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Are CEOs Worth the Money?

Carrie Vaughan, for HealthLeaders Media, March 6, 2009

Executive compensation is always a hot topic. And given the fact that we're in a recession and 50% of the nation's hospitals appear to be losing money, according to some reports, the salaries and bonuses that hospital CEOs earn will be even more heavily scrutinized.

On average, hospital presidents earned nearly $500,000 annually in salary and other benefits, according to a recent IRS survey of 485 hospitals, with a smaller group of hospitals' CEOs averaging a salary of $1.4 million. So it was no surprise when Sen. Charles Grassley of Iowa, the top Republican on the Senate Finance Committee and a long-time critic of executive compensation, announced this week that he was concerned that such salaries may be too high.

One of Grassley's complaints is that the analysis of hospital CEO compensation is done by consultants (Visit our Lead Time blog to comment on this topic), so he hopes to introduce legislation that would put more pressure on boards to keep salaries in check.

What I'd like to know is whether staff members and physicians think their CEOs deserve their compensation.

Two years ago, Paul Levy, president and CEO of Beth Israel Deaconess Medical Center in Boston, asked this question on his blog. To date, he has received 48 responses—with one as recent as this week. At the time, his total compensation was about $1 million, including a $650,000 base salary, a $195,000 bonus for meeting specific performance metrics in clinical quality, patient satisfaction, and financial and benefits package.

Here's a sampling of some of those comments:

  • "For a $1 billion complex organization like BIDMC, the CEO's compensation is NOT the place to skimp. The best are worth a premium, and you should be prepared to pay it."
  • "A million a year for a hospital CEO? Probably overpaid in my book."
  • You are doing a fantastic job. I just don't think that what you do warrants a million dollar salary in comparison to the job your employees are doing for a tiny fraction of your salary.
  • If a global 20% cut in CEO pay would not result in collapse of the nation's industry (and, I think you can argue that it would NOT), then CEOs in general are paid too highly and there is fat to be cut.

Granted, this is not the best forum to gain a clear understanding of how the organization as a whole views the CEO's value. Perhaps the question should be added to employee satisfaction surveys—does your CEO earn too much, the right amount, or too little?

This knowledge could provide valuable feedback to the CEO. In order to lead effectively, CEOs have got to be on the same page with their staff members and key stakeholders. If there is a huge disconnect in how the CEO views himself or herself and how the rest of the organization views the CEO, then that organization is headed toward troubled waters—if it's not already there.

In addition, should CEOs receive bonuses for basically doing their job? I, for one, am not opposed to bonus payments for meeting certain performance metrics. But how much should that bonus truly be—30%? That is one hefty incentive. I'm not sure if a recession is the time to be handing out bonus payments, either. If your organization has to lay off employees or cut services, knowing that senior leaders still received large bonuses may be a bitter pill for employees to swallow.

Editor's note: Facing $20 million shortfall, Levy recently told staff members in an e-mail that he would be reducing his own pay by 10% and eliminating bonuses for senior managers in 2009.


Carrie Vaughan is leadership editor with HealthLeaders magazine. She can be reached at cvaughan@healthleadersmedia.com.
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