See How Nonprofit Hospital Boards Should Handle Compensation

How to Handle Nonprofit Hospital Board Compensation

Hospital board directors and trustees have historically served their duties without compensation. Recently, a few of the larger consolidated hospitals have broken the mold and started offering compensation to their board directors. The movement toward compensating hospital board directors is starting a national conversation about whether board directors should serve out of a sense of community spirit without pay, or whether compensation will help to attract competent and qualified directors who can truly work toward the hospital’s and the community’s best interests.

Hospital boards are feeling some of the same pressures from regulatory authorities as corporate and nonprofit boards. The increased level of responsibility and liability exposure is creating competition for the highest-quality board members. The trend toward compensating hospital board members is beginning now, causing some to wonder how long it will be before we can expect the trend to become a national standard.

The Current Landscape of Pay for Hospital Board Members

In the early 2000s, Allina was one of the first hospital boards to break the mold and start paying board directors compensation for their service. They cited the complexity of running a large hospital program and the challenging times in healthcare as the reasons for needing top board talent. They felt that it was only fair to compensate board members for their time and expertise.

While Allina is not alone in compensating hospital board directors, it is still in the minority. According to an analysis by Modern Healthcare, only 7% of hospitals paid their board directors in 2013 and 2014.

Larger hospitals and conglomerates are starting to acknowledge that they operate much like publicly traded companies in some respects. They also acknowledge that the local pool of talent for board nominations doesn’t always fit the bill for their needs, and technology makes it easier to attract quality board members from outside of the area. In addition to compensating board directors for their expenses, hospital leadership is leaning toward starting to acknowledge that a little pay goes a long way in securing the best experts.

Smaller community hospitals attract their board members through area business owners that have expertise in finance, law, health, medicine, education and religion. Most serve on hospital boards gratis as a service to their communities. Typically, area business people are already affluent and would rather use any excess funds to improve the community’s health.

Paying Hospital Board Members Is Controversial for Some

Large numbers of people oppose paying hospital board members for their service beyond reimbursing them for board-related expenses. Community members, hospital employers, physicians and patients are hospitals’ primary stakeholders. Many feel that since hospitals don’t pay taxes or have shareholders, extra monies should go directly back into the hospital to enhance medical care.

In many communities, affluent people serve on the board. They donate heavily and encourage their wealthy friends and business associates to do the same.  Hospitals that receive checks with many digits from people in wealthy donors’ personal and professional networks appreciate having notable names on their boards of directors. To avoid controversy, many wealthy board members donate their pay back to the hospital.

How Much Do Hospital Board Trustees Get?

There’s no standard or average for how much hospitals are paying their board members. Allina pays their board members between $10,000 and $19,000 per year to perform their duties, which is intended to be a small token for their time and travel. Large corporations like the hospital network of Kaiser Permanente pay their non-employee board directors upwards of $200,000 per year for their expertise.

Hospital Board Duties and Responsibilities Remain the Same Regardless of Pay

Compensation for board service may lead some people to believe that paid hospital board members have greater responsibilities than non-paid board members, which is not true. All board members, paid or not, are responsible for strategic planning and organizational oversight. They must uphold their fiduciary duties, including duty of care, duty of obedience and duty of loyalty. Hospital board directors must know how to read financial reports and stay informed about trends in hospital policy, cybersecurity and medical care advancements.

As a whole, board directors work collaboratively toward planning for quality management and long-term financial sustainability. They must also address any critical concerns that affect the hospital and staff, especially with regard to hospital safety.

Cybersecurity is a big issue that affects hospitals. Top talent in technological fields is becoming more difficult to attract due to heavy competition for their expertise. As technology becomes more complex, it may become impossible to find board nominees with expertise in technology without agreeing to pay them.

Factors That Impact Compensation

FierceHealthcare, a hospital industry analyst, suggests that hospitals will continue to have their eyes on the trend toward compensating hospital board directors. Each hospital needs to look at their individual structures to see if or when it makes sense to start compensating board directors. As an industry expert, FierceHealthcare cites five factors for hospital boards to consider when questioning their move to compensate board members:

  1. Recruit the top talent. Be diligent about attracting and recruiting top talent in all pertinent areas of expertise.
  2. Consider the size of the organization. Pull talent and expertise from within smaller communities and assess their willingness to serve without compensation. Larger communities may decide to offer compensation based on extreme commitment.
  3. Determine compensation amounts. Lower compensation typically stays under $5,000 per year. Mid-range compensation runs between $10,000 and $19,000 per year. High compensation starts at around $20,000 and can run into the six figures.
  4. Public perception of the board. The public may question the actions and decisions of paid board members, which could affect a hospital’s reputation.
  5. Increasing responsibilities of board members. Regulatory concerns are placing heavy pressure on corporations of all kinds, including hospitals. All communities may not have the necessary level of expertise within their geographical boundaries. Compensation could make a difference between willing board members and needed board members.

Balancing Quality of Health Care and Increased Demands on Board Directors

The issue of compensating board members in exchange for their time and expertise is just one of many issues that hospitals face. Hospitals in every size community face the challenges of how to construct diverse boards with the necessary expertise to cover all of their operations. If the trend continues, someday all hospital boards will pay their board directors at least a small amount of compensation. It’s a small price to pay for the highest quality of care for patients and communities.