In­cen­tives added

An­nual sur­vey of as­so­ci­a­tion ex­ec­u­tive com­pen­sa­tion shows pay ris­ing faster than rev­enue growth, with per­for­mance tar­gets in­creas­ingly part of the plan

Modern Healthcare - - SPECIAL FEATURE - Me­lanie Evans

Large health­care as­so­ci­a­tion ex­ec­u­tive for­tunes made healthy gains in 2011 as the in­dus­try con­tin­ued to grap­ple with the tran­si­tion and un­cer­tainty of health re­form, ac­cord­ing to re­sults of Mod­ern Health­care’s lat­est look at pay­outs for top ex­ec­u­tives for the in­dus­try’s in­flu­en­tial trade and pro­fes­sional groups.

Or­ga­ni­za­tions them­selves, mean­while, showed more mod­est growth.

The list in­cludes names eas­ily rec­og­nized by health pol­i­cy­mak­ers as the pub­lic face for groups that set pol­icy pri­or­i­ties and pro­fes­sional stan­dards for their mem­bers as well as lobby Congress on their be­half.

And in­creas­ingly, ex­ec­u­tive pay is tied to suc­cess on those pol­icy and leg­isla­tive pri­or­i­ties— some­times sig­nif­i­cantly so, says Jef­frey Te­nen­baum, a part­ner with the law firm Ven­able and chair­man of its prac­tice on not-for-profit or­ga­ni­za­tions. Te­nen­baum says he now sees com­pen­sa­tion pack­ages with 25% to 60% of pay tied to per­for­mance.

“The most suc­cess­ful ones that I have seen are the ones that go to the core of the as­so­ci­a­tion’s mis­sion and goals and are not sim­ple nu­meric bench­marks,” he says.

Lead­ers of th­ese ad­vo­cacy and de­vel­op­ment groups saw their aver­age to­tal com­pen­sa­tion— in­clud­ing salary, bonuses, de­ferred and other com­pen­sa­tion and non­tax­able ben­e­fits— in­crease 23% in 2011 from the prior year. Rev­enue, mean­while, edged an aver­age of 2% higher. All data for the an­nual com­pen­sa­tion anal­y­sis is based on in­for­ma­tion drawn from the In­ter­nal Rev­enue Ser­vice Form 990s the or­ga­ni­za­tions file an­nu­ally. The forms are pub­lic in­for­ma­tion and ac­ces­si­ble through guides­tar.org.

The aver­age ex­ec­u­tive in Mod­ern Health­care’s sur­vey of 2011 com­pen­sa­tion earned just shy of $1 mil­lion at $989,686. That’s com­pared with $797,637 the prior year. Fig­ures from 2011 are the most re­cent pub­licly avail­able.

The aver­age an­nual rev­enue for the or­ga­ni­za­tions in 2011 to­taled $39.5 mil­lion, up from $38.9 mil­lion the year be­fore.

High-fly­ers on the list—those with the five largest pay­outs—earned from 190% to 550% more than the aver­age ex­ec­u­tive, but nearly all led sig­nif­i­cantly larger or­ga­ni­za­tions than the aver­age based on rev­enue. The ex­cep­tion is the Fed­er­a­tion of Amer­i­can Hos­pi­tals, which re­ported an­nual rev­enue of roughly $11.1 mil­lion in 2011; the re­main­ing four as­so­ci­a­tions re­ported an aver­age of $210 mil­lion in an­nual rev­enue that year.

The num­ber of ex­ec­u­tives to re­ceive $1 mil­lion or more in com­pen­sa­tion con­tin­ued to in­crease. Four­teen CEOs on this year’s list re­ported at least $1 mil­lion, com­pared with 13 last year and nine the pre­vi­ous year.

The most hand­somely paid chiefs in 2011 in­clude rep­re­sen­ta­tives from the in­sur­ance sec­tor (Blue Cross and Blue Shield As­so­ci­a­tion’s Scott Serota), drug­mak­ers (John Castel­lani of the Phar­ma­ceu­ti­cal Re­search and Man­u­fac­tur­ers of Amer­ica), and hos­pi­tals (Richard Umb­den­stock, Chip Kahn and Ken­neth Raske of the Amer­i­can Hos­pi­tal As­so­ci­a­tion, Fed­er­a­tion of Amer­i­can Hos­pi­tals and Greater New York Hos­pi­tal As­so­ci­a­tion, re­spec­tively).

Serota, pres­i­dent and CEO of the Blues as­so­ci­a­tion, ranked No. 1 with to­tal com­pen­sa­tion of nearly $5.5 mil­lion. That in­cluded roughly $2.5 mil­lion in bonus and in­cen­tive pay­outs. About $1.4 mil­lion of the amount was also re­ported in a prior year. The as­so­ci­a­tion’s rev­enue de­clined 4% in 2011. The as­so­ci­a­tion de­clined to comment on Serota’s pay.

Serota’s com­pen­sa­tion and bonus per­for­mance mea­sures are com­pa­ra­ble with those of ex­ec­u­tives at sim­i­lar or­ga­ni­za­tions, ac­cord­ing to the com­pany’s dis­clo­sure to the IRS.

The prac­tice of com­par­ing CEO pay to other ex­ec­u­tives’ com­pen­sa­tion has met with scru­tiny, though the prac­tice is con­sid­ered nec­es­sary to meet IRS rules for not-for-prof­its to demon­strate steps by the gov­ern­ing board to avoid lav­ish­ing ex­ec­u­tives with ex­ces­sive pay­outs. Crit­ics con­tend us­ing peer groups to jus­tify pay can ar­ti­fi­cially in­flate com­pen­sa­tion when one or two highly com­pen­sated ex­ec­u­tives pull other pay up­ward.

