The Enterprise

By Neal McNamara

As Delta Dental lays off workers, public records show the nonprofit’s top 11 executive were paid a combined $9.9 million in 2007. Board members pulled down ample compensation as well.

For a nonprofit company, Delta Dental certainly is a profit monster.

The Okemos-based multi-state dental benefits company, according to its 2007 tax filing, made over $1.4 billion in revenue, and compensated its top officers and board members over $13 million — including $3.9 million in salary, benefits and expenses for CEO Thomas Fleszar — compared to its total payroll of around $40 million.

In the same year, the company spent over $1.3 billion on research and claims. The company’s 2008 tax filing won’t be ready until mid-August, which would include the salary of James Epolito, the former head of the Michigan Economic Development Corp., who started in April as president of Delta Dental of Michigan. The company would not provide salary information for Epolito.

But in the wake of concessions between the United Auto Workers union and automakers General Motors Corp. and Chrysler LLC that eliminated retiree dental benefits, the company will lose about 20 percent of its business. And on Monday, it was made public that Delta Dental will cut 10 percent of its workforce. According to an audit by the firm Plante and Moran on Delta Dental and its affiliates, business with the auto companies was worth about $299 million as of December 2008. Delta spokesman Ari Adler said that several hundred thousand of the company’s customers were car company retirees and their dependents.

Thirty salaried workers were let go last Friday, and 30 more hourly workers — ironically, represented by the UAW — will be axed by August. Most of these employees work in the company’s Okemos headquarters, but some are being let go from the Farmington Hills office.

Adler said much of the company’s expenses are “under review,” including the salaries of its top officials.

“As a company looking at all of our expenses, everything is under review,” Adler said in a response to a question about whether salaries of the company’s top officials would be cut.

Fleszar was the company’s highest paid official in 2007 and in 2006, too. Other top executives in 2007 included Vice President for International Development Patrick Cahill, who earned over $800,000 in salary, benefits and expenses; Vice President CFO Laura Czelada, who made over $1.1 million in salary, benefits and expenses and Charles Floyd, vice president of underwriting, who made over $800,000. According to the tax filing, the top 11 earners at the company — who made a combined $9.9 million — each worked an average of 30 hours per week.

Additionally, 24 members of the company’s board of directors in 2007 were paid between $7,300 and $37,600 (two were padi nothing). Some members of the board, most of whom are dentists, had affiliations outside of the dental world. The board counted among its members James Hallan, president of the Michigan Retailers Association, who was paid $37,600, Lu Battaglieri, executive director of the Michigan Education Association, who was paid $17,800, Laura Stearns of the Michigan Catholic Conference, who was paid $27,950, Rory Gamble, director of the UAW Region 1A, who was paid $11,500, and the Rev. Jack Baker, of St. Perpetua in Waterford, who was paid $22,000.

Adler would not say whether any of the top paid officers in the company were let go last Friday. Further, he declined to say whether any of the people listed on the tax filing were let go.

“The job eliminations included every level within the company,” he said.

The structure of Delta Dental, which includes Delta Dental of Ohio, Delta Dental of Indiana and Delta Dental of Tennessee, is tricky. The company is one of the largest providers of dental insurance in the country and offers plans in all 50 states. All of the companies are part of the Delta Dental Plans Association, which is headquartered in Illinois. However, individual Delta Dental companies operate independently, much like Blue Cross and Blue Shield companies operate in states separately.

The Delta Dental operations of Michigan, Ohio, Indiana and Tennessee operate under a nonprofit holding company called Renaissance Health Service Corp., which exists on paper and shares its headquarters with the Delta Dental operation in Okemos. Underneath RHSC are 17 nonprofit and for profit insurance companies, some of which are just holding companies that exist only to control stock.

Together, they are known as “The Enterprise.”

Adler could not confirm whether any officers of Delta Dental of Michigan are also on boards for other companies, and thus would perhaps make more than what is listed on the company’s tax filing, underneath the RHSC umbrella. However, according to a 2006 report on the for profit Renaissance Life and Health Insurance Co. by the State of New York Insurance Department, several members of Delta Dental of Michigan serve on that company’s board — including Fleszar, Cahill and Czelada.

However, Adler said that the nonprofit and for-profit companies underneath RHSC do not share investments or revenues.

Also according to Delta Dental’s tax filing, the company had some $219 million in investments in 2007. Asked if the company took a hit in that area, Adler said that it did, but the company’s biggest investment hit will be its construction of a new headquarters.

The company is constructing an $85 million headquarters in Okemos, along with which it planned to add 150 jobs. The project is under construction and will be completed, Adler said, but much of the project will be reviewed and perhaps scaled back.

“Anything above and beyond basic finishing is under review,” Adler said. “We don’t want to have a half-finished building.”

Those 150 jobs, however, will not be possible, Adler said. The company has been under a hiring freeze “for a while now.”

Adler said that the company did not expect to lose the retiree benefits from UAW workers. However, he said that the company did have “the foresight to start thinking ahead." It recently launched a plan to gain back some of those retirees by offering them a special dental plan.

“I don’t think anyone expected this,” he said. “When GM and Chrysler went to their unions, and then that decision was made that they’d cut the retirees … we had to think ahead on that and get ready to go.”

Adler would not say how much the company is projecting to make off the new plan, but did say that such projections do exist.