Medical scheme trustees cashing in

2012-07-21 08:32

Responsibilities and risks justify massive compensation increases, says chairman

The remuneration of medical scheme trustees has risen sharply, by as much as 50%, in the past financial year.

This includes the biggest open medical scheme in the country, Discovery Health Medical Scheme (DHMS).

The 2011 annual statements of this scheme indicate that its trustees’ remuneration, plus expenses, rose by 49% to R2.3 million.

High trustee compensation was heavily criticised last year.

The trade union representing medical workers, Nehawu, described it as obscene and expressed its shock at the “plundering and self-enrichment” taking place at the schemes.

The Council for Medical Schemes (CMS) is determining guidelines for the compensation of trustees because of incidents of “inappropriate financial incentives”.

The CMS also wants to set out guidelines so that compensation can be compared more easily.

In its annual report last year, the council listed the 10 medical schemes that paid the highest trustee compensation.

Liberty Medical Scheme, which was on top of the list, this year showed a sharp trustee compensation increase of 48%.

Others on the list were Spectramed, Medshield, Fedhealth and Bonitas.

The Government Employees Medical Scheme was also among the 10 schemes with the highest trustee cost and its 2011 annual report indicates its trustee payments increased by 26% for the year.

Stan Eiser, an independent analyst in the medical fund industry with 30 years’ experience, said that he knew of no reason why schemes’ trustee compensation should have risen so sharply.

“They must be asked about it,” he said.

Not all medical schemes capture trustee compensation in the same way, with some including expenses as part of the compensation, others not.

Liberty’s 48% increase, to R5.9 million, includes travel and accommodation expenses.

It also includes a restraint of trade payment of R1.7 million to Advocate Boyce Mkhize, who resigned in May 2011.

The trustee who received the most compensation for the year – of R886 000 – was Liberty’s vice-chairperson, Christine Kinsman.

Chairman Dan Pienaar received R791 000.

Andrew Edwards, the chief executive, said it must be noted that it was very difficult to compare schemes’ trustee compensation as contracts differed.

Liberty has an annual income of R1.7 billion (contributions from members). He said that the scheme could be categorised as a high market value business in a commercial context.

“The compensation of the executive and trustees has a direct link to the responsibilities and functions they perform. If some of the tasks were assigned to the administrator, the trustees would be paid less, but Liberty does not believe this is in the best interests of its members.”

Discovery was not on the list of schemes last year with the highest compensation payments.

The latest report, however, shows that trustee payments have risen sharply. The highest total trustee compensation was shown to be R367 000 (including travel and accommodation).

Advocate Mike van der Nest, the trustees chairman, said the compensation was regularly reviewed.

Independent surveys are used to compare the compensation structures of non-executive directors of large insurance and financial services companies in South Africa.

He said that on the basis of this, and taking into account the King 3 code on corporate governance, the compensation structure was changed in 2011.

Van der Nest said the compensation structure recognised the material responsibilities and risks that trustees continuously carried, not just during meetings.

“The DHMS council comprises individuals with remarkable skills and expertise, which is extremely important for overseeing an entity with an annual contribution income of R35 billion,” he said.

Another medical scheme falling under the big 10 of open medical schemes is Momentum Health. Its trustee costs rose by 0.9% to R1.6 million.

Medihelp, also one of the big open medical funds, saw trustee compensation (excluding travel and accommodation) rise by 50%.

Medihelp said the most recent market comparison showed that Medihelp’s trustees were materially behind and it was decided that their compensation be corrected over a three-year period, which commenced in July last year.

“Owing to a shortage of reliable market information with regard to the compensation of medical scheme trustees, the compensation of non-executive directors attending meetings of listed companies was used for market comparison.”

Listed companies with a turnover of between R2.7 million and R4.6 million were compared to Medihelp, which has an income from member contributions of R4 million.

Cobus Venter, a director of medical researcher Econex, says the sharp increases in compensation are not unexpected.

“Trustees bear huge responsibilities these days, as well as great risks. The relatively limited pool of well-qualified, and in particular black, candidates leads to reasonable pressure on prices for these types of positions.”

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