Exec pay: How much is too much?

Karen Cheung

 Karen M. Cheung

The media--FierceHealthcare included--reports on healthcare executive pay, pinpointing the biggest money makers in the industry. A hospital executive once said that even though he knows it's not personal, having his paycheck on public display is as personal as it gets.

Transparency is the very thing that the public craves, particularly in the tumultuous state of New York, which is considering a pay cap for all nonprofit executives, and New Hampshire, which last week offered an inside look at the salaries and benefits of the heads of nonprofit hospitals and health systems.

The New Hampshire Center for Public Policy Studies revealed that nonprofit hospital CEOs in the state are not only outpacing other healthcare workers, but all other private sector jobs for the past couple of years (2006 to 2009), notably during the economic downturn.

Nonprofit hospital CEOs, on average, saw their total compensation grow about 18 percent, while the average healthcare worker received a 12.8 percent wage increase and the average private sector worker saw a wage increase of 4.8 percent, according to the report summary.

According to Daniel Barrick, deputy director of the New Hampshire Center for Public Policy Studies, the report wasn't intended to single out any hospital CEO as being overpaid but to gather data on how hospitals are setting CEO compensation, Seacoast Online reported.

Still, the report revealed some interesting tidbits about the compensation levels at the state's 23 non-profit hospital systems.

The good news: Most of the reviewed nonprofit hospitals followed IRS rules for executive compensation practices, and compensation levels were consistent with other New England states.

The bad news: The study couldn't conclude that hospital CEO pay was linked to quality.

If a hefty paycheck translates to better patient care, a high six-figure salary may actually be called for. But big paychecks don't necessarily mean better quality.

"In our simple analysis, we found no strong relationship between CEO compensation and hospital performance," the report states.

For instance, Exeter Hospital CEO Kevin Callahan earned $763,615 in total compensation in 2010, which ranked third among the other studied hospitals, Seacoast Online reported.

Better known in recent news for doing some serious damage control following a hepatitis C outbreak at the hospital, Callahan is staring down the barrel at more than a dozen lawsuits against the hospital and a federal investigation, according to Exeter Patch.

In addition to there being no apparent link between CEO pay and hospital quality, the New Hampshire Center for Public Policy Studies also found it didn't have to do with the level of charitable care the hospital provides. CEO pay was more closely linked to hospital size and operating budget.

Perhaps the most concerning point about the report is the "log-rolling" effect of CEO pay.

New Hampshire Attorney General Michael Delaney, who commissioned the report, said, "Hospitals are supposed to use a range of salaries when setting their CEO compensation. In actual practice hospitals tend to target the 75[th] percentile, and often higher, in setting their CEO's compensation," Delaney said in a July 2 statement. "This creates an upward spiral and executive compensation can grow at a rate disproportionate to relevant measures of achievement or to increases experienced by other sectors of the population."

Hospitals do not necessarily follow the same process in determining pay. Board members deciding CEO pay at Upper Connecticut Valley Hospital and Cottage Hospital, for example, don't appear to take into consideration the salary packages of executives at comparable institutions when they set compensation levels, nor do they have formal policies about how to amend that compensation, according to the report.

Upper Connecticut Valley Hospital, as well as Weeks Medical Center, does not appear to link annual increases to specific, measurable goals for the executive, the report noted.

If the report revealed anything, it's that we need more discussions about how we can pay CEOs fairly and reward them for good hospital performance. Yes, it's uncomfortable and impolite to talk about pay, but shouldn't the obvious deciding factor for how much a CEO gets every week be about how well the hospital and its patients are doing? - Karen (@FierceHealth)

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