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New HCRS CEO Also Has Deferred Compensation Package

Tuesday, June 16, 2015
Springfield, Vt. — Health Care and Rehabilitation Services of Southeastern Vermont, in the wake of controversy about the deferred compensation package it arranged for longtime and now former Chief Executive Judith Hayward, is salting away money for her successor.

Disclosure earlier this year that Hayward had collected $686,000 — funded through three annual contributions of $150,000 and a fourth of $200,000 — prompted both scrutiny and criticism of the nonprofit agency that provides contracted services to the state of Vermont for developmentally delayed and mentally ill residents of Windham and Windsor counties.

A recent report by the office of state Auditor Douglas Hoffer found Hayward’s deferred compensation “extreme when compared to the compensation of her counterparts” at other Vermont social service agencies.

In defending that payout, former HCRS board President Allen Dougherty noted that a “very similar” deal had been arranged for current CEO George Karabakakis. HCRS is making an annual contribution equal to about 8 percent of Karabakakis’ salary. That would amount to $13,200; Karabakakis says his 2014 salary was $165,000.

Karabakakis rejects the suggestion that his arrangement mirrors Hayward’s.

“I have to say that there is very little similarity between the two except that they were both awarded to chief executives,” he said.

Hayward’s package was originally set at $450,000 and then raised by $200,000 to offset her tax liability. Investment earnings were added to the final payout.

To match even the $450,000 in funding originally promised to Hayward at the current rate, Karabakakis would need to work more than 30 years at a CEO salary that matches his predecessor’s.

Dougherty said that the HCRS board approved the retirement package for Karabakakis “as he was taking over.” Karabakakis became CEO on Jan. 1, 2014.

Karabakakis, in an email, did not respond to questions about how and when the new deal was approved.

Tamara Richardson, who was a member of the HCRS board from November 2011 until October 2014, said that she did not recall any discussion of that deal during her time on the board.

Richardson said that she believed it had been put in place before she joined.

Richardson said she was not surprised by news of the new CEO’s retirement package. “He is a CEO,” she said. “It is a nonprofit, but it’s a large organization.”

HCRS posted $46.8 million in revenue in the fiscal year that ended June 30. Expenses exceeded revenue by $1.4 million, according to HCRS’ audited financial statements.

Carlotta Gladding, the board’s secretary, said that she was “not interested in providing any further information.” Board member John Case referred questions to Karabakakis. Other board members declined, or did not respond to, requests for 
comment.

Change at the Top

HCRS contracts with the state to provide services to about 4,500 people with mental illness and developmental disabilities. It had about 720 employees at the end of calendar year 2013, according to its tax return.

In June 2013, the HCRS board approved a “succession plan” that had been adopted a decade earlier, under which Karabakakis was named chief operating officer and tapped to become CEO after Hayward. Karabakakis has a doctorate in clinical psychology from the Wright Institute in Berkeley, Calif., and has worked at HCRS for 22 years.

After Karabakakis took the top job, Hayward stayed on as “CEO emeritus.” The two were supposed to cooperate during a six-month transition but that didn’t work out well for reasons that were unclear, said Dougherty, whose own term as board chairman ended June 30.

Karabakakis did not comment specifically on his work with Hayward during the transition. “I lead the organization in a different way,” he said. “Her services to the agency were as a consultant to the board and at its direction and discretion.” He added, “The board made the decision to end the consulting relationship (and) arrangement they had with her.”

Hayward did not respond to a message seeking comment.

The disclosure of the retirement package awarded to Karabakakis was the latest in a series of financial revelations from Hayward’s final years at the helm of HCRS, which she led for 17 years.

Hayward, who became CEO in the wake of a critical 66-page report on HCRS in the late 1990s by the state auditor, was widely credited with restoring the agency’s financial health. When she took over, services were poor and red ink was flowing, Hayward told Vermont Business Magazine in a 2004 interview.

The agency soon righted its financial ship and began to grow. In fiscal 2004, revenue of $23.8 million exceeded expenses by $552,000.

In August 2006, HCRS participated in a bond issue by the Vermont Educational and Health Buildings Financing Agency. HCRS raised $9.1 million, of which $8 million was used to pay for land and a new 30,000-square-foot office building on River Street in Springfield.

In recent years, HCRS opened an eight-bed group home for mentally ill youth in Westminster, Vt. HCRS also took over the Kindle Farm school for boys with emotional issues in Newfane, Vt.

Along the way, controversies arose. The Westminster project sparked a zoning dispute. A successful organizing drive by a small, independent union culminated in a landslide 2005 vote by clinicians at HCRS to form a bargaining unit. Four years later, union members narrowly defeated a management-backed petition to decertify the union.

