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Sergei Polevikov's avatar

Why are boards of directors of healthcare nonprofits approving these lavish compensations for their CEOs?

Two main reasons:

1. Boards are in bed with CEOs, merely implementing a "tit for tat" arrangement. To understand this, it's crucial to trace back to how board members were selected in the first place. Typically, this is done by a nominating committee, where the CEO either has a direct vote or direct input. Remember, being a board member of a large healthcare nonprofit is a well-paid position. Thus, the board (specifically, the compensation committee of the board) is merely returning the favor to the CEO by granting this lucrative compensation. This represents a major conflict of interest, and it's perplexing why both the SEC and the IRS remain silent.

2. As I mentioned in the article, the initial compensation award is often a fraction (often 3, 5, or 10 times smaller) of what's reported in Form 990. This discrepancy arises because a significant portion of the executive compensation is deferred compensation. Specifically, phantom stock, which is fake stock whose price almost always increases, is classified as "non-qualified deferred compensation" (NQDC). It's reported on the executives' W-2 report and on Form 990 when they decide to sell the phantom stock to purchase that 11th house or private jet. They can sell whenever they wish, and the nonprofit must immediately come up with the cash, potentially straining the organization. Therefore, what's reported to the IRS as executive compensation is the price (the amount) at which they SELL their stock, not the price at which they RECEIVE the stock, which could be two very different numbers.

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Sergei Polevikov's avatar

Related articles:

1. There are 57 people working at nonprofit organizations in Cleveland who make more than $1 million a year. 56 of them work in healthcare: https://www.cleveland.com/news/2024/01/nonprofit-millionaires-top-57-paid-greater-cleveland-nonprofit-employees-predominately-in-healthcare.html.

2. $1 Million-a-Year charitable hospital executives in Connecticut who may not need holiday gifts: https://healingandstealing.substack.com/p/connecticuts-fortunate-forty.

3. The CEO of Ascension moved over to a hedge fund and is paying himself $12 million a year to manage the investment: https://thehealthcareblog.com/blog/2024/02/05/the-moneys-in-the-wrong-place-how-to-fund-primary-care/.

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