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Nehawu criticises ‘self-enrichment’

Jul 22 2012 13:59 Nellie Brand-Jonker

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Cape Town – The remuneration of medical scheme trustees has shot up in the past financial year, in certain cases by 50%.

This includes that of the largest open medical scheme in the country, Discovery Health. According to its 2011 annual statements the remuneration and expenses of its trustees rose 49% to R2.3m.

High trustee remuneration was severely criticised last year. Nehawu, the trade union representing healthcare workers, described it as indecent and expressed its shock at the “plundering and self-enrichment” taking place at medical schemes.

The Council for Medical Schemes (CMS) is drawing up guidelines for determining trustee remuneration against a background of instances of “inappropriate financial incentives”. The CMS also wants guidelines for easier comparison of remuneration.

In its annual report last year, the council highlighted 10 medical schemes that had paid the highest trustee remuneration. Liberty Medical Scheme, which headed the list, raised its pay for trustees by 48% in the past financial year.

Others on the list were Spectramed, Medshield, Fedhealth and Bonitas. The Government Employees’ Medical Scheme (Gems) was among the 10 with the highest trustee costs and its 2011 annual report shows its these payouts rose 26% over the year.

Stan Eiser, a independent analyst with 30 years of experience in the medical scheme industry, said he knew of no reason why fund trustees’ remuneration should have risen so steeply.

“Questions must be put to the funds in that regard,” he said.

Sake24 has analysed the most recent annual statements from medical schemes to determine changes in remuneration. Because all the funds show it differently – a problem highlighted by the CMS as well – for the purposes of the report it is the costs of the funds’ trustees, as indicated under expenditure.

This mostly includes travelling and accommodation expenses. In some instances the trustees’ remuneration alone was used.

Liberty’s trustee remuneration rose 48% to R5.9m (including travelling and accommodation). This figure includes a trade restriction payment of R1.7m to advocate Boyce Mkhize, who resigned in May last year.

The highest payout for the year was the R886 000 to vice-chair Christine Kinsman. The chair, Dan Pienaar, received R791 000.

Chief executive Andrew Edwards said one should note that it is difficult to compare different funds’ trustee earnings because of contracts that differ.

Liberty has an annual income of R1.7bn (member contributions). He said that in a commercial context the fund should be classified as a company with a large market value.

Trustee compensation, he said, directly relates to the responsibilities and functions they perform. If these tasks devolved to the administrator, the trustees would be paid less – but Liberty does not believe that would be in members’ best interests.

Discovery did not feature on the list of medical schemes with the highest trustee remuneration last year. But the latest annual report shows that trustee compensation has risen sharply.

The highest total trustee remuneration is reflected as R367 000 (including travel and training).
 
Trustee chairperson Advocate Mike van der Nest said compensation is regularly reviewed. Independent surveys are used to compare the remuneration structures of non-executive directors at large insurance and other financial services companies in South Africa.

He said that on that basis the remuneration structure was changed in 2011 to take account of the recommendations of the King III code of corporate governance.

Van der Nest said the remuneration structure acknowledges the substantial responsibilities and risks that trustees continuously shoulder – not only at meetings.

“The DHMS board consists of independent individuals with considerable skills and expertise, which are critical for oversight of an entity with an annual contribution income exceeding R35bn.”

Trustee expenses at another of the 10 largest open medical schemes, Momentum Health, rose 0.9% to R1.6m.

The Gems annual report shows that trustee remuneration in the 2011 financial year amounted to R3.5m, 26% up. This includes travelling and accommodation.

A request for commentary on this sharp rise was submitted too late on Friday for response, said a spokesperson.

Trustee remuneration (excluding travel and accommodation) at Medihelp, also one of the big open medical schemes, was 50% higher.

Medihelp said that in the latest market comparison its trustees were found to have a significant backlog and a decision was taken to rectify their remuneration over three years, starting in July 2011.

Because of a lack of reliable information regarding trustee remuneration at medical schemes, that for attending meetings by non-executive directors of listed companies with a turnover of R2.7bn to R4.6bn is being used for comparison.

This equates to Medihelp’s R4bn income from member contributions.

Cobus Venter, a director at healthcare researcher Econex, reckons the sharp increases in remuneration are not unexpected.

“These days trustees carry huge responsibility as well as risk. The relatively limited pool of well qualified, especially black candidates leads to considerable pressure on pricing these positions.”

 - Sake24

 - For more business news in Afrikaans, visit www.sake24.com
nehawu  |  remuneration  |  medical scheme
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