HMO executives are being compensated handsomely in what appears to be a pay-for-performance strategy based on their companies' strong returns for shareholders.
That's the conclusion reached by two recent surveys of 1994 data. But one of the studies questions whether compensation will decline to reflect decreases in 1995 shareholder gains.
One study, by California analyst Graef S. Crystal, compared the total 1994 compensation of chief executive officers of the 12 largest publicly traded managed-care companies with pay for the heads of businesses with similar revenues. Considering salary, bonus, incentives and perks, the survey found that the HMO executives make 35% more than their counterparts at similar companies.
The Crystal study identified the following highest-compensated managed-care CEOs in 1994: Norman C. Payson, M.D., Healthsource, $14.3 million; Daniel D. Crowley, Foundation Health Corp., $13 million; William Wayne McGuire, United HealthCare Corp., $6.1 million; George T. Jochum, Mid-Atlantic Medical Services, $4.8 million; Leonard Abramson, U.S. Healthcare, $3.9 million; Stephen F. Wiggins, Oxford Health Plans, $2.8 million; and David A. Jones, Humana, $2.3 million.
The study noted that the 12 managed-care companies performed at the 84th percentile in shareholder returns in 1994, suggesting that their CEOs were being paid well for their excellent performance.
But because those companies performed at the 52nd percentile in shareholder returns in 1995, a decline in CEO compensation would be expected under a pay-for-performance system. Crystal expects to complete an analysis of 1995 executive compensation by this fall.
Meanwhile, a study of HMO executives' cash-only compensation by Doug Sherlock, an HMO analyst based in Gwynedd, Pa., found CEO salaries in fiscal 1994 averaged $535,028, a 16% increase from the previous year. Their companies' estimated operating income increased more than 50%.
The report includes information for fiscal 1995 in the case of companies with fiscal years that ended in June or September. It provides salary and bonus information for CEOs, chief operating officers, chief financial officers, chief medical officers and chief marketing officers of all 22 publicly traded HMOs.
The CEOs of the 12 largest HMOs in the study, with more than a half-million enrollees, had an average salary and bonus cash compensation of $1.3 million, up 37% from the previous year. For six medium-sized HMOs, with 150,000 to 500,000 enrollees, the average CEO cash compensation was $575,061, up 23%. For the four smaller HMOs, with fewer than 150,000 enrollees, the average CEO compensation was $268,708, up 27%, the report said.
Executives of the largest HMOs had bonuses averaging 37% of their total compensation, while executives at the smallest HMOs had bonuses averaging 27% of their total compensation.
Cash compensation for all senior executives per enrollee averaged $4.82, down from $5.71 the previous year. Executive cash compensation averaged 7.3% of company earnings and 0.4% of revenues.