Hospital CEO pay report a head scratcher

At first blush, it seems undeniably unfair that compensation paid to the executive officers of New Hampshire’s 23 nonprofit hospitals jumped more than 18 percent from 2006 to 2009, when wages for private-sector workers increased less than 5 percent during the same time.

The bounty may not have been as staggering as the largess shoveled to some Wall Street executives during the depths of the economic downturn, but the millions bestowed to the Granite State’s top health care stewards gives pause just the same.

Lest we not forget, the increases were given at a time when many New Hampshire hospitals were reducing staff and employing other cost-cutting measures in an effort to make ends meet. How some hospitals also could find room in their budgets to fund significant increases in CEO compensation is a real head scratcher.

Did the most efficient hospitals reward their CEOs with the top pay? Did the executives paid top dollar preside over hospitals doing the most to fulfill their community missions? Did the CEOs with the biggest paychecks run hospitals providing the highest levels of care?

Unfortunately, those questions can’t be answered because, according to a New Hampshire Center for Public Policy Studies report issued last week, it’s impossible to “draw any conclusions about whether a strong relationship exists between CEO compensation and a hospital’s quality or cost of care, or the level of charitable care provided by a hospital.”

Instead, it turns out the biggest hospitals generally handed out the biggest compensation packages. Salaries have increased at a breakneck pace because they’re frequently based on what other top administrators are earning. This creates an upward spiral of compensation delinked from practical measures of performance.

Furthermore, the center found collecting and analyzing the salary information was particularly challenging because of the many ways hospitals can convolute CEO compensation. Besides base pay, CEOs receive a myriad of other benefits, including bonuses, vehicle reimbursements and deferred salary that make determining totals difficult.

The compensation report was conducted at the request of Attorney General Michael Delaney in an effort to determine if the state’s nonprofit hospitals are meeting their community responsibilities. The attorney general’s Charitable Trust Unit oversees nonprofit hospitals because they are considered to be charitable organizations.

In return for not paying property, business or federal taxes, these hospitals must provide community services, such as charity health care to the poor. This relationship places a greater burden of transparency and responsibility on nonprofits.

That means meeting the IRS’s broad standards for setting executive compensation may not be good enough to ensure these hospitals are operating in the public interest. Rather than determining compensation levels based upon what other top executives are earning, it is time to take a careful look at whether executive pay levels should be linked to performance-based criteria.

None of this is to say any nonprofit hospital CEO was overpaid. What the study points out is a need to look more closely at how CEO compensation is reported and how the fairness of that compensation is evaluated.