The latest IRS filing for Delta Dental shows a commitment to big revenues, big executive compensation

The nonprofit Delta Dental of Michigan, which laid off 60 employees in August, compensated four of its top executives over $1 million each while bringing in revenues of over $1.48 billion last year, a tax report filed two weeks ago shows.

The Okemos-based Delta Dental laid off the workers in its Okemos and Farmington Hills offices after it lost hundreds of thousands of General Motors Corp. and Chrysler LLC retirees and their dependents covered by the insurance company in concessions worked out by unions representing those workers. The auto industry business was worth about $299 million to Delta Dental, according to a 2008 report by the accounting firm Plante and Moran.

At the time of the layoffs, company spokesman Ari Adler said that a number of other cost-cutting measures were being looked at, including in the arena of highly compensated executives. Adler said that 25 percent of the top earners listed on the company’s 2007 tax filing either retired, moved to another position or lost their job. Adler would not provide the names of those who are no longer with the company.

Delta Dental of Michigan is part of a chain of insurance providers known as “the enterprise.” Delta Dental of Michigan is a sister to Delta Dentals of Indiana, Ohio, and Tennessee, all of which operate under the nonprofit holding company Renaissance Health Service Corp. The corporation includes 17 for profit and nonprofit companies, some of which exist only to control stock. In 2008, Delta Dental of Michigan paid out $1.27 billion in insurance claims.

According to Delta Dental´s newly filed 990 report to the IRS, CEO Thomas Fleszar made $1.6 million in salary and benefits in 2008, CFO and COO President Laura Czelada made $1.3 million, former vice president Lonell Rice made $1.5 million, and Executive Vice President Charles D. Floyd made $1.3 million.

In 2007, Fleszar made $3.9 million, which, Adler said, is due to retirement benefits that became taxable in that year and were reported as a part of his compensation.

“Different compensation is paid from year to year based on the responsibilities that (executives) have and their performance objectives,” Adler said.

According to the filing, a total of 103 Delta Dental employees were compensated more than $100,000 each in 2008. Total compensation for Delta Dental employees in 2008 was $69 million, compared to $67 million in 2007.

The Delta Dental board of directors was also compensated highly. Chairman James Hallan, who is the president of the Michigan Retailers Association, was paid over $50,000 in 2008 for a reported seven hours per week of work, or about $137 per hour. (According to the retailers’ association’s 2008 tax filing, Hallan was paid $396,000). Four other board officers were compensated between $25,000 and $33,000 in 2008 for a reported five hours per week of work each.

When asked if the company would review the compensation of the board, Adler said that it is something that’s “periodically reviewed.”

“We review it to ensure that their compensation is adequate and appropriate,” he said.

Because of new rules put in place by the IRS at the end of 2007, nonprofit tax filings are slightly more detailed than in years past. Delta Dental reported on the new form that the executives listed in the 990 received first class or charter travel, membership in health or social clubs and travel for companions. Adler would not name the clubs that the company belongs to, but said that it is viewed as a “normal part of business.” He said that the memberships are only used for business purposes, and if an executive uses the membership for personal reasons, it is reflected in compensation. Adler said that the company’s policy is to travel coach on commercial airlines, and that the company only pays for a companion of an employee to fly on the company dime in exceptional circumstances, and that, too, would be reflected as part of an employee’s compensation.

The tax filing also lists the top four contractors used by Delta Dental. According to the filing, Gyro HSR, an advertising firm, was the top contractor and was paid $1.8 million for its services. Gyro created a series of advertisements for Delta Dental that depicted a tooth as a part of nature.

Adage Group LLC, an information technology firm based in a home in Holt, was paid $1.8 million for its services; Sierra ITS, a Park Ridge, Ill.-based IT staffing firm, was paid $1.2 million; DaVinci Selectwork, a New York-based media buyer, was paid $1.2 million (which, Adler said, included the cost of buying advertising); and Brighton-based IT firm Pillar Technology Group LLC was paid $919,000.

In total, Delta Dental contracts with 28 different companies for services, half of those companies provide IT services. Adler said that Delta Dental uses a lot of IT contractors because a large part of the company’s operations deal with claims processing. He said that the head of the IT department decides how many outside contractors are needed to staff Delta Dental.

The filing also shows that five Delta Dental board members — all dentists — receive health insurance payouts form the company. Immediate past board president John Breza received $185,982 in insurance payouts in 2008, Vice Chairman Terrence Comar received $179,000, at-large member Todd Ester received $467,987, director Joseph Harris received $142,405, and director Lonny Zeitz received $233,586.

“Their duties as a board members and duties in their offices aren’t in conflict with each other,” Adler responded to a question about why some board members also do business with the company. “We rely on many dentists for consulting. We work with the industry very closely.”

Delta Dental is also in the midst of expanding its Okemos headquarters. Adler said that the original plan was scaled back in light of reduced revenues for the company, but that it is on track to be completed as scheduled. Adler said that the planned adding of 150 jobs as part of the expansion might still happen over a period of 10 years.

“If there’s an opportunity to expand staff, we’d do that,” Adler said. “We would have to get through the economic situation facing the state and the country.”

— Neal McNamara