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Saturday, January 17, 2004



Trustee raises opposed

The state argues that a proposal
to double the Kamehameha board's
pay is flawed


A proposal to nearly double the pay of Kamehameha Schools' trustees relies on "flawed analysis" and could "again endanger the trust's tax-exempt status," the state attorney general's office said.

In documents filed in state Probate Court yesterday, Deputy Attorney General Hugh Jones argued that a court-appointed committee's recommendation to increase trustees' annual pay would make Kamehameha's board among the highest paid in the nation for public charities.

Collectively, the pay raises for the five trustees would be $412,000, which is equivalent to the annual tuition for "231 children at Kamehameha Schools' Kapalama Heights campus," Jones said.

"Adoption of the committee's recommendation would ... place the trustees among the most highly compensated trustees of any public charity in the nation and may invite further scrutiny by the (Internal Revenue Service) and possibly again endanger the tax-exempt status of the trust," Jones said.

Trustee pay has been a source of controversy for the $6 billion Kamehameha Schools, going back to the late 1980s and 1990s when board members paid themselves up to $1 million a year each. The excessive pay of the estate's former trustees Henry Peters, Richard "Dickie" Wong, Lokelani Lindsey, Gerard Jervis and Oswald Stender prompted the IRS in 1999 to threaten to revoke the estate's tax-exempt status.

Legislative and court-mandated reforms implemented since then have capped board members' pay at "reasonable levels" set by an outside trustee compensation committee.

Jones' remarks are in response to a Dec. 22 report by the Probate Court-appointed Trustee Compensation Committee, which recommended that the annual pay for Kamehameha Schools trustees increase to $180,000 from the current $97,500. It also recommended that the annual compensation for the board's chairman increase to $207,000 from $120,000.

The proposal requires the approval of the state Probate Court, which has scheduled a hearing for Friday.

The compensation committee, whose members include Kamehameha graduate Michael Rawlins and local attorneys Allen Hoe and David Fairbanks, relied in large part on a report by Mercer Human Resource Consulting, a mainland executive pay consultant hired by the committee for $50,000, Jones said.

The Mercer report said trustees spend more than double the amount of time on trust business than board members and trustees of other large foundations do. The abrupt resignation of the estate's first chief executive officer, Hamilton McCubbin, last May combined with last year's lawsuits challenging the schools' Hawaiian-preference admission policy have turned the trustee post into a full-time job, the committee said.

According to Mercer, Kamehameha Schools trustees' pay compares with that paid to board members and directors of native Hawaiian trusts and local nonprofit organizations. The report stated that the Liliuokalani Trust, which provides services for native Hawaiian orphans and destitute children, paid its trustees more than $195,000 in 2001 and that the Queen's Medical Center paid its board members about $100,000 that same year.

Jones said "it is illogical" to raise trustees' pay based on last year's experience. He noted that the board recently named former health-care executive and 1970 Kamehameha Schools graduate Dee Jay Mailer to succeed McCubbin as chief executive.

He added that Mercer erred in reporting pay at Queen's and Liliuokalani. The Queen's Medical Center and its nonprofit parent Queen's Hospital do not pay board members, while the Liliuokalani Trust has sharply reduced the compensation paid to its trustees since 2001 to about $93,800 this year, he said.

Retired Circuit Judge Patrick Yim, a trustee of the Liliuokalani Trust, said the trust's board changed its pay structure several years ago from a commission-based system to a flat salary at the recommendation of its outside consultants.

Yim added that the $195,000 pay figure for 2001 was skewed because some of that included trustees' pay authorized for the year 2000, which was not paid until 2001.

Jones said Mercer's study is also flawed because it includes data from smaller organizations such as the $500,000-in-assets Alu Like and the $14 million Lunalilo Trust, which are not directly comparable to the Kamehameha Schools.

Alu Like, which provides social services for more than 17,000 native Hawaiians, does not pay its directors, and the Lunalilo Trust, which cares for elderly Hawaiians, paid its trustees between $2,000 and $5,000 a year.


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