Incentives added

Large healthcare association executive fortunes made healthy gains in 2011 as the industry continued to grapple with the transition and uncertainty of health reform, according to results of Modern Healthcare's latest look at payouts for top executives for the industry's influential trade and professional groups.

Organizations themselves, meanwhile, showed more modest growth.

The list includes names easily recognized by health policymakers as the public face for groups that set policy priorities and professional standards for their members as well as lobby Congress on their behalf.

And increasingly, executive pay is tied to success on those policy and legislative priorities—sometimes significantly so, says Jeffrey Tenenbaum, a partner with the law firm Venable and chairman of its practice on not-for-profit organizations. Tenenbaum says he now sees compensation packages with 25% to 60% of pay tied to performance.

“The most successful ones that I have seen are the ones that go to the core of the association's mission and goals and are not simple numeric benchmarks,” he says.

Leaders of these advocacy and development groups saw their average total compensation—including salary, bonuses, deferred and other compensation and nontaxable benefits—increase 23% in 2011 from the prior year. Revenue, meanwhile, edged an average of 2% higher. All data for the annual compensation analysis is based on information drawn from the Internal Revenue Service Form 990s the organizations file annually. The forms are public information and accessible through guidestar.org.

The average executive in Modern Healthcare's survey of 2011 compensation earned just shy of $1 million at $989,686. That's compared with $797,637 the prior year. Figures from 2011 are the most recent publicly available.

The average annual revenue for the organizations in 2011 totaled $39.5 million, up from $38.9 million the year before.

High-flyers on the list—those with the five largest payouts—earned from 190% to 550% more than the average executive, but nearly all led significantly larger organizations than the average based on revenue. The exception is the Federation of American Hospitals, which reported annual revenue of roughly $11.1 million in 2011; the remaining four associations reported an average of $210 million in annual revenue that year.

The number of executives to receive $1 million or more in compensation continued to increase. Fourteen CEOs on this year's list reported at least $1 million, compared with 13 last year and nine the previous year.

The most handsomely paid chiefs in 2011 include representatives from the insurance sector (Blue Cross and Blue Shield Association's Scott Serota), drugmakers (John Castellani of the Pharmaceutical Research and Manufacturers of America), and hospitals (Richard Umbdenstock, Chip Kahn and Kenneth Raske of the American Hospital Association, Federation of American Hospitals and Greater New York Hospital Association, respectively).

Serota, president and CEO of the Blues association, ranked No. 1 with total compensation of nearly $5.5 million. That included roughly $2.5 million in bonus and incentive payouts. About $1.4 million of the amount was also reported in a prior year. The association's revenue declined 4% in 2011. The association declined to comment on Serota's pay.

Serota's compensation and bonus performance measures are comparable with those of executives at similar organizations, according to the company's disclosure to the IRS.

The practice of comparing CEO pay to other executives' compensation has met with scrutiny, though the practice is considered necessary to meet IRS rules for not-for-profits to demonstrate steps by the governing board to avoid lavishing executives with excessive payouts. Critics contend using peer groups to justify pay can artificially inflate compensation when one or two highly compensated executives pull other pay upward.

Serota claimed the top spot with the departure of Billy Tauzin, former chief executive at the PhRMA, who retired in 2010 but managed to remain the highest-compensated executive that year for the third consecutive year. He left the association in June 2010 with compensation of $11.6 million.

The AHA's Umbdenstock, who ranks No. 2, earned just over $3.3 million in 2011. The payout was an increase of 88.4% from the prior year, one of the single largest increases among this year's top-paid executives.

About half that amount—nearly $1.5 million—was a one-time payout under Umbdenstock's retirement plan, AHA spokeswoman Elizabeth Lietz says. His performance bonus accounted for another $90,598. The AHA's revenue increased 4.8% in 2011.

Another hospital association executive also ranked among the highest paid with one of the biggest raises. Kenneth Raske, president and CEO of the Greater New York Hospital Association, earned total compensation of nearly $3.1 million, an increase of 89.9%. That included $662,175 for a yearly bonus and another $671,863 paid under a long-term incentive award, association spokesman Brian Conway says. The group's revenue rose about 3%.

PhRMA's president and CEO, John Castellani, received just over $2.3 million in total compensation to rank No. 4 on the 2011 list, of which nearly two-thirds was salary and $290,000, or roughly 13%, was incentive or bonus payouts.

Castellani's salary more than doubled from $565,456 in 2010. He joined the association that September, succeeding Tauzin. Castellani didn't receive bonus or incentive payments that year. As a result, his total compensation surged 308.9% in 2011. Revenue was largely flat.

“PhRMA complied with IRS requirements and reported the compensation of individual persons as required,” Matthew Bennett, senior vice president, says in a statement.

Chip Kahn, president and CEO of the Federation of American Hospitals, followed Castellani at No. 5 with compensation of $1.9 million.

The amount included a periodic retention bonus reported in Kahn's $545,036 bonus and incentive payouts in 2011, says Jeff Micklos, executive vice president and general counsel.

Kahn's bonus payouts are tied to performance goals, many associated with the organization's lobbying agenda and efforts to meet with members of Congress, Micklos says. The organization's revenue rose almost 6% in 2011.

Performance measures tied to progress on regulatory or legislative goals may be concrete, such as passage of a high-priority state law, Venable's Tenenbaum says. Others are not as easy to quantify but nonetheless important. Some performance incentives may be more operational, such as how closely spending remained within budget, or tied to membership recruitment and retention, he says. Aggressive executives may prefer more performance pay, which allows them to benefit when the organization thrives.

Not all executives enjoyed fast-rising payouts. Indeed, some saw compensation decline, occasionally sharply.

Steve Brenton, chief executive of the Wisconsin Hospital Association, saw his compensation fall 50.9% in 2011 to $609,247. The reason was deferred compensation paid in 2010 boosted the prior year's payout, says Mary Kay Grasmick, spokeswoman for the Wisconsin organization, which saw its revenue dip nearly 3% in 2011.

Lawrence McAndrews, the retired president and CEO of the National Association of Children's Hospitals and Related Institutions, saw his compensation drop 40.3% to $740,418. A spokeswoman says the organization could not comment on his payout.

Meanwhile, Craig Becker, head of the Tennessee Hospital Association, saw his compensation slide 4.7% in 2011. “The board takes into account the incumbent's tenure, experience and accomplishment of the goals as set and approved by the board,” spokeswoman Beth Atwood says in a statement on the association's compensation policy.

Follow Melanie Evans on Twitter: @MHmevans