Some hospital CEOs get bonuses for “unambitious” and declining targets — report

The threshold for CEOs receiving pay-for-performance bonuses in Ontario hospitals can be very low. Today’s panel report commissioned by the Ontario Hospital Association suggests some hospital CEOs receive bonuses on targets that are set below existing performance levels.

In other words, a hospital’s performance can decline and the CEO can still get his or her bonus.

The report – put together by executives from the public and private sector – calls Ontario hospital CEO compensation reasonable at a median of $266,000 annually, but suggests there are inconsistencies particularly among mid-size hospitals.

During the last election the NDP had called for a cap on hospital CEO salaries at twice the salary of the Premier: $418,000 per year. The report indicates 25 per cent of Ontario hospital CEOs make more than twice the compensation of the Premier.

The report says hospital CEO salaries are slightly less than university presidents – its nearest comparator. They do not compare hospital CEOs to provincial deputy ministers, who have a compensation guideline of about $220,000 a year.

This spring the provincial budget called upon hospital CEOs to reduce their executive office budgets by 10 per cent over two years. However, as reported in this BLOG, the Ministry later clarified that this did not necessarily mean a reduction in executive salaries, that clerical and support staff could be laid off instead.

Did this occur? The report is coy in stating that “to date there have been no legislative provisions to support this action.”

The report puts hospital CEO salaries in the bottom 25 per cent of private sector executive salaries. They recommend private sector compensation be used as a future benchmark even though there is broad consensus that corporate executive salaries have been rising at an unsustainable rate. Last year average CEO compensation in Canada’s top 100 corporations rose an average of 13 per cent. Does that mean hospital CEOs should have a similar raise as long as they remain in the bottom 25 per cent?

The report also indicates that what we are seeing in the sunshine reports may not entirely reflect the whole story. For example, some CEOs receive a SERP – a supplemental employee retirement pension plan. Four Ontario hospital CEOs receive SERPs that are over and above contributions to HOOP – the Hospitals of Ontario Pension Plan. Others receive a SERP in lieu of HOOP. Public contributions to a SERP – which is fixed benefit plan – can range from below $50,000 to above $200,000 a year. Hospitals are not required to report SERPs as benefits in the sunshine list.

The report says total individual CEO compensation should be made public. The sunshine list can often distort the real story given CEOs can start or leave midway through a year, the reported compensation can contain retroactive or severance pay, and not all benefits are included (such as the SERPs).

While Ontario legislated a pay-for-performance component to CEO compensation, some hospitals have made it an insignificant amount – as low as 2 per cent. The report states: “hospitals that introduced pay-for-performance in response to Bill 46 have struggled to identify performance expectations and to introduce performance-based compensation while at the same time complying with a two-year salary freeze for non-union employees.” The report says a number of hospitals have set “unambitious quality improvement targets” as part of this scheme.

While hospital CEOs have long told rank and file staff to suck it up with regards to austerity, the report indicates that changes in compensation practices appear to have “hurt morale” and made it more difficult to attract qualified senior managers.

Yet the background of existing CEOs suggests that only 40 per cent had previous experience as a CEO, most coming up the ranks. Only 47 per cent of hospital CEOs have clinical education credentials and just one has a PhD in management education. Slightly more than half – 55 per cent – have a master’s degree in management education.

Other recommendations from the panel include the use of a standard hospital executive compensation framework and template, pay-for-performance bonuses set at between 10-30 per cent of base compensation, standardized severance agreements, and enhanced training for boards in executive compensation issues.

The panel believes that CEO compensation should still rest with the hospital boards.

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