Is the OHA next to experience public wrath over executive bonuses?

It seems there are two choices with regards to executive compensation.

The first is to simply place executives on salary and expect them to do the job they get paid for. That’s how rank and file employees get paid.

The second is to divide compensation, setting out a certain amount as “base” salary, the rest as bonus based on established performance benchmarks.

The Local Health Integration Networks can also claw back a percentage of a hospital CEOs salary if the hospital fails to live up to the terms of its accountability agreement with the LHIN – not that we are aware of this ever taking place.

The LHINs themselves may be a bit gun-shy about using these powers given they themselves are struggling to meet their own performance targets. The Erie-St. Clair LHIN, for example, missed 11 of 14 performance targets for 2010-11.

The New England Journal of Medicine reported that hospitals that have pay-for-performance incentives generally do slightly better on quality improvement but question whether the cost of that quality improvement is worth the money.

Last year we reported on the OHA’s own “independent” report on executive compensation for Ontario’s hospitals. The report recommended that bonuses be pegged at somewhere between 10 and 30 per cent of overall compensation.

Hospitals appear to have taken the recommendation to heart, replacing a percentage of salary with a bonus that has to be earned by achieving quality improvement benchmarks. That means the base salary is actually reduced to make room for the bonus.

Given the present compensation freeze, they have little choice.

The adoption of such compensation schemes includes e-Health, where the public appears to have been recently outraged by an $81,250 bonus payout to CEO Greg Reed. The bonus appears to be within the bonus structure the OHA recommended last year – about 25 per cent of his $329,000 salary. Shortly after Reed became a lightning rod for public dissent, he snuffed debate by declining the bonus.

Now Premier Dalton McGuinty is blaming the Tories for having introduced a similar compensation system for civil service managers, the average amounting to a much more modest 3.6 per cent. In fact, civil service managers were receiving less in bonuses in 2011 ($35.8 million) than they were in 2003 ($36.8 million).

Instead of abandoning the system, McGuinty has ordered a review.

There is no question that like the OHA, there was little criteria to determine whether or not a manager received a bonus. About 98 per cent of managers received their pay-for-performance bonuses, suggesting getting there wasn’t so hard.

It is likely that the bonuses will not be eliminated upon review, but tied to more rigorous performance standards. Then again, in the present political climate, anything is possible.

Trying to beat down the compensation of public sector workers, bonuses offer poor optics for the government, especially when individuals like Greg Reed are offered bonuses that are far more than most Canadians earn as annual salary.

Saskatchewan health care policy analyst Steven Lewis (not to be confused with Stephen Lewis, the former Ontario NDP leader) points out that pay-for-performance “is a profoundly pessimistic concept of what makes people tick in health care: we can’t rely on organizational culture, professionalism, devotion to public service, or commitment to excellence to get the desired results, so let’s just concede that it’s all about the money.”

Given the recent press, the OHA might be wondering why they ever went down the pay-for-performance route in the first place.

If the government simply cuts all public sector bonuses, the CEOs may have just maneuvered themselves into a major compensation cut. Now isn’t that interesting?

2 responses to “Is the OHA next to experience public wrath over executive bonuses?

  1. An interesting read, however one important consideration was omitted. Sections 9.(7) and 9.(8) of the Excellent Care for All Act, 2010 legislates that all hospital executive compensation plans must provide for payments based on assessment of performance. In light of this legislated requirement, it is somewhat disingenuous to characterize this as a recommended direction “taken to heart” by hospitals.

  2. Given the OHA waived around its own “independent” report on executive compensation that recommended significantly larger portions of compensation be made up of bonuses, I wouldn’t say they were exactly reluctant to get on board with this.

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