Governance Institute Publishes "Assessing Compensation Advisor Independence" by Tim Cotter
Although the rule does not apply to not-for-profit health care and was not written with this sector in mind, it provides helpful guideposts for such organizations given the potential for governance-related "spillover" from the public company sector. Compensation committees in the not-for-profit health care sector would be well-advised to consider the extent to which applying the prescribed compensation advisor independence factors would strengthen their decision-making process, as conflicts of interest (real or perceived) can compromise an effective executive compensation governance process.
Kathy Hastings and Sally LaFond Contribute to HealthLeaders Media Article, "Volume, Value and Compensation Metrics"
Though few external benchmark resources are available to help create the guiding metrics, boards continue to try to shift away from rewarding solely on organization-wide financial performance and move toward incentivizing for quality and patient satisfaction. Ultimately, though, fiscal goals still dominate when it comes to incentivizing the C-suite.
Modern Healthcare Features SullivanCotter's Comments in "Best Places: Financially Fit, Employee-Oriented, Reform-Ready"
Healthcare remains a bulwark of an otherwise tentative economy, and employment in the sector will grow even faster during the next couple of years if the Patient Protection and Affordable Care Act is fully implemented, according to healthcare employment experts and human resources managers, who say that for now, everyone is “holding their breath” until after the presidential and congressional elections.
SullivanCotter Published in Becker's "5 Steps for Hospitals Reviewing Benefits"
Becker's Hospital Review quoted the 5 action steps in our white paper, Reviewing Executive Benefits
- Revisit your executive benefits philosophy as part of your executive compensation philosophy.
- Ensure your benefits consultant is independent.
- Review executive benefit programs and severance arrangements in light of current, pending and potential legislation to assess the organization's and individual executive's compliance risk.
- Conduct an independent, objective review of your executive benefits program.
- Ensure results are understood in the context of total compensation.
Reviewing Executive Benefits
The following are five key action steps in reviewing your executive benefits program:
ACTION STEP ONE
Revisit your executive benefits philosophy as part of your executive compensation philosophy.
ACTION STEP Two
Ensure that your benefits consultant is independent.
ACTION STEP Three
Review executive benefit programs and severance arrangements in light of current, pending and potential legislation to assess the organization’s and individual executive’s compliance risk.
ACTION STEP Four
Conduct an independent, objective review of your executive benefits program.
ACTION STEP Five
Ensure that the results are understood in the context of total compensation.
Benefits programs are one of the first areas to suffer when organizations battle with managing expenses (attempting to avoid staff layoffs and pay cuts instead) as they are seen as a seemingly easy place from which to extract savings.
Whether this is a temporary reduction to retirement contributions or a longer-term change to the health insurance, the impact is immediate. However, though a more moderate effect, there are savings to be gained at many health care organizations without reducing benefits: vendor management, dependent care audits and program design changes can all be effective tools to reduce cost instead.
Nevertheless, while benefits still play an important part in the compensation package, it is evident that the landscape for providing executive benefits and perquisites is changing. Historically, executive benefits have been a way to provide less-visible forms of compensation. Due to Form 990 reporting requirements, and increased scrutiny of executive compensation, executive benefits and perquisites are now becoming very visible. As such, it is important, now more than ever, for compensation committees to review and understand the executive benefits and perquisites provided to their leadership team.
Many executive benefits have evolved to take advantage of loopholes; over time, the Internal Revenue Service has closed those loopholes. Tax rules have become more restrictive; the tax-mitigation strategies have become more complex. However, despite these patterns of opposition, in actuality any advantages gained from trying to circumvent the impact of the tax rules are quickly eroded by their complexity and the new risks that such strategies often create. Further, few executives have the time or tax background to fully understand their executive benefits, let alone board members who often only review benefits once a year, at most. Many organizations have already taken the step of eliminating or limiting perquisites to avoid such measures.
A once-popular design, flexible benefit programs are being replaced by simpler programs that executives can understand and appreciate. Performance issues, complexity and regulatory uncertainty have led to many executive benefits programs being redesigned in a way that meets both the organization’s and the executives’ needs. While new regulations are periodically proposed, organizations often find that changes to their executive benefits programs are needed, even before those changes are required by law. Organizations should review their executive benefits as part of their total compensation strategy to ensure that the benefits program supports the organizational objectives.
An independent review of benefits is essential and is a best practice in governance. Typically, the depth of review and industry expertise needed requires the use of an outside consultant. However, many consultants also sell insurance, and this can be a conflict of interest if the consultant’s revenue is directly affected by the new benefits design. With an independent consultant, the organization can be sure that the recommended benefits program design is best for the organization, not what generates the most income for the consultant.
