Healthcare's highest-paid association executives finished 2004 flush with cash.
And for the remaining 30 or so executives surveyed for Modern Healthcare's latest association salary report, the year wasn't so bad either.
Association executives' compensation grew an average of 12% from a year earlier and half saw their compensation rise 6% or more, Modern Healthcare found. Among the highest-paid executives, compensation rose solidly, and, in some unusual cases, spectacularly. That compares with a median increase of 6% over two years for association chief executives across all industries, according to the American Society of Association Executives' 2004 survey.
Among the big winners in Modern Healthcare's survey was Scott Serota, Blue Cross and Blue Shield Association president and chief executive officer. He reclaimed the top spot on the 2004 list with a 17% increase to $1.5 million in overall compensation. Serota ousted Richard Davidson, president of the American Hospital Association, who topped the 2003 list. Davidson reported $1.38 million in 2004 compensation, a 4% increase. (See chart) This year, Davidson edged out C. Duane Dauner to claim the No. 2 spot -- despite the California Hospital Association CEO's 99% boost in total compensation in 2004.Download association executive compensation chart as PDF
That astronomical jump, from $690,459 in 2003 to $1.37 million a year later, is a misleading anomaly, say officials from the trade group. The figure includes a one-time advance payment of Dauner's deferred compensation fund, says Cynthia Schneider, the association's chief financial officer. The money will be paid out over time according to Dauner's contract.
Not all hefty increases on Modern Healthcare's list were because of accounting. Others, like National Alliance for Health Information Technology President and CEO Scott Wallace and American College of Emergency Physicians Executive Director Dean Wilkerson, reported 79% and 133% increases in 2004, respectively. The reason: Both Wallace and Wilkerson assumed their jobs in April 2003; neither earned a full year's compensation in 2003. Wallace earned $363,962 in 2004 compared with $202,823 a year earlier. Wilkerson's total compensation reached $323,188 in 2004, up from $138,449 reported in 2003.
Karen Ignagni, president and CEO of America's Health Insurance Plans, posted a more modest 4% increase after fluctuating benefits drove her 2003 compensation up by 49%. Ignagni finished 2004 with $1.24 million in total compensation, landing her at No. 4. Rounding out the top five was Kenneth Raske, president of the Greater New York Hospital Association, whose pay, benefits and expenses totaled $1.14 million in 2004, a 4% increase.
Now in its fifth year, the Modern Healthcare survey uses compensation figures -- salary, benefits and expense allowance -- from not-for-profit Internal Revenue Service filings, called the Form 990. Though associations' fiscal years vary, the survey reports figures for the most recent publicly available tax year. The magazine added a handful of organizations to the latest list: the ACEP, the Association of Community Cancer Centers, the Emergency Nurses Association, the National Quality Forum, the National Committee for Quality Health Care, the American Health Quality Association and the Health Industry Group Purchasing Association.
Federal tax filings sometimes present a skewed picture of not-for-profit executives' pay, as Dauner's or Val Halamandaris' cases illustrate. Halamandaris, president of the National Association for Home Care & Hospice, plummeted to No. 18 on the fifth annual list from No. 5 a year earlier. His 2004 total compensation plunged 52% to $429,796 after skyrocketing 120% in 2003 to $890,141. Why? His 2003 compensation included a one-time payment to offset voluntary pay cuts in two previous years.
Vague accounting standards and the Form 990's rudimentary reporting criteria obscure or leave out details that explain executive pay or benefit fluctuations, including payouts or bonuses, say critics. Sandy Williams, a vice president for search firm Witt/Kieffer, calls the tax records "only marginally useful" for monitoring compensation. For the public and regulators, however, it is the primary source of information on the pay, perks and benefits of not-for-profit executives.
Efforts to improve accountability at investor-owned and tax-exempt companies have sparked efforts to improve Form 990 disclosure. Starting in 2005, not-for-profits will be required for the first time to report payouts to former executives or directors. Regulators also added Form 990 questions that force disclosure of how many individuals vote during board meetings, whether an organization has a written conflict-of-interest policy, and which leaders, officers or directors have family or business relationships with each other. Finally, 2005 not-for-profit tax filings must disclose if leaders earned compensation from a company that shares common control with their organization, whether the other group is not-for-profit or for-profit.
That may affect two not-for-profits on Modern Healthcare's list that currently sidestep public disclosure of executive compensation by outsourcing management positions. In 2004, Julian Roberts, executive director of the National Association of Specialty Health Organizations, and Robert Betz, executive director of the Health Industry Group Purchasing Association, were contractors, not employees.
The IRS' new not-for-profit rules came out just as the Securities and Exchange Commission published its own rule changes that would give investors and watchdogs more explicit reporting of how and how much governing boards award executives in perks, benefits, incentives and salaries. New rules call for investor-owned companies to produce a first-ever grand total of the chief executive's compensation. Not only that, but disclosure must be in "plain English" (Jan. 23, p. 12).
In both cases, regulators targeted concerns that poor disclosure kept the public uninformed and left companies vulnerable to abuse. The SEC argued its revamp was necessary so shareholders could gain information to ensure the market compensates executives appropriately, says Steve Seelig, executive compensation counsel for Watson Wyatt Worldwide.
Congressional critics, consumer advocates and state attorneys general say the same transparency is needed among not-for-profits to guarantee tax-exempt organizations deliver on their charitable mission.
Recent so-called soft audits by the IRS of not-for-profits, including hospitals and health systems, turned up several compensation concerns, including potential conflicts of interest among committees that set CEO pay and unreported fringe benefits and perks, such as company cars. In a recent letter to the AHA, Senate Finance Committee Chairman Chuck Grassley (R-Iowa) cites executive compensation among his numerous concerns about tax-exempt healthcare's governance.
The IRS' soft audits focused on poorly reported facets of not-for-profits' executive compensation, particularly perks and deferred compensation that are expected to accrue value, says McDermott, Will & Emery partner Ralph DeJong. Further 990 changes may not emerge before late 2006, but expect the IRS to act on shortcomings uncovered by soft audits and SEC reforms, he says. "The SEC is out there ahead of the curve" and the IRS may follow, DeJong says.
Just as the federal Sarbanes-Oxley Act, aimed at improving governance among investor-owned companies, raised expectations for all companies, so may the SEC's reforms improve executive compensation disclosure among not-for-profits, agrees Richard Menson, a partner with McGuireWoods.
As it stands, data by which to compare compensation among healthcare association executives are hard to come by. Healthcare and medical associations made up 16% of roughly 680 organizations included in the American Society of Association Executives' 2004 survey of top executives' pay and other compensation. However, few surveyed reported the revenue of giants such as the Blue Cross and Blue Shield Association's $270.6 million or the AHA's $91.3 million, and the society found a strong link between revenue and compensation. Larger organizations usually pay higher salaries.
Overall, chief executives of associations with $15 million or more in revenue reported median compensation of $304,107 in 2004, up 6% from $286,000 in 2002, the society found. In 2004, healthcare and medical trade group chief executives reported median compensation of $155,185; comparable figures from 2002 are not available, says Chris Vest, a society spokesman. Witt/Kieffer's Williams, who handles healthcare association executive searches, says compensation comparisons yield little valuable information given the sector's diversity in size, membership, services and executives' experience levels.
In a competitive market for top talent, not-for-profit healthcare association executives may enjoy an advantage. Turnover is low among association executives, in part because boards strive to keep leaders who can successfully juggle the public policy concerns, internal politics and the ins and outs of healthcare's complex market, "and that's sometimes reflected in compensation," Williams says.
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