Hospital chain CEOs exercise stock options as shares rebound

As acute-care hospital chains saw their stock prices climb last year, more CEOs exercised stock options—leading to a boost in overall compensation despite more modest pay packages.

At 132-hospital Community Health Systems, Franklin, Tenn., President and CEO Wayne Smith saw a 19.7% decrease in annual compensation (excluding the value of option awards), but nevertheless saw his total compensation rise after exercising stock options of $4.5 million.

Smith did not exercise any options in 2011, a year when the company's share price was battered during an unsuccessful takeover attempt of 51-hospital Tenet Healthcare Corp, Dallas. But last year was a better one for Community, when its share price increased 77% between the last trading day of 2011 and the final closing bell of 2012.

Nevertheless, the fallout from the Tenet affair led the company's compensation committee to institute a number of actions to align executive compensation with total shareholder return.

Smith most notably saw a 71% decrease in restricted stock awards, which lowered his year-over-year pay package to $16.9 million.

However, when exercised stock options are included, Smith's total realized pay for last year amounted to $21.5 million, compared with $21.1 million the previous year.

Tenet's President and CEO Trevor Fetter had one of the largest pay increases in 2012 after exercising stock options of $32.1 million on top of the $8.6 million he received in annual compensation (excluding option awards.)

Fetter in 2011 earned $10.7 million and did not exercise any stock options.

Like its peers, Tenet saw a buoyant run in the stock market last year as it watched the value of its shares increase 58% over their closing price on the last day of trading in 2011.

HCA's President and CEO Richard Bracken also saw a hefty increase in compensation, largely due to distributions paid on vested stock options. The leader of the industry's largest publicly traded chain with 146 hospitals earned $34.5 million last year, excluding option awards, compared with just $8.5 million in 2011.

At 134-hospital Universal Health Services, King of Prussia, Pa., CEO Alan Miller realized $16.7 million in pay last year—up from $9.7 million in 2011—despite taking a significant hit to an annual bonus award that was based on achieving certain performance targets.

Miller exercised stock options valued at $11.3 million, which comprised more than half of his annual compensation. UHS saw its share price increase 24.4% over the course of last year.

Breaking the mold somewhat, Health Management Associates President and CEO Gary Newsome saw a 16.8% increase in annual compensation to $8.3 million, and did not exercise any stock options.