MetroHealth System’s Executive Pay and Bonuses Spark Concern
August 10, 2011, BySarah Jane Tribble, The Cleveland Plain Dealer
The pay packages of MetroHealth System's top-tier executives -- base salary plus potential incentives -- ranks near the top 25 percent when compared to that of similarly sized health systems, according to a report by a national compensation adviser.
The report, completed in April and provided to The Plain Dealer last week, provides an inside-look at the way MetroHealth pays 18 executiveswhen county leaders and the public have questioned the spending practices of the county-owned health system.
MetroHealth hired Mercer, as it has for at least four years, to review the system's executive-level pay and severance policy to determine if they were in line with industry averages.
What Mercer found this year was a staff with "more competitive pay levels than has historically been the case" -- including one salary so high that the firm suggested a review of whether it was "reasonable."
Mercer recommended that the system's severance policy, as well as incentive, or bonus, plans for executives be formalized. They called both "discretionary," meaning that higher-ups had the authority to decide who got what and for how long.
The firm did not say the overall salary, severance or bonus amounts were too high.
MetroHealth instructed Mercer to compare the system with public, academic health systems of similar size, which may include but not be limited to other county-owned hospitals. The methodology of the review was redacted in the version provided to The Plain Dealer.
MetroHealth board member John Moss, who reviewed the report for the first time late last week, called it "disconcerting." He was particularly bothered by the salaries, saying the health system's administration had told the board that the compensation was "closer to the middle."
"They seem to be closer to the top 25 percentile," Moss said. "[It's] not what we've been told."
Moss said that some of the volunteer board members who oversee the health system have requested that Mercer present their study to the trustees and that an open personnel committee review top salaries.
Cuyahoga County Councilman Dave Greenspan, who has been critical of the health system's payroll spending and separately requested and reviewed the Mercer report, called the salaries outrageous. The county owns MetroHealth's buildings, provides an annual subsidy and appoints the board that oversees the system.
"The money has got to go toward health care and it's going toward executive salaries," said Greenspan.
Mercer suggested the compensation package for Craig S. Richmond, the system's vice president of revenue cycle, be reviewed by a personnel committee because "market values alone cannot support this level."
Richmond, a certified public accountant, accepted the job last year and can earn up to $311,422 annually with bonus and benefits. He is charged with finding more revenue for the hospital, such as improving billing and coding as well as other initiatives, and has addressed national audiences on the subject. Richmond did not respond to a request for comment.
Last week, The Plain Dealer reported that 42 executives and high-level employees who have left the system since 2008 received more than $4 million in consulting contracts in lieu of severance.
As part of his ongoing inquiry into spending at MetroHealth, Greenspan also reviewed the contracts and announced late last week that he wanted proof that former MetroHealth employees were working the consulting hours outlined in those contracts. He requested time sheets, payroll records and invoices for those former employees.
MetroHealth Chief Executive Mark Moran and other executives at the system have said the Mercer report validates those contracts written in lieu of severance.
The Mercer report states that the amount of time -- 6 to 12 months -- of the executive severance policy is comparative to market competitors, though it does not specifically say whether the amount being paid is competitive.
Moran sent an internal message to employees that any cost associated with the contracts "will be recouped many times over through our streamlined and more effective organization."
Moran goes on to write that the contracts "support our ability to recruit the best and brightest talent."
MetroHealth Chief Administrative Officer Dan Lewis, who's salary is part of those reviewed in the Mercer report, said the report was done to "give confidence to the board that our compensation practices are directionally correct."
Mercer states that, in the aggregate, executive base salaries, not including incentives, are 3 percent above the market median. That means that without bonuses, executive compensation does come in closer to the 50th percentile.
MetroHealth began it's bonus program for executives a few years ago and while bonuses are a "possibility," they are "far, far from a certainty," Lewis said.
Executives did receive bonuses in 2010 for work done in 2009 -- the year the hospital system reported a net income of more than $50 million. The system has not given bonuses for work done in 2010, but those recommendations could still come, Lewis said.
MetroHealth has increased the salaries of some executives since the Mercer report studied the compensation, Lewis said.
The Mercer report recommends "slowing down the base salary increases for executives" and, instead, increasing the bonuses.
While most executives are eligible for a 20 percent bonus each year, Mercer suggests increasing that up to 35 percent, and making the awarding of bonuses more dependent on the system reaching certain financial goals.
That suggested increase, which Lewis and MetroHealth Board Chair Ron Fountain said they would consider, could put some executives above the 90th percentile of compensation when compared to other similar institutions.
The bonuses are necessary, Mercer states, to stay competitive and retain good people.
"This is responsible leadership, responsible management," Lewis said. "I do think it keeps us true to our mission. You can't get to [a positive bottom line] without having the right people."
Mercer noted that Moran is paid on the low end of the market rate. Moran's total pay package with a $550,000 annual salary, a $150,000 bonus and cash payments for benefits was worth $825,000 last year.
Moran, a former consultant, has a one-year contract that is paid to his own firm, called Moran Associates LLC. That contract expires in March. His severance policy of three months base salary, according to Mercer in a separate report, is "below the market median practice of 18 to 24 months."
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