Greater accountability for hospital CEO pay

Ontario proposes pay-for-performance approach in new bill
By Sarah Dobson
|Canadian HR Reporter|Last Updated: 05/17/2010

As CEO and president of Hamilton Health Sciences, a group of six hospitals and a cancer centre in Hamilton, Murray Martin was paid $705,000 in 2009. But if he worked in the private sector, his pay would be much more.

“In terms of my own compensation, in a similar sized, similar complexity, private sector organization, I would be paid three to four times what I make,” he said.

Dramatic rises in CEO pay at hospitals in recent years are partly driven by more physicians being attracted to these roles and partly to stay competitive with private sector opportunities, he said.

“It’s just been truly unbalanced,” said Sharleen Stewart, president of Service Employees International Union (SEIU) Local 1 Canada.

“Some of these feel like entitled salaries that are just so far out of sync with everything else that’s going on in the health-care system, when you see hospitals (where) their own operating budgets are being cut right down to 1.5 per cent and you see the other salaries of front-line workers cut or asked to be frozen, and there’s also the whole staffing issue.”

And yet some feel the salaries of top executives at Ontario’s hospitals have gone too high, with little justification. SEIU has urged the government to set a base salary rate for hospital CEOs and to measure performance based on how executives co-operate with other hospitals and community partners to share best practices and improve patient care across local regions.

In looking back at the last five years, on average, there has been a 25-per-cent increase per year of the compensation of hospital CEOs in Ontario, according to the SEIU. Dan Carriere, CEO of Southlake Regional Health Centre in Newmarket, Ont., for example, has seen gains of 81 per cent in that period, said Stewart.

But executive compensation is just part of the equation, said Kevin Smith, president and CEO at St. Joseph’s Healthcare Hamilton.

“If you added up all of the salaries of the CEOs in Ontario, it would be less than one per cent of the shortfall in Ontario hospitals this year,” he said. “If we think that’s going to solve the problems of health care, it’s not a chance; it really is about aligning incentives across the continuum of the system.”

And a recent announcement by Deb Matthews, Ontario’s minister of health and long-term care, indicates the compensatory practices of hospital CEOs will come under greater scrutiny. Under the Excellent Care for All Act, 2010, the compensation of health-care executives would be connected to the achievement of performance targets in annual quality improvement plans to “create clear lines of accountability between health-care executives and hospitals for the quality of care that’s delivered in hospitals.”

It’s not about compensation getting too high but more about government’s objectives and direction in terms of what they’d like to see the system doing, said Greg Shaw, vice-president of strategic human resource management at the Ontario Hospital Association.

“The issue is really about aligning incentives,” he said.

Hospitals vary in size from very small operations of $5 million to “monsters” of $1.5 billion so there’s obviously going to be wide variation in the total compensation for CEOs, said Shaw.

“Hospitals are extremely complex organizations, some of them with very, very large budgets which are not growing in any particularly large way. And so decisions have to be made in terms of delivering quality services to the public inside the envelope of funds that are available. They’re tough jobs with tough decisions to be made.”

Large health-care organizations increasingly require tougher, highly skilled management and clinical leadership, said Smith.

“With the new legislation, what we’re really likely to see is more robust comparison and more metrics that allow boards and government to test, ‘Are we roughly in line with other peer organizations, number one, and do the outcomes warrant the increases?’”

The SEIU recognizes one salary isn’t going to fit everybody, as hospitals have different services, but boards are not effective in containing the salaries, said Stewart.

“There’s a lot of pressures put on boards when it comes to determining compensation for departments or salaries, et cetera, so that’s why the government has to step in, which will basically regulate and manage how it’s kind of swung out of control here, which then would assist with some of the pressures some boards may be feeling.”

The board at Smith’s hospital looks at the institution’s strategic plan and markers, the government’s plan and the status of health in the community when conducting his performance review, said Smith.

“Our board has now embarked on a model that says, ‘It’s a given that you need to be financially responsible, what we’re really interested in is advancing quality with the resources we have,’ so that’s really driving how the hospital allocates resources and how the senior management team and physician leaders get compensated,” he said.

To some degree, pay for performance has already been happening in the past few years, said Smith. For example, with Ontario’s wait times strategy, funding is delivered when a certain volume of work is achieved.

“In the larger hospitals across the province, remuneration based on deliverables has become more the norm than not,” he said.

Wait times, infection rates could be considered

It’s anticipated the quality improvement plans created by each hospital would base at least part of a CEO’s compensation on factors such as how effectively a hospital reduces infection rates, wait times for emergency care or major procedures, and the quality care of patients.

However, performance pay should not actually promote at-risk behaviour, said Martin. For example, if one goal to ensure 20 per cent of a CEO’s pay is to have everyone in emergency admitted within four hours, this could be done by cutting back scheduled surgeries.

“You have to be very careful when you incentivize people as you may not get what you wish for,” said Martin.

In addition, hospitals are independent corporations and it should be clear who is boss.

“If you blur that, you have certain accountabilities to your board of directors and other accountabilities to the ministry,” said Martin.

The board at Hamilton Health Sciences already pays Martin for performance, as a percentage of his pay, and it’s likely certain aspects of that cross over to Ministry of Health priorities, he said.

“There’s already, I think some alignment, so it may not be that difficult to achieve for people that already have a percentage of their compensation (performance-based),” he said.

If many of these markers are already factored into CEO compensation, it’s more about disclosure than amounts, said Robert Levasseur, senior consultant and principal at McDowall Associates in Toronto. And a hospital board — made up of various stakeholders such as community members, union presidents or medical associations — is supposed to have its ear to the ground and emphasize pay for performance, he said.

“You may want to explain why you are paying your CEO and senior management the way you are because you want to emphasize certain things and, as long as you’re disclosing things, at least you’re doing diligence and showing you’re governing your hospital.”

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