 62 percent of these identified compensation at less than $5,000. That level has remained constant as measured in a 2015 survey.
- Eleven percent of responding hospitals compensate board officers besides the chair, and 8 percent compensate board committee chairs. However, the vast majority of hospitals responding compensate these positions at less than $5,000.
- Eleven percent of respondents reported that non-officer board members receive compensation, a rate that has held steady since 2015. Sixty-three percent of these reported compensation at less than $5,000—a level again unchanged since 2015.
- The percentage of hospital systems that compensate non-officer board members dropped significantly—9 percent in 2017 compared with 18 percent in 2015. However, fewer of the largest systems—those with more than 2,000 beds—responded to the 2017 survey.
- Government-sponsored hospitals are more likely to compensate board members than other types of organizations.
While the Internal Revenue Service does not prohibit modest compensation for board members of nonprofit, tax-exempt organizations, US culture tends to keep such compensation modest and the growth trend slow. An exception occurs in the growing number of large, multi-state, billion dollar health systems. Such larger systems may compensate board chairs at $50,000, committee chairs at $25,000, and other members from $10,000 to $15,000 per year.
Non-financial perks offer flexible board compensation alternatives
Financial compensation is not the only way to recognize the time and expertise that superior governance work demands. Other ways to recognize board members include:
- Paid travel to educational conferences and retreats at comfortable venues
- Discounted and preferential access to health care and wellness services
- Use of high-end computers, tablets and smart phones linked to board portals
- Subsidized publications and subscriptions regarding health sector trends, policy changes, and service enhancements
- Donations in board members’ names to their designated charities
The growing interest in such board compensation considerations leads Gallagher governance consultants to work with GuideStar/Candid, a database about nonprofit organizations, to study patterns in board member compensation across a number of nonprofit health-related organizations in 2020.
As you examine your board’s compensation policies, you may want to conduct a comparative review of your organization with other nonprofits in the region. At the same time, savvy organizations will document the reasonableness of their compensation arrangements while reporting those arrangements in IRS 990 forms. Prepared statements explaining board compensation policy and practices for use with staff, physicians, donors, media and the general public represent a wise measure as well.
For more information about board compensation analysis and strategies, contact James Rice, practice leader for Gallagher’s Governance and Leadership consulting team, Jim_Rice@ajg.com.
The Governance Institute, The Governance Evolution: Meeting New Industry Demand, 2017 Biennial Survey of Hospitals and Healthcare Systems, page 26.