Hospital boards thinking twice about CEO pay

As hospital governing boards face ongoing regulatory and public scrutiny regarding executive compensation, many directors and trustees are taking a more careful and deliberate approach to executive payouts, said consultants and executives at the American College of Healthcare Executives' 2014 Congress on Healthcare Leadership.

Kenneth Ackerman, chairman of Minneapolis consulting firm INTEGRATED Healthcare Strategies, said well-run boards have grown more cautious and are demanding greater transparency as regulatory scrutiny continues. Boards are examining marketplace comparisons used to set compensation and tying pay to performance more carefully, he said. They also have grown more guarded about severance awards, which have declined.

Trustees' increased attention to executive compensation is merited amid continued public interest and ongoing scrutiny by attorneys general and the Internal Revenue Service, which recently investigated not-for-profit colleges and universities and found poor compliance with good governance practices that protect boards and organizations from penalties, Ackerman said. That not-for-profit higher education review should serve as a warning to not-for-profit healthcare organizations that the IRS may follow suit with them, he warned.

During the University of Nebraska Medical Center's six-month IRS audit, now-retired CEO and president Glenn Fosdick said those good governance practices served his Omaha hospital well.

Increasingly, healthcare organizations have a dedicated governing committee for compensation and should have compensation committee charters and philosophies as well, Ackerman said.

Increased attention to executive compensation comes at a time of rapid hospital consolidations and historically high turnover among CEOs. High turnover rates can inflate CEO compensation as payouts rise with each new incoming executive, but turnover costs extend beyond the CEO's office, Ackerman said. Other C-suite executives often depart when the incoming CEO is recruited from outside the organization, rather than from within it.

Deliberations about executive compensation at 170-bed Emerson Hospital in Concord, Mass., extended for months as the governing board looked more closely at salaries and bonuses after the Massachusetts Nurses Association sought a ballot petition this year to limit CEO hospital pay, said Emerson's president and CEO Christine Schuster.

In California, a similar initiative and broad public attention given to income inequality will only increase public scrutiny of CEO hospital payment, said Thomas Dolan, president emeritus of the American College of Healthcare Executives, who attended the session. Regarding executive compensation, he said, “There is no question in my mind that it will be under attack in coming years.”

Follow Melanie Evans on Twitter: @MHmevans

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