Severance Raised Hospital Chief's Pay to $7

Severance raised hospital chief's pay to $7.7M

BY LINDY WASHBURN, North Jersey.com, December 23, 2010

John P. Ferguson received a severance package of more than $5 million when he was forced out as president of HackensackUniversityMedicalCenter last year, bringing his total compensation for 2009 to $7.7 million, according to recent federal tax filings.

His senior vice president for operations, Doreen Santora, received $2.6 million — including more than $1.5 million in severance — when she left in the executive reshuffling that followed, the documents show. In all, seven top executives at the non-profit hospital each received more than $1 million in total compensation in 2009, up from five the year before.

The compensation packages came in a year in which tax filings show the 775-bed medical center employed 317 fewer staff and Moody's Investors Service downgraded its credit rating to Baa1, leading to higher interest payments when new debt is issued.

Two law firms also recommended a top-to-bottom overhaul of governance, including compensation practices, after the federal conviction of a state senator who was a paid consultant to the hospital.

That overhaul was prompted in part by the fact that only a handful of board members were aware of the millions of dollars in pay and perks that had been handed out to executives over the last few years. Several employees saw their overall compensation double or triple.

Board members expressed "sticker shock" when they first learned of the compensation numbers at a fall 2009 meeting, said J. Fletcher Creamer Jr., who completed his term as chairman of the board of governors in March.

"We went through every single executive" whose salaries must be disclosed on the IRS form for non-profit institutions, Creamer said in an interview earlier this year. "It's the first time they actually saw it. … We always made the numbers available if they wanted to come see it, but not everyone looked."

Now, under bylaws adopted this year, Hackensack's parent board must be told the compensation of top executives — and then vote on it.

"They're going to have to vote on it and approve it, which is a significant change," said Thomas Flynn, the hospital's chief compliance officer.

Creamer and Robert C. Garrett, Ferguson's successor, said the changes put the medical center at the forefront of hospital governance. "We've raised the bar," Garrett said.

Tax exemptions

In the last two decades, HackensackUniversityMedicalCenter has grown from a community hospital into the state's busiest, with nationally known specialists in cancer care, stem cell and organ transplantation, pediatrics and trauma, among other fields. It has been ranked one of the nation's top 50 hospitals for four years by an independent rating service using Medicare data.

But its executive compensation raises questions, some experts say.

"They are spending taxpayer money," said James Abruzzo, co-director of the Institute for Ethical Leadership at RutgersBusinessSchool and a compensation consultant to non-profit organizations. "The institution has a tax exemption, which means everyone else's taxes are higher."

Hackensack receives at least $480 million a year in public funds, and millions more in donations and tax exemptions. Forty percent of its $1.2 billion in revenue comes from taxpayers in the form of reimbursement for Medicare, Medicaid and charity-care patients. In addition, the hospital is exempt from sales, income and property taxes — the equivalent of a government subsidy.

Executive pay in the health industry also contributes to the nation's high health care costs and the rising insurance premiums and copayments charged to patients.

"There is some ethical duty to think hard about how a large salaries-and-benefits package and severance package is going to look, at the end of the day, to taxpayers who support the institution and give it certain tax privileges to serve the community," said Arthur L. Caplan, founder and director of the Center for Bioethics at the University of Pennsylvania.

"Those who try to manage [non-profits] and who serve on their boards are held to a different standard of pay and compensation," Caplan said, "than what the public associates with the head of Google, or a movie star, or a sports figure."

Compensation jumped

Ferguson's 2009 payout after 23 years as president came after his compensation more than doubled between 2006 and 2008, according to the tax filings. By comparison, hospital chief executives around the country averaged increases of less than 10 percent a year in 2007 and 2008, according to a major hospital consulting company, Sullivan, Cotter and Associates.

An independent compensation expert verified The Record's analysis of the hospital's tax filings, but cautioned that year-to-year comparisons were difficult because the IRS forms contained less detail prior to 2008, when the reporting rules changed.

In 2006, the tax filings show, Ferguson earned $1.1 million in compensation and $222,000 in benefits and deferred compensation.

The next year, his total package came to $3.5 million, and included $2.8 million in compensation and $660,000 in contributions to employee benefit plans and deferred compensation.

And in 2008, Ferguson's total was $3.4 million: a base salary of $1.2 million, $391,000 in bonuses and incentives, $596,000 in what is listed as "other reportable compensation," $22,000 in non-taxable benefits (such as health insurance) and $1.2 million in deferred compensation.

That was more than the compensation earned by the chief of MemorialSloan-KetteringCancerCenter, one of the world's top cancer research and treatment centers, whose budget was more than a billion dollars larger than Hackensack's, records show.

Ferguson is now CEO and chairman of the board of Blue Horizon International, a company founded by Hackensack orthopedic surgeon Brian Mehling to manage and develop hospitals in Dubai and other Arab nations as well as China. Santora is listed as the chief operating officer of Blue Horizon.

Neither Ferguson nor Santora responded to requests for comment.

"We cannot comment on the details of any payments made to former or current executives," Nancy Radwin, a hospital spokeswoman, said in a prepared statement Tuesday.