Serota claimed the top spot with the de­par­ture of Billy Tauzin, for­mer chief ex­ec­u­tive at the PhRMA, who re­tired in 2010 but man­aged to re­main the high­est-com­pen­sated ex­ec­u­tive that year for the third con­sec­u­tive year. He left the as­so­ci­a­tion in June 2010 with com­pen­sa­tion of $11.6 mil­lion.

The AHA’s Umb­den­stock, who ranks No. 2, earned just over $3.3 mil­lion in 2011. The pay­out was an in­crease of 88.4% from the prior year, one of the sin­gle largest in­creases among this year’s top-paid ex­ec­u­tives.

About half that amount—nearly $1.5 mil­lion—was a one-time pay­out un­der Umb­den-

stock’s re­tire­ment plan, AHA spokes­woman El­iz­a­beth Li­etz says. His per­for­mance bonus ac­counted for an­other $90,598. The AHA’s rev­enue in­creased 4.8% in 2011.

An­other hos­pi­tal as­so­ci­a­tion ex­ec­u­tive also ranked among the high­est paid with one of the big­gest raises. Ken­neth Raske, pres­i­dent and CEO of the Greater New York Hos­pi­tal As­soci- ation, earned to­tal com­pen­sa­tion of nearly $3.1 mil­lion, an in­crease of 89.9%. That in­cluded $662,175 for a yearly bonus and an­other $671,863 paid un­der a long-term in­cen­tive award, as­so­ci­a­tion spokesman Brian Con­way says. The group’s rev­enue rose about 3%.

PhRMA’s pres­i­dent and CEO, John Castel­lani, re­ceived just over $2.3 mil­lion in to­tal com­pen­sa­tion to rank No. 4 on the 2011 list, of which nearly two-thirds was salary and $290,000, or roughly 13%, was in­cen­tive or bonus pay­outs.

Castel­lani’s salary more than dou­bled from $565,456 in 2010. He joined the as­so­ci­a­tion that Septem­ber, suc­ceed­ing Tauzin. Castel­lani didn’t re­ceive bonus or in­cen­tive pay­ments that year. As a re­sult, his to­tal com­pen­sa­tion surged 308.9% in 2011. Rev­enue was largely flat.

“PhRMA com­plied with IRS re­quire­ments and re­ported the com­pen­sa­tion of in­di­vid­ual per­sons as re­quired,” Matthew Ben­nett, se­nior vice pres­i­dent, says in a state­ment.

Chip Kahn, pres­i­dent and CEO of the Fed­er­a­tion of Amer­i­can Hos­pi­tals, fol­lowed Castel­lani at No. 5 with com­pen­sa­tion of $1.9 mil­lion.

The amount in­cluded a pe­ri­odic re­ten­tion bonus re­ported in Kahn’s $545,036 bonus and in­cen­tive pay­outs in 2011, says Jeff Mick­los, ex­ec­u­tive vice pres­i­dent and gen­eral coun­sel.

Kahn’s bonus pay­outs are tied to per­for­mance goals, many as­so­ci­ated with the or­ga­ni­za­tion’s lob­by­ing agenda and ef­forts to meet with mem­bers of Congress, Mick­los says. The or­ga­ni­za­tion’s rev­enue rose al­most 6% in 2011.

Per­for­mance mea­sures tied to progress on reg­u­la­tory or leg­isla­tive goals may be con­crete, such as pas­sage of a high-pri­or­ity state law, Ven­able’s Te­nen­baum says. Oth­ers are not as easy to quan­tify but none­the­less im­por­tant. Some per­for­mance in­cen­tives may be more op­er­a­tional, such as how closely spend­ing re­mained within bud­get, or tied to mem­ber­ship re­cruit­ment and re­ten­tion, he says. Ag­gres­sive ex­ec­u­tives may pre­fer more per­for­mance pay, which al­lows them to ben­e­fit when the or­ga­ni­za­tion thrives.

Not all ex­ec­u­tives en­joyed fast-ris­ing pay­outs. In­deed, some saw com­pen­sa­tion de­cline, oc­ca­sion­ally sharply.

Steve Bren­ton, chief ex­ec­u­tive of the Wis­con­sin Hos­pi­tal As­so­ci­a­tion, saw his com­pen­sa­tion fall 50.9% in 2011 to $609,247. The rea­son was de­ferred com­pen­sa­tion paid in 2010 boosted the prior year’s pay­out, says Mary Kay Grasmick, spokes­woman for the Wis­con­sin or­ga­ni­za­tion, which saw its rev­enue dip nearly 3% in 2011.

Lawrence McAn­drews, the re­tired pres­i­dent and CEO of the National As­so­ci­a­tion of Chil­dren’s Hos­pi­tals and Re­lated In­sti­tu­tions, saw his com­pen­sa­tion drop 40.3% to $740,418. A spokes­woman says the or­ga­ni­za­tion could not comment on his pay­out.

Mean­while, Craig Becker, head of the Ten­nessee Hos­pi­tal As­so­ci­a­tion, saw his com­pen­sa­tion slide 4.7% in 2011. “The board takes into ac­count the in­cum­bent’s ten­ure, ex­pe­ri­ence and ac­com­plish­ment of the goals as set and ap­proved by the board,” spokes­woman Beth At­wood says in a state­ment on the as­so­ci­a­tion’s com­pen­sa­tion pol­icy.

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