Health Care Executives' Compensation: Head's, They Win, Tail's, You Lose

It seems to be the season for stories about the pay of health care leaders to appear in the press. Here is our latest round-up.

Novant Health

First the Winston-Salem (NC) Journal reported hefty pay received by executives of a regional hospital system:

Four of the top five executives at Novant Health Inc. received substantial salary increases during 2010, according to the health-care system.

However, the overall compensation and benefits for the top three executives were down for the fiscal year.

Paul Wiles, the chief executive and president of the not-for-profit system, got a $129,000 raise, or 14 percent, to $1,029,000 in salary. He got a bonus of $836,800, up $9,338. His total compensation was down 3 percent to a little more than $2 million.

Also,

Greg Beier, the president of Novant Health Operations, received a 15 percent salary increase to $659,000, but total compensation was down 8 percent to $1.48 million.

Carl Armato, the president of Novant Health Markets, got a 5 percent salary increase to $638,000, but total compensation decreased 3 percent to $1.26 million.

Jacque Gattis, the system's chief administrative officer, had a 19 percent salary increase to $490,000 and a 5 percent total compensation increase to $951,975.


Stephen Wallenhaupt, its chief medical officer, received a 20 percent increase in salary to $481,000 and an 8 percent increase in total compensation to $935,525.

This article made it seem that the substantial compensation received by these executives was related to the system's financial performance:

[Senior Vice President of marketing and communication Jim] Tobalski said Novant will release its fiscal 2010 financial report in April. The system likely will report a better overall performance because of the stock market's surge in 2010.

However, as reported eight days later again by the Winston-Salem (NC) Journal, there are other ways to look at these executives' compensation. First, their bonuses can be compared to those given less exalted employees:

Novant Health Inc. has paid two separate bonuses, including a one-time 'thank you' offering, to its Forsyth Medical Center employees recently, but that has not dampened the complaints of some employees that executive payments were too high.

Jeff Lindsay, the hospital's president, notified employees of the bonuses in an internal memo Feb. 28.

Lindsay's memo said the thank-you bonus was for 'efforts above and beyond the achievement of our 2010 goals.' It was worth $120 for employees who worked more than 1,500 paid hours in 2010 and $60 for those who worked 750 to 1,499 paid hours.

Novant also paid a 'discretionary' bonus ranging from $120 to $300, depending on the employee's length of service and employment status. That bonus was contingent on Novant achieving goals in quality, financial vitality, employee commitment and patient satisfaction.

By comparison, the top five executives of Novant received a combined $2.62 million in executive bonuses for 2010. The combined bonuses were up $151,713 from 2009.

Furthermore, it is not clear that the system's financial performance has been as good as its spokesman implied above:

Several Forsyth Medical employees criticized Novant's decision to pay the executive bonuses after the hospital cited financial challenges and lower demand for services in cutting 48 jobs there in July.

'How can any executive with a conscience accept a $129,000 raise and an $836,800 bonus while the company lays off employees who desperately need income to support their families?' said one posting to JournalNow.com.

So, in summary, some useful comparisons are: top executives' bonuses were approximately one-thousand times the size of those given to regular employees; and top executives' total compensation was justifed by "financial performance" during a year the system had to lay off workers due to "financial challenges."

University of Massachusetts Medical Center

The Worcester (MA) Telegram reported on the leader's compensation contrasted with the hospital's financial status:

While facing a $54 million budget shortfall for next fiscal year, the University of Massachusetts last month hiked UMass Medical School Chancellor Michael F. Collins’ salary by more than $60,000 a year — almost a 12 percent pay raise.

The three-year contract signed by Dr. Collins and outgoing University of Massachusetts President Jack Wilson on Feb. 14 raises the medical school chancellor’s annual base salary and deferred compensation from $524,300 to $585,290.

Under the deal, Dr. Collins will no longer get a separate $32,000-a-year housing allowance and instead is required to live rent-free in the furnished and remodeled Grenon House on Flagg Street. The five-bedroom, four-bathroom home has an assessed value of $736,600 and is owned by the University of Massachusetts Foundation, according to city property records.

