One answer to high hospital CEO pay

Last modified: 7/9/2012 12:00:00 AM
Are hospital CEOs paid too much? The question is, compared to what?

The analysis of hospital executive pay conducted by the New Hampshire Center for Public Policy Studies at the request of Attorney General Michael Delaney was an interesting, albeit inconclusive, look at whether hospitals are taking advantage of their nonprofit status. Delaney wanted to know how much compensation varied between hospitals. He also wanted to know whether CEO salaries bore any relationship to the cost of the services a hospital provides, the quality of its care, or the amount of charitable care it provided. The answer is no. The metrics used to measure hospital CEO pay, which is determined by each hospital's board of directors, no doubt include a host of factors, but the hospital's bottom line, we suspect, plays a big role.

The study found that executive compensation varied tremendously between small and large hospitals. Rural hospitals paid their chief executives far less - the low in the study was $150,000 for Colebrook's hospital. That finding was no surprise. Nonprofit CEO compensation, however, should be compared not just to the salaries of others in that exclusive peer group, but to the average salary in the community and the average pay of hospital employees. That would be an interesting analysis.

The top salary was earned by the CEO of Catholic Medical Center in Manchester; Concord Hospital's CEO, Mike Green, placed second with total compensation of $845,000 in 2009. That salary is nearly double the northern New England average but about the New England-wide average for a hospital of Concord's size.

Hospitals, like all large for-profit and non-profit organizations, compete to attract and retain skilled top executives. Given his track record, we don't doubt that Green, a Concord native, could make considerably more if he chose to shop his skills around.

We don't know what the average Concord Hospital employee earns, but we're pretty sure that Green doesn't make 185 times that amount, the multiple of worker-to-CEO pay the Economic Policy Institute found when it looked at 2009 figures, which included the pay of the CEOs at the nation's largest corporations.

Still, $845,000 is a very big salary by Concord standards.

The state, and every municipality, has a duty to consider whether a non-profit justifies its tax exempt status. Executive salaries are part of that question, but the current method of deciding whether an executive is worth an annual salary that can exceed the lifetime earnings of a low wage worker is grossly flawed. No board wants to pay its CEO less than average for an institution its size. Hospital boards, a University of Delaware analysis concluded, start their compensation at the 50th percentile and commonly look at a salary figure that's 75 to 90 percent of what executives of comparable hospitals earn. That creates a ratchet effect that only moves upward. It's in part the reason why the Economic Policy Institute found that average CEO compensation increased 725 percent between 1978 and 2011 while average worker pay went by just 5.7 percent in the same time span.

New metrics could be devised to measure the worth of CEOs and non-profit boards and the IRS and shareholder organizations are trying to do just that. We wish them luck, but there's another way to address the income gap, one that's been steadily shrinking the ranks of the middle class for a generation. Let CEOs command what they can they can on the open market, but use the tax system to recapture much of their pay for the public good. That's what the United States long did and what the nation should do again.




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