Richard Scott, president and chief executive officer of Columbia/HCA Healthcare Corp., got a big raise in 1995, although his compensation still lagged behind that of his counterpart at Tenet Healthcare Corp.
The 43-year-old Texas lawyer, who founded Columbia nine years ago, received a 43% boost in salary, according to the annual proxy statement filed last week with the Securities and Exchange Commission.
According to that document, Scott received a 1995 salary of $858,000, compared with $599,000 in 1994. Despite the boost, his pay was slightly behind the fiscal 1995 salary of $900,000 for Jeffrey Barbakow, chairman and CEO of Tenet. With 75 hospitals, Tenet is the nation's second-largest investor-owned company.
Columbia is the nation's largest healthcare provider, with 340 hospitals.
Scott's total compensation was $2.1 million, which included $356,805 in other compensation and $870,000 in restricted stock awards. The other compensation was mainly relocation expense, the proxy reported. In 1995, Columbia moved its corporate headquarters from Louisville, Ky., to Nashville, Tenn.
The restricted stock award represents Scott's performance bonus, which he converted into stock. Columbia's executives can convert bonuses into restricted stock at a 25% discount from the fair market value.
In addition, Scott received stock options for up to 150,000 shares, which could be worth up to $9 million, depending on how well Columbia's stock performs in the future. The 10-year options were given in February at an exercise price of $40.13. Since the award, Columbia's rising stock price has meant a $2.1 million increase in the value of those options.
The biggest payday came for R. Clayton McWhorter, who will step down as Columbia's chairman at the May 9 annual shareholder meeting. McWhorter received compensation totaling $3.1 million in 1995. In addition, he cashed in stock options worth another $11 million.
The compensation of McWhorter, 62, included $2.4 million in severance as part of his agreement with Healthtrust, which merged with Columbia last April.
After exercising the $11 million in stock options in 1995, McWhorter still has options worth $9 million, the proxy reported.
In addition to being president and CEO, Scott will assume the title of chairman when McWhorter steps down. Scott's control of the company also is evidenced by the ample decrease in compensation of Vice Chairman Thomas Frist Jr., M.D.
In 1994, Columbia merged with Hospital Corporation of America, where Frist was chairman, president and CEO, and received a combined salary and bonus of $1.1 million. Last year, Frist's salary dropped to $419,000, the proxy reported, saying it was "reduced to reflect a change in his role with the company."
Scott's compensation package sets the tone for other executives throughout the company. It is a mix of salary and bonuses, which are based on achieving predetermined financial targets.
For Scott, his bonus could equal 80% of his salary. To calculate the bonus, Columbia's board decided that 75% of it should be based on whether the company earned $2.95 per share in 1995. Columbia didn't meet that target; it earned $2.90 per share.
Because the target wasn't reached, Scott earned 90% of his possible bonus.
However, Columbia's compensation committee amended that policy for 1996, making the per-share target only 50% of the bonus calculation, the proxy reported.
Not reaching the per-share goal also means a tax penalty for Columbia. The federal government says corporations that pay top executives more than $1 million a year can deduct the compensation only if the executives have met performance-based targets approved by shareholders. Because Columbia missed the earnings-per-share target, the company may not be able to deduct the bonus, the proxy reported.