Structure of Supplemental Executive Retirement Plan (SERP) Benefits
Hospitals and health systems face many of the same issues as employers in other industries when qualified retirement benefits are considered. The universal trend has been to freeze or terminate defined benefit plans and replace them with 403(b) or 401(k) plans. However, the issues that qualified defined benefit plans present do not translate to nonqualified supplemental executive retirement plans (SERPs). Nonqualified defined benefit plans are an effective way of delivering benefits to executives without the problems that qualified plans face.
THE VOLATILITY OF QUALIFIED DEFINED BENEFIT PLANS
In the past few years, the enactment of the Pension Protection Act and the Financial Accounting Standards Board’s (FASB’s) changes to pension plan accounting have put more focus on defined benefit plans. The FASB rules have further driven a wedge between the finance department and defined benefit plans. Under the new rules, the funded status of the plan (the difference between assets and liabilities) directly affects the employer’s balance sheet position. In many cases, the funded status is the difference between a relatively large asset amount and an equally large liability. A small change in either can make a big difference to the funded status.
Qualified defined benefit plans are required to adhere to minimum funding requirements. Organizations may in one year have a manageable contribution requirement and in the next year have a much larger obligation. Similarly, liabilities may vary from year to year depending on prevailing bond rates, and assets may experience huge swings from day to day. While investment experts are becoming more able to structure the assets so that liabilities and assets move in unison, the volatility of minimum funding contributions and the uncertainty of swings in assets have encouraged many organizations to freeze their defined benefit plans in favor of defined contribution plans.
NONQUALIFIED DEFINED BENEFIT PLANS
While it is widely believed and accepted that defined benefit plans cause more volatility on the balance sheet than their defined contribution counterparts, the distinction between qualified and nonqualified plans is often not made. The argument against qualified defined benefit plans is well articulated, but nonqualified defined benefit plans should not be tarred with the same reasoning.
Nonqualified defined benefit plans do not have the same minimum funding requirements as qualified plans. Therefore, the organization does not have to be concerned with unexpected large cash flows due to asset volatility. The only cash outlay is when benefits are due, which, depending on the design of the plan, may be much more predictable. And in the current environment, financial predictability is highly regarded.
The accounting rules do not take into account any assets in the valuation of a nonqualified pension plan, even if the organization has set aside some assets to pay for future benefits. Therefore, the funded status that now appears on the balance sheet is essentially the liability.
The majority of nonqualified plans aid executives who are, on average, closer to retirement age than the average age of qualified plan participants. The closer a participant is to retirement the less sensitive the liability is to changes in market interest rates. Compared to the qualified plan, there is minimal unexpected balance sheet impact from nonqualified plans.
THE ALTERNATIVE: A NONQUALIFIED DEFINED CONTRIBUTION PLAN
The alternative to a nonqualified defined benefit plan is a nonqualified defined contribution plan, where benefits are contingent on investment returns. Similar to its defined benefit counterpart, a nonqualified defined contribution plan is not required to be funded.
If a nonqualified defined contribution plan is not funded, then the organization is taking on investment risk. With no assets backing the benefits promise, the organization’s costs are directly affected by investment performance, and if the investment performance is higher than expected, then the benefits payment will be much larger. In this case, defined contribution plan costs are more volatile than for defined benefit plans. The most effective way to eliminate the investment risk is for the organization to hold investments that mirror the participant’s investment elections.
The use of a defined contribution approach for a nonqualified plan suggests that the plan should be fully funded. However, this means that less cash is available for the organization to use for other purposes, and ongoing administration and investment management is required.
HYBRID PLANS
An alternative to a traditional nonqualified defined benefit or defined contribution plan is to offer a hybrid plan. The benefits of a defined contribution plan – easy-to-understand account balances and contributions, transparent costs and simple accounting – can be combined with the funding flexibility of defined benefit plans by creating an account-based plan with interest credits. Those interest credits could be based on a fixed rate or a variable interest rate, but would be relatively predictable. This is similar to qualified cash balance plans.
Most SERP benefits in tax-exempt organizations are paid as a lump sum due to the tax treatment. The account-based approach aligns well with the lump sum form of payment and may avoid the complexity associated with the conversion of annuities to lump sums in some defined benefit plan structures.
