Mass. Foundations Consider Proposed Restriction on Board-Member Pay

As Massachusetts lawmakers near passage of a measure to prohibit nonprofit groups from paying their board members, leaders of both charities and foundations are figuring out how the new restriction would apply to them.

Until recently, grant makers thought they were exempt. However, foundation officials who have been looking at the fine print, say they are paying just as much attention to the legislation as other charitable groups.

The measure arose from a proposal backed by Martha Coakley, the Massachusetts attorney general, that followed a public outcry over five-figure stipends for directors of the state’s four nonprofit health insurers, two of which voluntarily suspended board compensation.

The bill has moved swiftly in recent weeks after it was attached to the state budget bill that passed the Massachusetts Senate last month

Beth Smith, executive director of the Hyams Foundation, said she had been following the attorney general’s report on nonprofit health insurers but did not realize until recently that the proposed law could apply to her foundation as well. The Hyams Foundation paid 10 of its dozen board members a total of $134,125 in 2009.

“A number of our trustees come from the nonprofit sector, including grass-roots groups, and immigrant communities and low-income communities. It might affect our ability to attract some people if they really need to make a tradeoff in terms of their own income and lives.” Ms. Smith said. “If the law passes, the board will have to have an important conversation about it. I’m not sure what the board would decide to do.”

Organizations would be able to apply for an exemption, but those exemptions could be rescinded if the Attorney General’s office thinks the payments are “in excess of that reasonably necessary to accomplish the purposes for which compensation is approved and paid.”

An amendment to the bill also allows the attorney general to review executive compensation at nonprofits for “appropriate compensation levels” and present findings and recommendations in an annual report to the state house.

“We believe that volunteer boards on not-for-profit organizations avoid conflicts of interest and appearance of conflicts of interests, especially around those organizations that deal with health care and rising health care costs,” Ms. Coakley said in April. “We think that those issues should be front and center as those boards seek to accomplish the missions of their organizations.”

“We did not believe in the course of the investigation that there was an adequate response or justification for why those board members [at nonprofit health insurers], as opposed to any others in Massachusetts, should be compensated.”

Another grant maker, the Nellie Mae Education Foundation, has been paying board members since it was founded in 1998. In 2009 the foundation paid 15 directors a total of $327,047. If the law passes, it will seek an exemption from the attorney general’s office to continue to pay it board, said Nicholas C. Donohue, its chief executive.

“We think we get a benefit from some modest payments to people to keep them engaged and get their expertise,” Mr. Donohue said. “We are an education foundation trying to make big changes. And we get a benefit from paying our board.”

The budget bill now awaits a conference committee of the House and Senate, before it heads to Massachusetts Governor Deval Patrick’s desk. It could become law as early as July 1.

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