Senate passes rule restricting nonprofit board pay
Massachusetts charities soon may be limited in how they are able to compensate their board members following legislation approved by the state Senate late Thursday.
Senator Mark Montigny, a New Bedford Democrat, said that an amendment attached to the state budget would prohibit public charities from paying their directors without first gaining approval from the state Attorney General’s public charities division. The legislation also would allow the Attorney General's office to override that approval if the compensation were deemed unreasonable.
The amendment was based on legislation filed in April by Montigny and Attorney General Martha Coakley, and included in the Senate's version of the state budget, now heading to conference committee.
Montigny said he included the legislation in the budget bill in hopes that it would gain traction there. He said he has filed similar legislation in the past but believes the current political climate will help lead to its success.
"There has been so much public outrage,'' Montigny said. "For half a decade I've maintained that excessive compensation for executives and pay for board members is unacceptable and a breach of the public trust."
Coakley said that directors' compensation creates, at a minimum, the appearance of a conflict of interest and should be reviewed by state regulators.
“These organizations enjoy significant tax and other benefits due to their charitable status, and this amendment would simply require charities to have a sound justification for why their board members should be paid in contrast to the vast majority of board members that volunteer their services.”
The legislation follows public outrage earlier this year over the disclosure that the board of Blue Cross Blue Shield of Massachusetts, the state's largest nonprofit health insurer, voted to give departing chief executive Cleve L. Killingsworth about $11 million. Board members received five-figure payments annually.
Coakley's office launched an investigation and found no justification for nonprofit health insurers, including Fallon Community Health Plan, Harvard Pilgrim Health Care and Tufts Health Plan, to pay their directors. Since then Blue Cross Blue Shield and Fallon suspended their board compensation.
Coakley said that legislation is needed largely because of Tufts and Harvard Pilgrim's refusal to suspend pay. A Tufts spokeswoman said that the insurance company would not fight the legislation. If it becomes law, she said, Tufts will work with the Attorney General's office to ensure "best practices." Harvard Pilgrim could not be reached for comment.
The Attorney General's investigation found that board members said they merited compensation because their organizations required skilled directors who committed significant time to their duties. But the state office determined that directors did no more work those who serve on volunteer boards and found no justification for pay.
In addition to the legislation, Coakley's office said it would now require all Massachusetts-based public charities that pay their board members to file annual reports describing the "basis and rationale" for the compensation.