Dr Collins' total compensation, however, will be considerably larger than his salary:

Dr. Collins, who also serves as the university’s senior vice president for health sciences, will continue to be eligible for additional performance pay of up to 30 percent of his base salary a year, which works out to $164,100 in potential performance pay in the new contract, up from $147,000 under his previous salary.

The chancellor also will continue to receive $15,000 a year for his choice of life insurance or an extended care health insurance policy, as well as supplemental retirement contributions totaling $98,000 a year — the IRS maximum for those type of retirement accounts, according to the contract and the medical school.

All together, the chancellor’s compensation package and benefits could be worth as much as $862,000 a year if he receives the maximum performance pay. That figure does not include the value of living at Grenon House.

His raise can be contrasted with those received by lower-level employees:

The chancellor’s pay hike stands in contrast to 2 percent raises negotiated late last year with some union workers at the medical school and with a previous salary freeze for all university employees earning $120,000 a year or more.

In announcing that pay freeze two years ago, Mr. Wilson noted, 'We are living at a time when few people are seeing their financial circumstances improve and most are happy to preserve what they have as we ride out the current fiscal and economic storm.'

Despite the budget short-fall, and consequent salary freezes, the criterion for the Chancellor's salary seemed to be what other top executives were getting at other organizations, even if those organizations were having better financial results:

'The university does try to set salaries for senior administrators in relation to what people are paid for discharging comparable duties at comparable institutions,' [university spokesman] Mr. Connolly said. 'In this case, Chancellor Collins would be slightly under the median salary paid at comparable institutions.'

Another university spokesman justified the Chancellor's compensation by citing his performance:

'The chancellor has a record of success in Worcester,' said [university spokesman] Mr. Keohane, who provided an eight-page medical school report titled 'Accomplishments of Michael F. Collins, MD.'

The report lists dozens of improvements to the medical school during the tenure of Dr. Collins, including items such as: leading the campaign to make the university a partner in the state’s $1 billion life sciences initiative; increasing medical school class enrollments by 25 percent; presiding over improving academic performance; growing revenue by more than 27 percent; instituting more formal performance reviews among executive staff; and improving collaboration with UMass Memorial Health Care Inc.

Oddly enough, he did not mention UMass Memorial's aggressive recruiting campaign for bone marrow donors in part implemented by "flirtatious models" that failed to disclose how the donors would be charged for their generosity as one of the Chancellor's achievements related to "improving collaboration" with UMass Memorial (see this post).

So, in summary, a budget shortfall was the justification for freezing line employees' pay, but not the Chancellor's pay, which was raised.  One rationale for the raise was that the Chancellor's pay had to be increased to keep up with pay of executives elsewhere, but the pay of line employees was not compared with such employees elsewhere.  Another rationale for the raise was a list of positive developments at the medical center, but negative developments were ignored, as were the contributions of any employees other than the Chancellor to the positive developments.

Summary: Head's, They Win, Tail's, You Lose 

Juxtaposing these two examples shows how justifications for executive compensation in health care often seem to be ad hoc, after the fact, and inconsistent with any rationale for compensation for more mundane employees.  If outcomes have been good lately, then the good outcomes may be the rationale for better executive compensation.  If the outcomes have been bad, then the executives must deserve more because they are struggling so hard under tough conditions. 

The rules for everyone else, of course, seem to be more stark. 

So, once more with feeling, as we have said before, far too often the leaders of not-for-profit health care institutions seem more interested in padding their own bottom lines than upholding the institutions' missions. They often seem entirely unaware of their duty to put those missions ahead of their own self-interest. Like the financial services sector in the era of "greed is good," health care too often seems run by "insiders hijacking established institutions for their personal benefit." True health care reform would encourage leadership of health care who understand health care and care about its mission, rather than those who see a quick way to make a small fortune.

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