St. Charles Health System continues to dedicate hundreds of thousands of dollars from its annual budget toward compensation for its board members, even as staff and administrators weather layoffs and pay cuts.

It’s an unusual practice for a nonprofit health system, and the amount St. Charles pays its directors — they each made between $20,000 and $36,000 last year — also places it in the minority among its peers, according to a new survey on board member pay. Nationally, 9 percent of nonprofit health systems pay their board members, according to the Governance Institute’s most recent biennial survey, which will be released publicly later this month. Among those that do, most pay less than $5,000 per year.

Over the years, the proportion of nonprofit health systems that pay their directors has not increased, said Kathryn Peisert, managing editor of the Governance Institute, a membership organization that provides research and other education for nonprofit hospitals and health systems.

“Everybody hopes and thinks that this is going to be a trend that’s increasing, and that’s not what we’re seeing,” she said.

St. Charles’ directors, however, did agree to take 10 percent cuts to their stipends, effective last month and continuing into next year. The health system in October announced it was cutting 30 jobs and temporarily lowering pay for salaried workers by 5 percent and for salaried executives by 10 percent.

“If we’re the board of directors, we should be leading,” said Dennis Dempsey, the board’s vice chairman. “It shouldn’t just be the executive team or the staff that’s making reductions to things.”

While the collective $293,000 directors made last year is a small piece of the health system’s $734 million in expenses, paying directors of tax-exempt organizations remains a controversial practice. Some argue the work should be done on a volunteer basis as a way to serve one’s community. Increasingly, though, some in the medical community argue paying directors is necessary to ensure the board has the right mix of expertise, especially as health care becomes increasingly complex.

Each St. Charles director receives a $20,000 base stipend, said Tom Sayeg, chairman of the board’s compensation committee. The board chairman, Dan Schuette, receives an additional $10,000. Committee chairs receive another $5,000 per committee.

Schuette, a local investment adviser, was the top paid director last year at $36,000, according to St. Charles’ most recent Internal Revenue Service tax form 990. Dempsey, who serves as the University of Oregon’s Central Oregon Educational Leadership Supervisor, received $31,000 for his board work last year, as did Dr. Steve Gordon, who is also the national health care principal at Point B Consulting.

Only about 2 percent of nonprofit health systems pay their directors $20,000 or more, according to the Governance Institute’s survey. No survey respondents said they pay $30,000 or more.

St. Charles has paid its directors since 2011. At first, the goal was to attract more physicians to the board and to ensure they stuck around, Dempsey said. Not all directors accepted compensation, however. In 2013, the board voted to make all directors accept compensation.

When Dempsey joined the board in 2001, St. Charles had only one hospital. The board met one day every month. There were no committees.

Since, the Bend-based hospital system has grown to encompass hospitals in Redmond, Madras and Prineville.

“Now, as we’ve gone from one to two to three to four hospitals … the role has changed, and the expectation of what the board is supposed to do, I can personally tell you, has changed dramatically,” he said.

Serving as a director is complicated work, and Sayeg said the board constantly assesses its directors on their attendance and continued education.

“To the extent that individuals don’t perform, they will not be on the board,” he said.

Last year, each director spent 10 hours per week on board duties, according to St. Charles’ tax form.

Dempsey and Sayeg said paying directors has helped St. Charles attract and maintain people with expertise that’s crucial to the health system.

One of those people is Dr. Hartwell Lin, regional director for CEP America’s East Bay Region and an emergency physician for the John Muir Medical Center in Concord, California.

Lin can tell the board what worked or didn’t work for his health system, and cautions against certain decisions, Dempsey said.

Other board members bring significant financial experience, such as Doug Downer, money manager at Sundowner Capital Management in Bend.

Jack Caynon recalls the question of director compensation coming up when he served as general counsel for Salem Hospital. He asked a high-profile community member who sat on a number of for-profit boards whether he would consider sitting on the hospital board without pay. For-profit companies typically pay their board members.

“He said, ‘No, because I make money serving on these other for-profit boards,’” said Caynon, special counsel for the law firm Sussman Shank in Portland. “‘So with my time in my job, as well as doing these board positions, it just doesn’t make sense for me to take a position on a not-for-profit board and not getting paid anything.’”

With that in mind, some nonprofit health systems have taken the position that they need to treat their boards the way for-profit companies do, Caynon said.

“If we want to get the best people, we need to pay them,” Caynon said. “That is kind of their view.”

Nonprofits have to be careful when it comes to board member compensation, however, cautioned Peisert, of the Governance Institute. If it’s perceived to be too much, it could potentially raise red flags at the state or federal levels. In her view, board member pay is not always a necessity.

“I think there are still plenty of folks out there who are willing to volunteer their time to put towards a good cause, and serving on a health care board is one of the best causes out there,” Peisert said.

The Oregon Department of Justice has not looked into hospital board member compensation, according to an email from the department’s spokeswoman. Such scrutiny would more likely come from the IRS, Caynon said.

Dempsey said he thinks whether or not board members are paid is “irrelevant.”

“It’s kind of a personal thing, when you live here,” he said. “Your kids, your grandkids, your family members, your next-door neighbors have to use this place. You want it to be the best it can possibly be.”

— Reporter: 541-383-0304, tbannow@bendbulletin.com

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