CEO compensation: Time to rein in skyrocketing salaries, incentives

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The skyrocketing compensation packages for healthcare CEOs garnered a lot of media attention in the last few weeks.

A recent New York Times analysis found that salaries of hospital executives eclipse the pay of highly-trained surgeons and general physicians. The analysis revealed that on average CEOs earn a base pay of $386,000 and hospital administrators make an average of $237,000. Surgeons, on the other hand, make an average of $306,000 and general doctors earn $185,000.

But those salaries don't take into account the income CEOs earn from their non-salary compensation perks, like long-term incentives and bonuses.

One of the highest paid execs is Trevor Fetter, CEO of Tenet Healthcare, who earned $22.7 million last year.

Yet research indicates the more CEOs are paid, the worse their performance. "For the high-pay CEOs, with high overconfidence and high tenure, the effects are just crazy," Michael Cooper of the University of Utah's David Eccles School of Business, one of the study authors, told Forbes, noting they return 22 percent worse in shareholder value over three years as compared to their peers.

It's not just the CEOs who oversee the business of healthcare that are on the receiving end of these generous packages. Senior leaders frequently earn high salaries too.

 "At large hospitals there are senior VPs, VPs of this, that and the other," Cathy Schoen, senior vice president for policy, research and evaluation at the Commonwealth Fund, a New York-based foundation that focuses on healthcare, told the Times. "Each one of them is paid more than before, and more than in any other country."

Indeed, the continual rise of executive paychecks may contribute to inequities in the U.S. economy, according to a new Roosevelt Institute paper, "Taking Stock: Why Executive Pay Results in an Unstable and Inequitable Economy."

"The toxic combination of stock-based executive pay and open-market stock repurchases has contributed to not only the growing concentration of income at the top but also the failure of the U.S. economy to sustain existing middle-class jobs and create new ones," wrote author William Lazonick, professor and director of the Lowell Center for Industrial Competitiveness at the University of Massachusetts.

There are even some indications that eight-figure salaries may soon be the "new normal" for senior healthcare executives.

The American Hospital Association argues that the New York Times CEO compensation analysis doesn't take into account that running an American hospital is among the most complex and demanding jobs in the country.

I don't think many will disagree that overseeing a healthcare institution is an extremely challenging job given the current industry climate. But is it worth $22 million year? That is approximately $60,000 a day.

When I think about those figures--and how that compares to the low-paying jobs in medicine (the Times analysis noted emergency medical technicians typically earn an annual salary of $27,000)--I feel ill.

Earlier this year FierceHealthcare ran a story about CEO compensation trends in 2014, which indicate execs will receive modest pay raises and boards will work to make sure bonuses will be attached to performances measures.

It's too early to determine if that trend will come true, but this week one hospital took a tiny step toward boosting the pay of its lower-level staff by using money from a pool designated for executive bonuses.

Parkland Health & Hospital System in Dallas announced it will raise the minimum wage from $8.78 to $10.25 an hour next month for approximately 230 lowest-level employees. I suspect those employees are grateful for the extra $1.47 an hour or $58 a week to help pay for a tank of gas, a few groceries or coinsurance for a doctor's visit.

But don't weep for the 60 vice presidents and top executives at Parkland who have $350,000 less for bonuses. The pool of money left in that account is $3 million to $5 million. More than enough to hand out to the C-suite. - Ilene (@FierceHealth)

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