THE BEST CHOICE FOR YOUR ORGANIZATION
Nonqualified defined benefit plans pose very little risk from a balance sheet perspective, and allow an organization more flexibility in the use of its assets. However, public perception may mean that a defined benefit approach is less desirable. Defined contribution plans are simple, but require funds to be set aside and managed.
Hybrid plans take the best features of defined benefit and defined contribution structures to create a simple, transparent benefit that is easy to communicate to executives, easy to administer and lends itself well to the standard lump sum form of payment.
Becker's Hospital Review Article "4 Things to Know About Advance Practice Clinician Pay" Based on SullivanCotter White Paper
Becker's Hospital Review quoted the four main observations from our Advanced Practice Clinician Pay white paper.
- Nurse practitioners' median salaries in 2011 were $93,642, while physician assistants' median salaries in 2011 totaled $96,575. Both are roughly 8 to 9 percent higher than 2009.
- However, PAs and NPs are expecting higher salaries than what market medians show. An organization that surveyed newly graduated NPs and PAs found that NP graduates expect a salary of $98,000 while PAs expect a salary of $120,000.
- Providing productivity incentives for APCs, although uncommon, is still a significant way to retain talent, and SullivanCotter associates cautioned against abandoning productivity-based incentive plans altogether.
- As healthcare shifts toward preventive and team-based healthcare, the demand for APCs will rise dramatically — and this will consequently force hospitals and others to provide competitive salaries. "The need to balance salary costs against reimbursement will (for forward-thinking organizations) provide opportunities to reward the best-performing APCs and healthcare teams," according to the whitepaper.
Read the full article on Becker's Hospital Review
AMGA and SullivanCotter Survey Data in American Medical News' Article, "Expansion Stanches Losses at Large Practices"
Data from the 2012 Medical Group Compensation and Financial Survey used to examine physician compensation at large practices.
SullivanCotter Co-Sponsors "Governance in Large Nonprofit Health Systems" Study
In the United States, the health care field and society-at-large are in the midst of enormous turbulence. An aging and increasingly diverse population, global and nationwide economic problems of unprecedented complexity, a federal government beset with political conflicts that harm its ability to address important issues, growing evidence of major disparities in health care access, affordability, and quality, and the continuing explosion in medical science and technology are among the powerful forces that are affecting health care providers, payors, and consumers.
SullivanCotter Adds Two National Leaders
August 2, 2012 – CHICAGO – SullivanCotter, one of the nation’s leading independent compensation, benefits and human resources management consulting firms, is pleased to announce an expansion of its health care compensation expertise with the addition of Andrew Lewis as Principal of the Denver office and Jose Pagoaga as Managing Principal based in the Atlanta office.
Andrew Lewis will be responsible for building and managing a team of consultants in Denver as well as developing client relationships throughout the West. Prior to joining SullivanCotter, Lewis worked at Mercer Consulting with a focus on executive and broad based compensation consulting with health care organizations as well as other tax-exempt entities. He brings more than 15 years of consulting experience in human resources and compensation to the Firm. In addition to his primary work with health care organizations, Lewis has also worked extensively for tax-exempt research institutions, including Federally Funded Research and Development Centers (FFRDCs) and national labs, as well as think tanks, membership associations and foundations.
Jose Pagoaga has served as a senior executive compensation advisor to boards and compensation committees for more than 26 years, including his role as the health care performance and rewards national leader at Mercer Consulting. Based in Atlanta, he led the development of Mercer’s consulting standards and analytical methods in response to IRC §4958, and its 2010 study on the state of executive pay governance in not-for-profit health systems. At SullivanCotter, Pagoaga will focus on providing executive compensation to boards and senior management for major academic and community-based health systems, health plans, national tax-exempt organizations and for-profit and publicly traded health care management companies, and will also lead the Firm’s expansion of physician compensation consulting and employee compensation consulting in the southeast region.
“Andy and Jose bring diverse experiences to our practice and deep expertise in health care and executive compensation,” said SullivanCotter CEO, Ted Chien. “I’m confident that their knowledge and skills will be a tremendous asset to our Firm and our clients.”
SullivanCotter is the leading independent consulting firm in the assessment and development of tailored total compensation and reward programs for tax-exempt, not-for-profit organizations. For more than 20 years, the Firm has provided executive and employee compensation, governance, and physician compensation counsel to a wide variety of health care and higher education organizations, associations and foundations. A recognized leader in health care compensation benchmarking, trends and analyses, SullivanCotter has also developed the most widely recognized physician and health care executive compensation surveys in the United States. Building from this unparalleled data, the Firm works closely with executives, boards and compensation committees to devise innovative solutions to attract and retain leadership talent while satisfying not-for-profit missions and regulatory requirements.
