Hospital executive compensation increases for retirements, promotions

Seven-figure salaries for nonprofit hospital chief executives are here to stay, with health reform and the rapidly changing health care environment making good leaders harder to find, says board members and consultants who help determine executive pay.

Although these are leaders of nonprofit organizations in an industry struggling to contain costs, the organizations say the compensation levels are necessary to recruit and retain talent.

The size and success of health organizations, competition, and the executives’ talent, tenure and performance on key goals are factors in the level of compensation that hospital chief executive officers receive, said board members who approve the pay levels. Hospital boards also use independent compensation consultants to benchmark their pay levels against similar hospital organizations.

Even though top executives commit to core missions of public service and community benefit, they don’t come free and the best leaders are more expensive, said Ron Seifert, vice president and executive compensation leader of the health care sector for Hay Group, a Philadelphia, Penn.-based management consulting firm that works with some hospital boards in Cincinnati.

“We’ll continue to see salary increases for executives for the foreseeable future,” Seifert said. “It’s really important for them to have the right leaders in place right now because they can’t take a chance with not being successful. Not succeeding in this environment means failing miserably.”

Recent years saw retiring health network executives of groups operating hospitals serving Butler County receive multimillion dollar payments. As executives retired and new leaders were put in place in 2011, the large retirement payments gave way to a series of internal promotions and raises last year at local hospital systems.

Most new CEOs saw pay raises from 2010 to 2011 for their added responsibilities, according to 2011 tax-exempt forms recently filed by Kettering Health Network, McCullough-Hyde Memorial Hospital, Mercy Health Partners and Premier Health Partners, the local area’s largest hospital groups and some of Butler County’s biggest employers.

Cincinnati Children’s Hospital Medical Center, TriHealth and UC Health are on a fiscal reporting year, not a calendar one, and won’t file their tax forms for 2011 until late spring of 2013.

Salaries of hospital executives are competitive with the for-profit sector. But overall compensation of nonprofit health leaders is still typically less lucrative than public company benefits that deliver more value in equity, such as stock options, if the company performs well, Seifert said.

Nationally, median cash compensation for large health network and hospital CEOs increased in 2012 by 2.5 to 3.5 percent, which is about the same as it has been in recent years, Hay Group has found.

The median base salary is about $975,000 for large integrated health systems with $1 billion or more in revenues, according to Hay Group’s 2012 compensation survey.

GuideStar USA, a Washington, D.C., nonprofit that collects and publicizes nonprofit data, has seen all nonprofit executive compensation increase over the last decade, about five percent a year before the recession, said Chuck McLean, vice president of research of GuideStar.

“What we’ve definitely seen in the last decade, the number of big salaries, seven-figure salaries, has increased about 10 times. And it is almost exclusively the case in hospital systems,” McLean said. “This is a very interesting time in the nonprofit sector because the lines between nonprofit and for-profit are getting blurry in a lot of ways.”

“This idea that you’re going to get specialized talent at a bargain price is something that doesn’t really ring true anymore. It’s not easy to attract and keep good people if you’re paying them less than what they could get in the private sector,” he said.

James Pancoast, who became president and chief executive officer of Premier Health Partners in 2011, had the biggest raise locally in his annual base salary of 72 percent year-over-year, from $484,572 in 2010 when he was chief operating officer to $832,888 last year, according to the hospital group’s tax filings. Last year he was also paid a bonus of $434,253. Including salary, bonus and the value of benefits such as retirement and insurance, Pancoast received total 2011 compensation of $2.3 million.

Premier is the parent health system of Atrium Medical Center.

Total compensation is not the same thing as what goes on a take-home paycheck, but includes insurance coverage and retirement contributions, and retirement benefits earned that year to be paid in the future for meeting certain criteria on performance and retention.

Pancoast has been with Premier Health more than 30 years. He became the top leader of Premier after the retirement of Tom Breitenbach. He heads a health group comprised of four hospitals with $1.8 billion in revenues and approximately 14,000 employees.

“The Board of Trustees of Premier Health Partners annually reviews survey data and follows established compensation guidelines in compliance with national standards. The board engages a nationally recognized executive healthcare compensation consultant to ensure that executive compensation is market based,” said Dan Sadlier, chair of the board of trustees of Premier Health, in a prepared statement. “The board takes this responsibility seriously to ensure that we recruit and retain high performing, talented individuals to lead an organization that is vital to the health and well-being of the community.”

Fred Manchur became CEO of Kettering Health Network in Dec. 2010 due to the retirement of Frank Perez. For his promotion, Manchur saw a base salary bump of 43 percent from $771,183 in 2010 to $1.1 million in 2011. He also received a $268,335 bonus. Altogether, salary, bonus and benefits came to total 2011 compensation of $1.9 million.

Kettering Health is the parent health system of Fort Hamilton Hospital.

Manchur has been with Kettering Health 10 years as of the end of 2011. In his new role, he leads over a system comprised of eight hospitals with $1 billion in total revenues and approximately 10,000 employees, according to Kettering Health.

“I think what I would want them to know is that we do take these compensation levels seriously, that they are reviewed and we use the outside consultants. I would also like you to recognize that executive compensation in the big scheme of things is a pretty small piece of the total cost of operating a hospital. Most of the hospital costs are related to services, related to patient care,” said Don Harting, a member of Kettering Health’s board compensation committee.

Michael Connelly, president and chief executive officer of Cincinnati-based Catholic Health Partners, received total compensation last year of $2.2 million for his position over a $3.6 billion organization with more than 32,500 employees. James May, president and chief executive of Mercy Health, a division of Catholic Health, received total compensation in 2011 of $1.2 million.

“Health care is one, if not the top contributor to the U.S. Gross Domestic Product. Because of that and because of the seed change that is taking place in health care, there are tremendous demands for high caliber talent to reform health care from the inside out,” said Joe Gage, senior vice president of human resources of Catholic Health. “That’s talent that we’ve got to attract and retain.”

Eligible executives have a retirement plan that accrues over the years for them to receive upon their retirements.

Perez received total compensation of $5.6 million in 2009, which included deferred retirement payments. Michael Anderson, former president and chief executive officer of Cincinnati Children’s Hospital Medical Center, received a total $4.2 million in 2010 after retiring at the end of the year before.

Doug McNeill, the previous president of Premier’s Atrium Medical Center in Middletown, still received a total $1.1 million in base pay, bonus and deferred retirement payments last year even though he actually retired at the end of 2010. He made a total $2.6 million in 2010 in cash, benefits and deferred retirement.

Total compensation in 2011 for Butler County hospital presidents and chief executive officers ranged from about $217,410 for Bryan Hehemann, president of the independent McCullough-Hyde Memorial of Oxford, to $643,577 for Thomas Urban of Mercy Health-Fairfield Hospital. That does not include McNeill of Atrium.

Thomas Urban has been with Mercy Health and Catholic Health Partners since 1993, and previously held a higher position as regional CEO, according to Mercy Health. As president and chief executive officer of Mercy Fairfield, he leads a hospital with $3.7 million in revenues in 2011 and 1,674 employees.

Gage says he thinks Catholic and Mercy Health are the only local hospital systems that have community benefit built into performance reviews.

“If our executives are failing to provide the community the benefit due…then our executives won’t receive their own compensation,” Gage said.

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