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Health board pay ban could affect charities

Some offer directors as much as insurers

New Bedford Senator Mark Montigny said people who serve on nonprofit boards should not collect paychecks. New Bedford Senator Mark Montigny said people who serve on nonprofit boards should not collect paychecks.
By Todd Wallack
Globe Staff / June 10, 2011

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Legislation aimed at preventing Massachusetts nonprofit health insurers from paying their board members could also end compensation for directors at other major charitable organizations.

At least eight of the 50 largest nonprofit foundations in Massachusetts compensate their directors, in some cases as much or more than health insurers, according to a Globe review of annual filings with the Internal Revenue Service.

For instance, the George I. Alden Trust, a 99-year-old private foundation in Worcester, pays each of its four directors $130,000 a year. The Ellison Foundation in Lynn paid trustees up to $100,000 each in 2009, the most recent year for which information is available. And board members at the Amelia Peabody Charitable Fund in Boston receive annual payments of $80,000.

Under the proposed law, the charities, which support programs and services from the arts to education to the environment, would need permission from the attorney general to keep compensating board members.

Senator Mark Montigny, the New Bedford Democrat who sponsored the legisla tion, said people who serve on nonprofit boards should not collect paychecks. The money would be better spent supporting the organizations’ charitable missions, he said.

“I think the game is over for a lot of these folks,’’ Montigny said. “Unless there is an extraordinary case, we need to look at completely stopping paying volunteer board members.’’

The issue of paying nonprofit board members came to the forefront in March after the state’s largest health insurer, Blue Cross Blue Shield of Massachusetts, disclosed that it gave former chief executive Cleve L. Killingsworth an $11 million payout. The Blue Cross board members who approved the package earned annual salaries that ranged from $56,200 to $84,463.

Attorney General Martha Coakley’s office said health insurers were not justified in paying directors because they do about the same amount of work as volunteer board members at other nonprofits.

“We’re concerned where board members of any charity are paid, including foundations,’’ said Brad Puffer, a Coakley spokesman.

Following a public uproar over the health insurers’ board compensation, Blue Cross and Fallon Community Health Plan suspended the payments. Harvard Pilgrim Health Care, and Tufts Health Plan — the state’s other two major insurers — said they will continue to pay directors.

Two weeks ago, the state Senate approved a budget amendment that would bar all charitable organizations — not just health insurers — from paying directors without state approval. The Senate amendment has not faced significant opposition, but lawmakers still must reconcile the Senate bill with a House version in coming weeks. It could be modified or cut from the budget.

More than 22,000 charities are registered with the state attorney general’s office, but Guidestar USA, which provides information about nonprofits nationwide, estimated that only 3 percent of the organizations pay some or all board members.

Several nonprofits said they are not fighting the proposal to give the state more oversight of board pay.

“This is an issue that is not on the top of the minds of our membership,’’ said David Shapiro, board chairman of the Massachusetts Nonprofit Network, which represents nonprofits statewide. “It’s relevant to only a tiny percentage of the sector.’’

The Independent Sector, a group that represents a broad array of nonprofits, has already concluded that directors should only be paid under exceptional circumstances.

“I don’t believe nonprofits or public charities need to pay large amounts of money to attract board members,’’ said Diana Aviv, chief executive of the Washington, D.C.-based organization.

But some Massachusetts groups defended the practice, saying their boards do important, time-consuming work that warrants compensation.

The Yawkey Foundation II, which paid seven board members between $16,750 and $42,750 in 2009, the latest year for which figures are available, said that without the help of its directors, the Boston foundation’s small staff would be overwhelmed by the hundreds of grant requests it receives each year. In addition, it said, directors are responsible for overseeing the foundation’s $445 million in assets.

“Given the fact that many charitable trusts like the Yawkey Foundation reimburse trustees for their time, expertise, and services, we believe our policy is both fair and appropriate,’’ the organization said in a statement. The foundation said it is monitoring Montigny’s legislation, but has not decided how to respond.

Other local foundations that pay their directors include the Amelia Peabody Foundation, Alden Trust, the Hyams Foundation, the Cedar Tree Foundation, and the Stephen Phillips Memorial Charitable Trust.

In some cases, paid board members have ties to the charity’s original benefactors. The two Yawkey foundations, founded by late Red Sox owner Thomas Yawkey and his wife, Jean, are chaired by former Sox chief executive John Harrington. Another paid board member, Eleanor Armstrong, is a family friend.

But many paid charity board members have no such connections. For example, trustees of the Alden Trust were appointed long after George Alden’s death in 1926 and have no direct ties to his family.

The Alden Trust, which makes grants mainly to small colleges in the Northeast, pays its four trustees $130,000 a year each, based on a sliding scale tied to the organization’s assets. Board member Jim Collins said the trust has no full-time paid staff, which means trustees largely manage the $173 million investment fund and review all grants themselves. “We are very comfortable with our operating style,’’ Collins said. “We know that we spend less than a lot of other organizations as a percentage of our assets by virtue of having no full-time staff.’’

Collins, who also is a vice president of administration at Clark University in Worcester, said trustees generally meet 16 hours a week at Alden’s offices in Worcester, and also make visits to colleges and other organizations. The trust has no plans to speak with lawmakers about the budget proposal, he said.

The Amelia Peabody Charitable Fund, which supports New England nonprofits working on issues ranging from the arts to land conservation, says it pays each of its three trustees $80,000 a year. “We believe that this fee is reasonable and fair for the many services rendered to the fund,’’ said Robert G. Bannish, a trustee who also runs a Boston trust management firm.

Bannish said trustee salaries — which were reduced from $124,000 a year after a Globe Spotlight series in 2003 found two foundations funded by the Amelia Peabody fortune diverted millions of dollars to trustees over the years — are regularly reviewed by the group’s outside counsel. The current trustees weren’t on the board when the series was published.

Bannish said he was puzzled by the need for the legislation, since charities already report board compensation to the government. “It’s all public information,’’ he said. “If there are abuses, they can go after them.’’

The fund’s two other current trustees are Katherine L. Babson Jr., senior counsel for Nixon Peabody and chairwoman of Wellesley’s Board of Selectmen, and Caleb Loring III, a descendant of Lowell industrialist Frederick Ayer who helps manage the family fortune.

Some charities have decided on their own to stop paying board members. One, the John Merck Fund in Boston, ended its compensation last year. The foundation primarily awards grants related to the environment and children with developmental disabilities.

“Both family and nonfamily members of the board really wanted as much of our assets to go to charitable purposes as possible,’’ said Ruth Hennig, the foundation’s executive director.

Todd Wallack can be reached at twallack@globe.com.