Bonus bonanzas: Association CEOs got healthy pay raises in 2013

Median total pay for healthcare association chief executives earning $1 million or more increased 8.5% from 2012 to 2013, while total pay for all healthcare association CEOs jumped 18.9%, according to Modern Healthcare's analysis of the latest association tax reports.

Twenty association CEOs earned between $1 million and $5 million, compared with 17 in 2012, as the not-for-profit groups regained their financial footing following the Great Recession. The median total compensation among CEOs who earned $1 million or more was $1.5 million.

“You're always going to find more CEOs earning more than $1 million every year you look at paychecks,” said Mark Graham, managing director at CEO Update, an association executive publication based in Washington. “As CEO pay goes up, so does the number who cross over that seven-figure line.”

Prominent chief executives who saw their total pay increase from 2012 to 2013 included Scott Serota of the Blue Cross and Blue Shield Association; James Greenwood of the Biotechnology Industry Organization; Chip Kahn of the Federation of American Hospitals; John Castellani of the Pharmaceutical Research and Manufacturers of America, who is stepping down at the end of this year; and Karen Ignagni of America's Health Insurance Plans, who will be moving to New York-based EmblemHealth on Sept. 1. Modern Healthcare's pay data were drawn from IRS Form 990, which not-for-profit organizations are required to file.

Like other healthcare organizations, a growing number of not-for-profit associations are establishing incentive pay or bonus models for their CEOs. Graham said associations with board members from the corporate sector are familiar with the models because that's often how they are paid. Bonus pay also is gaining popularity because boards are more inclined to accept higher compensation if it's tied to achieving organizational goals, he added.

Serota topped Modern Healthcare's ranking for the third consecutive year, earning more than $5.7 million. His total compensation rose 9% between 2012 and 2013, and his “bonus and incentive” compensation increased 7.6% to $2.1 million.

Kenneth Raske, CEO of the Greater New York Hospital Association, ranked second, receiving $4.2 million in 2013, 20% more than in the previous year. Third in total pay was Castellani, who pocketed $3.6 million, a 20% increase from the previous year. Fourth was Greenwood, whose total compensation jumped 86% to $3.1 million. He received more than $1.3 million in deferred compensation in 2013, compared with $26,232 the previous year. Rounding out the top five was Kahn, who earned $2.2 million in 2013, up 23.5% from the previous year.

Whether the Great Recession had an effect on compensation is debatable, experts say. Compensation was lower during the economic downturn, and there were layoffs and association mergers, said Bob Skelton, chief administrative officer at the American Society of Association Executives. “It was survival for a lot of these organizations,” he said.

But Graham said CEO pay goes up both in good and bad times. In tough economies, CEOs' median rate of increase slows down, but generally pay continues to climb. “An organization can't go without a CEO,” he said. “So they are recession-proof.”

The complexities of the healthcare industry add value to an association CEO's worth, said David Yermack, a professor of finance at New York University who studies executive compensation. Skilled leadership is needed, and organizations, whether for-profit or not-for-profit, have to pay the market rate to get a qualified candidate. A CEO who is also a lobbyist, Yermack said, could add a lot of value by doing that job well, especially considering the highly regulated nature of the healthcare industry.

Continuing pay increases should not be a surprise, Yermack said. The same phenomenon has been occurring in other not-for-profit executive jobs, including pay for presidents of research universities, heads of major foundations and museum directors.

Not every healthcare association CEO enjoyed a pay hike in 2013. Richard Umbdenstock, CEO of the American Hospital Association, saw his total compensation drop 33.1% to $1.9 million. But that is because in 2012, Umbdenstock received five years of accrued benefits from his CEO retention and supplemental executive retirement plans, said Marie Watteau, an AHA spokeswoman. Umbdenstock will retire at the end of the year.

Some executives saw big bonus increases in 2013 while others saw theirs take a tumble. Most of the top-paid CEOs on Modern Healthcare's list received bonus increases, but there were wide variations in the percentages of total compensation coming from bonuses.

Dr. James Madara, CEO of the American Medical Association, received a 191% bonus increase between 2012 and 2013. His total compensation jumped 39.3% to $1.6 million, putting him at No. 9 on the list. An AMA representative said his pay hike reflects that full-year bonuses for 2012 were included for 2013, and his 2012 performance benchmarks were exceeded.

Similarly, the bonus for PhRMA's Castellani skyrocketed 137.7% to $1.5 million in 2013. PhRMA did not provide comment for this article.

AHIP's Ignagni pocketed a $700,000 bonus in 2013 after not earning a bonus in 2012. AHIP did not respond to an interview request.

Farther down the list, Stephen Ubl, CEO of the Advanced Medical Technology Association, saw his bonus drop 51.3% in 2013, while his total compensation shrank 16.5%. An AdvaMed spokeswoman said 2012 was the final year of a three-year incentive program for Ubl, explaining the pay dip. Ubl finished 10th on the list.

Raske of the GNYHA saw his 2013 bonus rise 6.7%. He received $974,906 in retirement and other deferred compensation in 2013, up from $343,538 in 2012. Brian Conway, a GNYHA spokesman, said Raske's compensation reflects his responsibilities with the not-for-profit association and his leadership of its for-profit business arm, as well as his accomplishments over 30 years as the association's president.

State hospital association leaders once again had a strong presence on the list, with Raske, C. Duane Dauner of the California Hospital Association, Lawrence Massa of the Minnesota Hospital Association, Herb Kuhn of the Missouri Hospital Association and Craig Becker of the Tennessee Hospital Association each earning $1 million or more in 2013.

State association CEOs earning between $650,000 and $1 million were Maryjane Wurth of the Illinois Hospital Association, Douglas Leonard of the Indiana Hospital Association, Kirk Norris of the Iowa Hospital Association, Mike Abrams of the Ohio Hospital Association and Steve Brenton of the Wisconsin Hospital Association. Now-retired state association CEOs earning that amount were Joseph Parker of the Georgia Hospital Association, John Matessino of the Louisiana Hospital Association and Dr. Dan Stultz of the Texas Hospital Association.

Dauner's total compensation increased by 1.8% in 2013 to $1.5 million, but his bonus amount dropped almost 41% from 2012. Jennifer Newman, chief financial officer of the California Hospital Association, said the decreased bonus was because a portion of Dauner's cash compensation in 2013 was reported in his base pay, as opposed to being reported as bonus and incentive pay.