Big Payout 
To Departing CEO

The most intense controversy followed disclosure that HCRS had funded a retirement account that paid Hayward $686,000. Those payments were made in addition to Hayward’s salary and benefit package, which peaked at $191,000 during her final year at HCRS.

HCRS’ publicly available tax return did not disclose details of Hayward’s compensation package or that the agency lost $1.8 million over three years operating California residence homes for people with developmental disabilities. That information was disclosed in HCRS’ audited financial statements, which were not made available by the agency for public review.

In fiscal 2014, HCRS received $6.1 million for work performed under state contracts, according to the agency’s audited financial statement, which was obtained through a public records request by the Valley News to the state Mental Health Department.

Hoffer said in an interview that he would favor adding a provision to the contracts of nonprofits that provide services to the state requiring them to post their audited financial statements on their websites. For organizations that receive public funding, such a requirement would be “a no-brainer” although it might be wise to include a revenue or asset threshold that would exempt small organizations, he said.

Hoffer noted that nonprofit organizations that contract with the state already are required to have their financial statements audited, so that posting such statements on websites would entail little extra work and could be mandated administratively. He added: “The Legislature could do more.”

Hayward’s payment came at a time when HCRS and other Vermont social service agencies were grappling with the challenges of employee recruitment and retention resulting from pay rates that sometimes lag behind those of other health care employers.

The average hourly wage at HCRS is about $19 for “a range of job descriptions from the CEO to housekeeping,” Karabakakis said. The agency “offers a competitive wage and benefits package within each job category in order to attract and retain our employees.” Those packages are generally “at or above the average wage paid for similar work” by the 10 designated agencies in Vermont that provide community mental health care in their respective regions, he said.

But there is high employee turnover at HCRS, according to Joyce Dion, president of Local 5051 of the United Nurses and Allied Professionals, which represents about 70 professional, non-supervisory employees at HCRS.

“Only one-third of our membership has at least five years of seniority in the union,” she said. “Recent hires have been new clinicians straight out of grad school.”

Workers represented by the local, which in January signed a new contract running through December 2017, had an average hourly wage of just over $21, she said.

Karabakakis said that only about one in 10 HCRS employees is represented by the union. The agency “was unable to find sufficient funding to provide an increase to employees” during the current fiscal year, he said.

Fallout Was Anticipated

The HCRS board was not surprised by the public reaction to the payout to Hayward, said Bob Margolin, its former vice president: “Everyone was aware that such a big amount of money would stand out.”

But he stressed that Hayward’s package “went before the board and was fully endorsed.” The payment recognized her “successful management of the agency at that time,” he added.

Dougherty, the former board president, was more emphatic in his defense of the decision to pay Hayward. She “was spectacular in the job,” he said. When the board became aware that she had no retirement package, he added, the sentiment was, “We need to fix that.”

But Karabakakis said that all HCRS staff members have 403(b) retirement accounts. In such accounts, employers and employees make contributions from their gross, or pre-tax, earnings and pay taxes when the accounts are cashed out during retirement. These so-called defined-contribution accounts, in which employees assume investment and other risks traditionally taken by employers, have increasingly supplanted traditional pensions as a retirement benefit for American workers.

HCRS’ audited financial statements show that in fiscal 2014 the organization’s total payments for pension plan accruals and contributions to retirement accounts, including 403(b) accounts, was $456,000, or a little over $630 for each of the agency’s 720 employees. The HCRS’ audited financial statement describes this amount as “contributions to a tax-sheltered annuity ... (that) covers substantially all full-time 
employees.”

Karabakakis said that those figures reflected HCRS’ contributions to employees’ 403(b) accounts that matched employee contributions of up to 5 percent of salary.

Dougherty said that if Hayward had a 403(b) it was relatively small, so that her deferred compensation package was still necessary.

Another former HCRS board member, Jerold Goldberg, said the payments to Hayward were “understandable.”

“I have a retirement package myself,” said Goldberg, who retired in 2013 after working for seven years as executive director of the Brattleboro Area Chamber of Commerce. Goldberg said he felt it would be “hypocritical” for him to criticize the payments to Hayward.

But Karabakakis was more critical: “There was nothing small about Ms. Hayward’s compensation package.”

Margolin recalled his forebodings about the “no-win” payment to Hayward: “I could see ... the public saying, ‘What the hell are you doing?’ ”

Rick Jurgens can be reached at rjurgens@vnews.com or 603-727-3229.




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