SullivanCotter's Article "Life Insurance Versus Traditional Deferred Compensation Designs: 7 Key Questions" Published in Becker's Hospital Review
Life insurance has often been marketed as a tax-efficient way to minimize or avoid the solvency risk and "substantial risk of forfeiture" required by traditional deferred compensation designs in tax-exempt organizations. Split-dollar life insurance was once the answer: What could be better than the employer paying premiums, then getting those premiums back later? For many participants in these plans — and the sponsoring employer — it was too good to be true, with many employers taking large financial losses and participants not receiving the anticipated benefit.
David Cohn describes "Fiduciary Responsibilities: Understanding the Risks" in Enrolled Actuaries Report
Michael Holderman, a senior consultant at Towers Watson in Charlotte, N.C., WilliamBelanger, a senior consultant at Towers Watson in Philadelphia, and Keith Mong, an attorney with Buchanan Ingersol and Rooney in Washington, discussed some of the hot topics in fiduciary and governance oversight that currently are bringing increased scrutiny to this area. They also examined the basics of fiduciary compliance and best practices in structuring proper governance.
The Future of Academic Medical Centers: Strategies to Avoid a Margin Meltdown
According to a recent paper by PricewaterhouseCoopers, academic medical centers (AMCs) are the nucleus of the U.S. health system, yet they face multiple challenges.
Chief among these challenges are: the prospect of funding reductions with more than 10% of revenue under threat, new quality metrics that may weaken AMC’s market perception, and the structural inability to move quickly in a rapidly-changing environment. To survive, AMCs must reinvent themselves by embracing new types of collaboration, re-engineer operations, and use technology as a new kind of extender.
Read this article and chart pack
Kim Mobley quoted in American Medical News article, "Hospital Hiring of Physicians Picks Up Steam"
The January 30th article details how health systems also are looking at ways to hold onto their existing doctors as competition for their services heats up. The article includes data from SullivanCotter surveys.
SullivanCotters 2011 Physician Compensation and Productivity Survey Report Now Available
January 10, 2012 – Chicago – A survey released by SullivanCotter (SullivanCotter), a nationally-recognized compensation and human resource management consulting firm, reports that most hospitals and health care systems increased their physician staffing in 2011 and plan to continue to do so in 2012.
This finding is contained in SullivanCotter’s 2011 Physician Compensation and Productivity Survey Report, now available for purchase. The survey contains data from 424 health care organizations representing 66,400 health care providers and is considered the industry standard.
According to the survey, over the past 12 months, nearly three-quarters of the survey participants reported they increased their physician staffing levels; adding 12 specialists and nine primary care physicians to their staffs on average. Additionally, three-quarters also indicted they plan to increase their physician staffs and mid-level providers over the next 12 months.
“These data are consistent with the labor market shift in physician employment that has been occurring over the past few years,” noted Kim Mobley, practice leader for physician compensation. “We expect this trend to continue for some time. This shift in the labor market has resulted in what has become a highly competitive labor market for physicians as organizations and physicians align to provide services in a high quality, more efficient manner.”
aWidely acknowledged as the industry standard for physician data, the 19thAnnual edition of the survey report represents the most comprehensive physician database among major commercially-available surveys of its kind. It contains data from 424 health care organizations representing 66,400 health care providers. Total cash compensation (TCC) and productivity data are reported on over 212 physician, PhD, mid-level provider (MLP) and administrative MD and PhD specialties as well as 8 medical group executive positions.
This year’s comprehensive report also includes TCC levels paid to Staff Physicians, Program Directors, Medical Directors/Division Chiefs and, for select specialties, Department Chairs. The survey reports productivity data (wRVUs) collections and gross patient charges as well as productivity ratios (TCC to collections, TCC per wRVU, TCC to gross patient charges and collections per wRVU).
Other Key Findings
The survey also found that health care organizations are using increasingly sophisticated compensation plans. Many are basing incentives not just on productivity, but also on physician performance, most often tied to patient satisfaction (74%) and/or quality (72%). Although the amount of compensation typically tied to physician performance has been about 3-5%, it is expected to increase to about 7-10% of physician total cash compensation. According to Mobley, this trend is expected to continue as health care organizations adopt more sophisticated plans and align their physician compensation strategies to future reimbursement methodologies.
