Spe­cial deals, cir­cum­stances pro­pel health­care CEO pay

Modern Healthcare - - NEWS - By Dave Barkholz

Joe Kiani founded and built his com­pany on sales of pulse oxime­try equip­ment. He’s a phi­lan­thropist who launched the Pa­tient Safety Move­ment Foun­da­tion and a cam­paign con­trib­u­tor who hob­nobs with Demo­cratic and Repub­li­can party elites.

And last year he vaulted to the top of the list of health­care’s high­est paid ex­ec­u­tives through an un­usual golden parachute built into his stock op­tion plan. Fully $111.9 mil­lion of his whop­ping $119.2 mil­lion com­pen­sa­tion pack­age in 2015 came in the form of 2.7 mil­lion shares of re­stricted Masimo Corp. stock that Kiani will re­ceive if he is fired, if con­trol of the com­pany changes or he’s asked to re­lo­cate from South­ern Cal­i­for­nia to stay with the com­pany.

The year be­fore, Masimo paid Kiani just $4.5 mil­lion, ac­cord­ing to a Mod­ern Health­care anal­y­sis of ex­ec­u­tive com­pen­sa­tion at in­vestor-owned health­care com­pa­nies.

Spe­cial deals and spe­cial cir­cum­stances dom­i­nated this year’s list of top-paid CEOs in Mod­ern Health­care’s anal­y­sis. Kiani, 51, was fol­lowed by Hori­zon Pharma CEO Ti­mothy Wal­bert, who pulled in a hefty $93.4 mil­lion in pay in 2015. His re­ward was for ex­e­cut­ing a se­ries of merg­ers with com­pa­nies sell­ing high­priced drugs for rare dis­eases.

Third on the list was Medtronic CEO Omar Ishrak at $39.5 mil­lion, earned in part for over­see­ing the block­buster $42.9 bil­lion ac­qui­si­tion of Ir­ish med­i­cal-de­vice maker Co­vi­dien, which was com­pleted in Jan­uary 2015. By mov­ing Medtronic’s head­quar­ters from Min­neapo­lis to Dublin, the com­pany avoided pay­ing taxes on its over­seas in­come.

Taxes lay be­hind Ishrak’s pay pack­age, too. The Medtronic board gave Ishrak $25.5 mil­lion to off­set a one-time ex­cise tax from the trans­ac­tion. The Obama ad­min­is­tra­tion re­cently is­sued rules lim­it­ing tax in­ver­sion deals.

While some sec­tors of the econ­omy saw a slow­down in top ex­ec­u­tive com­pen­sa­tion in 2015, that wasn’t the case among CEOs in the Mod­ern Health­care sur­vey of 200 top ex­ec­u­tives at pub­licly traded firms. More CEOs saw in­creases than pay cuts in 2015 pay­checks when com­pared with the pre­vi­ous year.

Most CEO com­pen­sa­tion th­ese days comes in the form of stock op­tions or bonuses tied to cur­rent or fu­ture per­for­mance. In some cases, the to­tal num­ber is de­ter­mined by con­sid­er­ing the value of highly re­stricted grants that can be ex­er­cised only un­der spe­cial cir­cum­stances.

Kiani’s golden parachute plan has so far es­caped the op­pro­brium heaped on McKes­son Corp. CEO John Ham­mer­gren in 2013 when he be­came the first health­care CEO to re­port a re­tire­ment pack­age worth more than $100 mil­lion. It was later scaled back.

Kiani ben­e­fited in more ways than one from his exit pro­tec­tion bonus. The com­pany also paid his $1.3 mil­lion le­gal bill for ne­go­ti­at­ing the new em­ploy­ment con­tract, said Chief Fi­nan­cial Of­fi­cer Mark de Raad.

It took Kiani and the com­pany more than two years to reach the agree­ment, which was fi­nal­ized last Novem­ber. Ex­clud­ing this year’s exit pro­tec­tion plan, Kiani’s com­pen­sa­tion is “very con­sis­tent with what other CEOs in the same gen­eral space earn,” $6 mil­lion, with $2 mil­lion in cash, de Raad said.

Born in Iran, Kiani has pushed for pa­tient safety and group pur­chas­ing re­forms with tes­ti­mony be­fore Congress and con­fer­ences head­lined by such lu­mi­nar­ies as Bill Clin­ton. The for­mer pres­i­dent re­ceived a $315,000 hon­o­rar­ium for a speech to the Pa­tient Safety Move­ment Foun­da­tion, ac­cord­ing to IRS fil­ings. Late last year, Masimo added five-term Demo­cratic Sen. Tom Harkin to its soon-to-be five-mem­ber board of di­rec­tors.

Over a decade ago, Kiani led a push to up­end the grip that group pur­chas­ing or­ga­ni­za­tions have over hospi­tal sup­ply-chain ac­tiv­i­ties. He pushed hard to get new tech­nolo­gies into hos­pi­tals and physi­cian prac­tices, es­pe­cially Masimo’s mon­i­tor­ing equip­ment.

The com­pany posted marginally im­proved per­for­mance last year. Earn­ings of $83.3 mil­lion or $1.55 a share on $630.1 mil­lion in rev­enue was slightly ahead of the $1.30 a share the com­pany earned the prior year.

Hori­zon Pharma CEO Wal­bert jumped into sec­ond place among high­est-paid ex­ec­u­tives on the strength of two large stock awards af­ter earn­ing $9 mil­lion the prior year. The board awarded him $47.4 mil­lion in stock op­tions and an­other $43.5 mil- lion in re­stricted shares for “the out­stand­ing stock per­for­mance and sig­nif­i­cant value de­liv­ered to share­hold­ers over the past sev­eral years.”

The proxy noted that the 2015 ac­qui­si­tions of Hype­r­ion Ther­a­peu­tics and Cre­alta Hold­ings would boost Hori­zon’s sales of orphan dis­ease medicines and add $150 mil­lion to ad­justed EBITDA in 2016 af­ter earn­ing $362 mil­lion in ad­justed EBITDA in 2015.

Medtronic’s block­buster ac­qui­si­tion last year of Co­vi­dien vaulted the med­i­cal-de­vice com­pany into the same league as John­son & John­son with about $27 bil­lion in an­nual sales and a mar­ket cap­i­tal­iza­tion above $100 bil­lion at the time of the merger. Even with­out the spe­cial award of $25.5 mil­lion to off­set an ex­cise tax, Ishrak’s base com­pen­sa­tion of $14 mil­lion was up 16% from the $12.1 mil­lion he earned in 2014.

A Medtronic spokesman de­clined to com­ment.

Kiani has pushed for pa­tient safety and group pur­chas­ing re­forms with tes­ti­mony be­fore Congress and con­fer­ences head­lined by such lu­mi­nar­ies as Bill Clin­ton.

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