Pay and perks

The IRS tax filings provide some details of the pay and other perks for Hackensack's top executives:

* The hospital provided first-class or charter travel, companion fares, discretionary spending accounts and personal services such as a chauffeur to certain executives. The records do not identify the recipients, except for the companion travel, which was attributed to Ferguson and two board members.

* Garrett, who was chief operating officer until May 2009, received more than any hospital president in Bergen or Passaic County while he was still second-in-command. His 66 percent growth in total compensation from 2006 to 2008 resulted in a package totaling $1.7 million, just shy of the $1.9 million average for the presidents of 16 New York-area hospitals that Hackensack considered its peers. Last year, when he was named CEO after a few months as acting CEO, he received $2 million.

* Santora's total compensation more than doubled from 2006 to 2008 before topping out at $2.6 million last year — which included a raise in base pay to $540,185, a bonus/incentive package of $116,000 and $1,794,876 in "other reportable compensation."

* Also in the top pay echelons during the last two years were Dr. Peter Gross, senior vice president and chief medical officer, with $1.5 million in total compensation by 2009 — more than triple his 2006 package — and Robert Glenning, executive vice president and chief financial officer, with $1.2 million.

* Two more executives joined the ranks of those receiving $1 million-plus in total compensation in 2009, the same year they left the institution: Robert Koller, vice president for facilities development, and Dr. William Black, head of research and medical education. The tax filings also note that three of Koller's family members held hospital jobs in 2009 at salaries ranging from $171,307 to $56,563.

* Dianne Aroh, executive vice president for patient care and chief nursing officer, received a 73 percent hike, from $374,000 total compensation in 2006 to $646,000 in 2008, then saw a 7 percent reduction last year.

The rate of increase appeared to slow in 2009 for those executives who continued to work in the same positions, from 19 percent for Nancy Corcoran, senior vice president for human resources (to $873,777 in total compensation), to 12 percent for Audrey Murphy, senior vice president and general counsel (to $714,080) and 6 percent for Robert L. Torre, executive vice president and chief operating officer of the medical center's foundation (to $926,584).

The medical center's executives shared in more than $2 million in bonuses and incentives last year — including $200,000 for Garrett — according to 2009 tax records. The incentives were based in part on the institution's net earnings — or profitability — as well as quality of care, patient satisfaction and employee satisfaction, according to the filings.

Financial performance and compensation are commonly linked in for-profit corporations. But the practice has come under scrutiny among non-profits because of new IRS reporting rules, which require that the practice be disclosed.

Under changes this year, Radwin said, incentive payments "would not be made unless the financial position of the MedicalCenter is strong, and the performance of the organization is exceptional and multifaceted."

In deference to the recession and the hospital's tough year, Garrett said that in March he recommended that executives skip the bonuses that would have been paid this year. "We gave it up," he said. "Even though the executive team hit many of its goals for the year, we felt that given the economy, and given the overall economic climate, and the challenges hospitals are undergoing that it would be the right thing to do not to take any bonuses."

Legislation promoted

Convinced that salaries for executives at some non-profit hospitals are too high, U.S. Sen. Chuck Grassley, R-Iowa, has pushed federal legislation that would make boards responsible for justifying executive pay.

"Tax-exempt entities can be just as profit-driven as investor-owned entities," he said in 2009 testimony before the Senate Finance Committee. "Sometimes the only difference is that investor-owned entities return profits to shareholders while tax-exempts return profits to executives."

His remarks were spurred by an IRS survey that found top non-profit hospital executives averaged $490,000 a year in pay and benefits in 2007.

Non-profit institutions, by law, must adhere to strict guidelines: They must avoid any direct involvement in politics, reinvest their surplus to benefit the community and ensure that earnings and operations are not used for the personal benefit of a few individuals.

In New Jersey, the state attorney general settled a 16-count complaint with Stevens Institute of Technology in Hoboken this year after investigators found, among other things, that board members were kept in the dark about the president's salary and bonuses, which increased from less than $365,000 in 1999 to $1,089,780 in 2008.

"Trustees are 'in trust' for us — to take care of us and our assets," Abruzzo said, referring to citizens and taxpayers. "The board has a fiduciary responsibility to you and me."

Before the recent changes in board structure, Hackensack's executive compensation committee was headed by Joseph Simunovich.

He and the other members of his committee approved the raises and benefits for executives. Simunovich's committee worked with Sullivan, Cotter and Associates, the consulting firm, which analyzed executive pay at 16 comparable hospitals in the New York region.

When Hackensack's board members were informed last fall of the method used to arrive at these numbers, Garrett said, they "were very pleasantly surprised at how comprehensive a process we've had over the last 10 years."

Hackensack adopted a new board structure in March and revamped its executive compensation committee. It is currently headed by former state Supreme Court Justice Marie Garibaldi, who also served on the previous committee.

When the six-member committee votes on someone's pay or benefits, the numbers will be shown to the hospital's parent board, Hillcrest Health Service System.

That board must then give its approval. In addition, an annual report on executive and physician compensation will be given to the full hospital board, Radwin said.

The hospital did not impose any limits on executive pay, raises or bonuses.