OHA unveils proposed framework for executive compensation at hospitals

Recommendations include tying up to 30 per cent of pay to organization goals
By Amanda Silliker
|Canadian HR Reporter|Last Updated: 05/06/2012

Clifford Nordal, president and CEO of St. Joseph’s Health Care in London, Ont., made more than $1.4 million in 2011 and is the second highest-paid public servant in the province, according to Ontario’s “sunshine list” released March 23.

The list — which discloses the salaries of public sector workers earning more than $100,000 — includes many health-care industry CEOs such as:

• Robert Bell, president and CEO of the University Health Network in Toronto ($754,000)

• William Reichman, president and CEO of the Baycrest Centre for Geriatric Care in Toronto ($741,000)

• Mary Haddad, president and CEO of the Hospital for Sick Children in Toronto ($712,000).

That same day, the Ontario Hospital Association (OHA) introduced a proposed voluntary framework for hospital CEO compensation.

“We are in the midst of a budget deficit — $16 billion — and through these difficult times, we need to show transparency and so this allows us to be very transparent in terms of the indicators we’ve used, how we come up with the job evaluations and the different core indicators to help us come up with a framework,” said Julie Giraldi, CHRO and vice-president of health HR leadership at OHA.

The first recommendation is that hospitals base CEO compensation on a complexity matrix that includes budget size, research and teaching intensity, patient volumes, total number of staff, the number of privileged physicians and other factors.

This matrix would be similar to a job evaluation framework but it’s not just for a single organization — it evaluates hospitals across the system, said Giraldi.

A matrix like this would be helpful for Ontario’s 151 hospitals that range from a small hospital in northern Ontario with just emergency acute care and some long-term care to the University Health Network which has three hospitals covering research and “everything else,” said Bill Anderson, a corporate director based in Gravenhurst, Ont., and former member of Ontario’s Independent Expert Panel on Executive Compensation in the Hospital Sector.

“You need some way of trying to find your way through and define those complexities, and break them down into individual factors which would then help point to what would be a fair compensation for a CEO,” he said. OHA’s framework was based on the recommendations from the panel’s December 2011 report.

Another recommendation is hospitals implement a pay-for-performance scheme that would see up to 30 per cent of hospital executive compensation tied directly to provincial and organizational goals.

In June 2010, Ontario’s Excellent Care for All Act was passed requiring all hospitals to implement a CEO pay-for-performance plan. However, the act does not specify what portion of executives’ salaries must be tied to targets.

Thirty per cent would be a good goal for larger hospitals while 10 per cent would be reasonable for smaller ones, said Steve Chan, principal of Hugessen Consulting in Toronto.

“The hard part is calibrating these goals,” he said. “You say 10 to 30 per cent variable but what are the goals? How do you get there or make sure the goals are balanced? So, it’s not so easy to make the goals meaningless but you don’t want to make it so hard that it becomes a disincentive.”

Another recommendation of the framework is to freeze executives’ compensation for five consecutive years, inclusive of the current freeze period. In March 2010, the government of Ontario imposed a freeze on hospital CEO compensation for two years and it recently extended this freeze for another two years to 2014.

Therefore, hospitals would meet this recommendation if they had a freeze in place for one year prior to the legislated freeze or will do so for one year following it, said Giraldi.

“It’s really a careful balance between showing leadership but also not handicapping ourselves to recruit and retain,” she said. “On average, our CEOs are paid less than 90 per cent of organizations of our comparable size and, on average, they are really compensated about the 10th percentile.”

Car allowances also mentioned

The final recommendation is hospitals should review organizational policies regarding car allowances to ensure they are consistent with the Broader Public Sector Accountability Act’s perquisite directives. If a hospital is providing a car allowance to its CEO, it should be reasonable, required and justified in the business case, said Giraldi.

“For example, if you have a CEO that has three different sites in various parts of the province… and they have to travel from one site to the other, then it would make good business sense to allow them to have a car allowance. But you wouldn’t give it to, say, a CEO who has one site,” she said.

While many perquisites, such as club memberships, have been eliminated over the years, car allowances have been left open, which is likely why the issue is being addressed in the proposed framework, said Chan.

HR would play an important role if a hospital chooses to implement the recommendations in the framework, said Giraldi. The framework would place a great emphasis on HR best practices and allow HR professionals to bring their expertise to the table.

“It really profiles HR in a different light by allowing them to be able to be part of this process in moving the organization forward,” she said. “(HR will) provide support to the board in validating, going through the different aspects of the compensation framework, going through the assessment and really being the guiding leader for them.”

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