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Wednesday, November 25,2009

Millions and billions

by Neal McNamara
Millions and billions

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.”


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“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

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