Ken Berger, president and CEO of not-for-profit evaluator Charity Navigator, Mahwah, N.J., says that the executives in the Modern Healthcare survey were posting atypical compensation figures and rates of growth compared with most not-for-profits, whose executives earned an average salary of $148,972 and a 2.5% raise during the 2007 tax year. Those figures were included in an annual survey by the firm that measures only base pay and expense accounts. Using the same rows of data in the tax forms, association executives in the Modern Healthcare group received an average salary of $640,162, a 23% increase over the previous year.
But then again, healthcare organizations tend to be in a class of their own financially speaking. Of the $1.5 trillion in revenue collected by all not-for-profits in 2007, about 60% of that went to healthcare organizations, which includes hospitals and health systems as well as the associations and societies that support them, Berger says. By comparison, the second-most-lucrative category of tax-exempt organizations is education, which accounted for only 17% of the total revenue. Healthcare is the 800-pound gorilla in the not-for-profit room, Berger says. The sheer amount of money involved is staggering.
Observers say it would not be surprising if providers salary numbers were influencing the compensation packages at their professional associations, since boards composed of member organizations set the salaries and many CEOs are drawn from membership. The IRS reported in February that a survey of roughly 500 not-for-profit hospitals found that CEOs had average total compensation of $490,000 in the 2005 tax year.
Linda Lampkin, research director at the ERI Economic Research Institute, Washington, says the high executive salaries reported by some of the healthcare associations probably reflect the high visibility of the industry they serve, particularly in light of the ongoing reform efforts. Im sure they all want the best possible people and they want them to stay, Lampkin says. This is their lifeblood, and this is a time of big change.
Even so, she says organizations should follow the generally accepted practice of basing compensation on organization revenue, which is grounded in the theory that the impact of an executive decision rises along with an organizations revenue. But Modern Healthcares review found little correlation between revenue size and executive compensation.
Thats particularly the case with Craig Jeffries. He earned total compensation of $722,000 in 2007 as CEO of the American Association of Ambulatory Surgery Centers, which reported total revenue of $428,000 for the same year. He was the only executive on the list whose compensation exceeded his employers reported revenue. The association ceased to exist at the end of 2007 when it merged with competitor FASA to form the Ambulatory Surgery Center Association, whose spokeswoman, Kay Tucker, declined to comment on Jeffries 2007 compensation because the ASCA was not a party to it and Jeffries did not stay on with the new organization. Jeffries also declined to comment.
The second-highest ratio of total compensation to organizational revenue went to Raske of the Greater New York Hospital Association, whose total compensation accounted for more than 30% of the associations revenue for the year. Association spokesman Brian Conway said in an e-mailed statement that Raskes salary reflects the breadth and scope of the associations activities. That includes three for-profit subsidiaries, including a consultancy and two group purchasing businesses that he says drive the associations revenue to nearly $100 million.
The organization that gave out the highest compensation packageperennial list-topper Blue Cross and Blue Shield Associationpaid chief executive Serota $2.6 million and also had by far the highest organizational revenue, $370.8 million. Jeff Smokler, executive director of external affairs, says the association is unique among the groups because although it has the word association in its title, the group administers a health benefits plan for 5 million federal employees.