Chief executives at Advocate Health Care and Aurora Health Care got big raises in 2017 after negotiating a merger that created the country's 10th-largest not-for-profit hospital network. Rank and file workers are losing their annual bonus this year thanks to the deal.
Employee bonuses were cut as the combined organization, Advocate Aurora Health, works to integrate the two organizations and deliver on the goals of the merger deal inked in 2017. The hospital chains aimed to become more efficient after the merger closed in April 2018, but costs are up and operating income is down.
"The associate award was a legacy program in Illinois (at Advocate Health Care) that was evaluated every year," Kevin Brady, the health system's chief human resources officer, said in an email. "As part of our integration work, and after careful consideration, we hit pause on the award to reevaluate how it may fit into our unified plan moving forward."
Employees were notified in February they would not receive the award this year, according to an internal email obtained by Crain's. The bonus varied by Advocate Health Care employee, with one worker saying it was about $150 annually and another saying it was about $300.
Regardless of the amount, bonuses had been paid for years, and Advocate employees counted on the additional income. Advocate says Aurora Health employees didn't get similar bonuses.
Advocate won't say if top executives received bonuses in 2018. Mandatory compensation filings with the IRS for next year aren't due yet.
Former head of Downers Grove-based Advocate Health Care Jim Skogsbergh, one of two co-CEOs at the combined organization, has been the highest-paid local CEO for five years in a row. He took home $11.7 million in 2017—up 42 percent from the year prior, recently released data shows. Skogsbergh makes nearly 470 times more than Advocate employees currently earning minimum wage in Chicago.
Co-CEO Nick Turkal, former head of Milwaukee-based Aurora, got a 187 percent raise to $11.4 million in 2017. That's about 755 times more than employees earning minimum wage in Wisconsin.
The merger has yet to produce hoped-for improvements in financial performance. Although total revenue at the 27-hospital network rose 3.5 percent to 12.2 billion last year, operating income fell 10 percent as costs rose.
Advocate Aurora in November announced plans to increase minimum wage systemwide to $15 an hour in 2021, four years earlier than a new state law will boost Illinois' minimum wage to that level. SEIU Healthcare, a unit of the Service Employees International Union, called the pledge an "effort to put a pretty face on decades of paying poverty wages."
"A market competitive compensation program is important to our team members and our organization because we know that if our employees feel this is the best place to work, our patients will feel the same way about getting care from us," Brady said. He added this year's compensation and benefit program includes performance-based merit increases, as well as education and career development opportunities.
Employee compensation decisions don't necessarily reflect how well an organization is doing financially, said Aaron Moore, a principal at Mercer who specializes in executive and workforce compensation. "What's the big picture? What other offerings are provided?" he added. "Some are non-monetary," like leadership development programs or the flexibility to move from one part of the organization to another.
However, more health systems in the last several years have closely aligned executives' incentive compensation to quality and patient satisfaction scores as opposed to financial performance, sources said.
Executive compensation at Advocate Aurora, which is reviewed against high-performing peers and guided by an independent consultant, "is performance-based with a significant portion linked to the achievement of both annual operating and long-term strategic goals including safety, quality, health outcomes and financial performance," Chuck Harvey, chairman of the compensation committee of the health system's board of directors, said in an email last month.
Brady said Advocate Aurora is "pleased with the progress our organization has made" around health outcomes, safety, team member engagement and growth. "At the same time, given the challenges facing the healthcare industry," he added, "much work remains ahead as we lead the change, bend the cost curve and enhance consumer experience."