Other physician compensation trends to note include: the continued use of on-call pay, as 65% of health care organizations reported paying at least some physicians for call coverage (up from 54% in 2010); the use of non-compete agreements, as reported by two-thirds of the survey participants; and the use of hiring bonuses, as reported by nearly three-quarters of the survey participants.
The 2011 Physician Compensation and Productivity Survey Report is now available for purchase. The cost to health care organizations who participated in the 2011 survey is $500. The cost for organizations agreeing to participate in next year’s survey is $950, while the cost of health care organizations not wishing to participate next year is $2,000. Non-health care organizations must call for the price. A CD containing the survey data tables is included with the purchase of the survey. To order a copy of the survey, please visit www.sullivancotter.com or email surveys@sullivancotter.com.
Hospitals and Health Systems Report Moderate Salary Increases
November 16, 2011, - CHICAGO - SullivanCotter, a healthcare compensation and human resource management consulting firm, has just published the 2011 Survey of Manager and Executive Compensation in Hospitals and Health Systems. This is the nineteenth edition of the respected industry resource. More than 290 health systems and 930 hospitals participated in the survey, submitting data for nearly 23,900 executives and managers between March and July 2011.
A key finding of the survey was that among health systems and hospitals that participated in both 2010 and 2011, base salaries increased on average by 3.1% and 2.7%, respectively. These increases are consistent with the budgeted 2011 salary increases for health systems and hospitals of 2.9%.
“Salary increases continue to be moderate,” noted SullivanCotter Managing Principal Tom Pavlik. “For next year; the data indicate average projected budgets of 3.0% for executives and 2.7% for managers in health systems and hospitals although these data were collected prior to the current economic turmoil. However, we did see around a 4.5% increase in total cash compensation levels.”
SullivanCotter’s Survey of Manager and Executive Compensation in Hospitals and Health Systems provides not only cash compensation data for executive and management jobs in hospitals and health systems, but also data on pay practices, annual incentive plans, supplemental benefits, perquisites, nonqualified retirement plans, and much more.
The 2011 Survey of Manager and Executive Compensation in Hospitals and Health Systems is now available for purchase. The cost to health care organizations agreeing to participate in next year’s survey is $1,000 (includes hardcopy and CD format); for those not wishing to participate, the cost is $2,250 for a hardcopy and $250 for CD format. The survey is also available to non-health care organizations. To order a copy, please visit the Sullivan, Cotter and Associates website at www.sullivancotter.com or call 888-739-7039, or email surveys@sullivancotter.com.
7 Trends for NonProfit Hospital Executives Salaries
After a report was released on the pay packages of Cleveland-based MetroHealth System's top executives — ranking it in the top 25 percent of similarly sized health systems — county officials and board members showed concern about the high compensations. Hospital officials defended the raises, but MetroHealth also announced it plans to cut 450 jobs.
Where are Physician Salaries Heading? 5 Current Trends
Hospital CEOs sent a clear message in a recent Thomson Reuters survey that physician alignment and cost reductions will be at the top of their priorities over the next few years.
However, as more physicians are becoming hospital-employed, will cost reductions and physician alignment come at the expense of physician compensation? Opinions among physician specialists vary on whether their compensation is fair already, and hospitals will have to continue to grapple with the valuation of those salaries, one of the biggest chunks of a hospital's budget.
SullivanCotter and Associates' 2011 Physician Compensation and Productivity Survey recently gathered data from more than 60,000 physicians, residents, mid-level providers and medical group executives. Kim Mobley, principal at SullivanCotter and Associates, gives some insight on growing trends in the world of physician compensation.
How Hospital Executives Can Use Performance, Negotiations to Increase Earning Power
Hospital leaders need to distinguish themselves through performance and negotiate with the board to increase their earning power. Jim Nelson, a managing principal of SullivanCotter, and Deedra Hartung, executive vice president and managing principal of Cejka Executive Search, discuss six ways hospital leaders can increase their earning power.
Sullivan, Cotter and Associates Relocates Detroit Office
August 26, 2011 – Detroit, MI – SullivanCotter (SullivanCotter), a health care compensation and human resource management consulting firm, has announced an office relocation in the Detroit market. The new location is at 4000 Town Center, Suite 1750, Southfield, MI 48075- 1411.
“To continue meeting client needs amidst compensation practice scrutiny and healthcare reform, Sullivan, Cotter and Associates has expanded its consulting and survey offerings. The expansion is attributed to our entire team that is working so hard to make SullivanCotter one of the leaders in the healthcare compensation and human resource management consulting industry,” notes SullivanCotter Founder, Tim Cotter.