It is no secret that the compensation packages of healthcare executives are being criticized by community activists and the media. In today's age of instant access to information, with a point-and-click anyone can view the compensation of top executives in non-profit organizations.
When viewed on the screen, the compensation amounts often lose context. In a free-market economy, organizations need to adequately compensate their executives for their roles and responsibilities for the organization's growth. However, to the community activist looking at raw numbers, perception is reality, and in the case of executive compensation, the activist perceives healthcare executives to be grossly over- compensated. The activists often take their perception and utilize the media outlets to assert their own brand of fairness.
Take the recent Measure M in California. Voters of the El Camino Hospital District passed by simple majority a measure that caps the compensation of the executives of El Camino hospital at two-times that of the governor. The consequence of this regulation will cut the CEO's compensation in half and would affect nine other executives. A similar measure is under consideration for New York as well.
With the compensation of healthcare executives squarely in the crosshairs, what can be done to change the narrative? How can the optics be improved?
One reason why deferred compensation arrangements are often viewed with disdain from the public is that the funding and benefits are generally over and above the amounts already allocated for salary. It is often the bonuses and deferred compensation arrangements that draw the largest criticism from the community activists.
Let's look at a hypothetical situation. Assume we have a hospital CEO named Mary who is paid an annual salary of $500,000 (we will put the bonuses and deferred compensation benefits on the back burner for now). If she elected to take $100,000 of her annual salary and contribute it to a charitable remainder unitrust (CRUT) for the benefit of the hospital, what would be the effect? First, she would receive a discounted income-tax deduction for her contribution into the CRUT. Second, she would receive income from the CRUT for the rest of her life. Lastly, upon her death, the trust corpus would be delivered to the hospital since the hospital was named the charitable beneficiary of the CRUT.
The community would likely receive this type of systematic deferred charitable giving quite favorably. The executive would be lauded by the community for creating a large future gift back to the hospital.
This type of structure, while appealing on paper, does have limitations that would severely impair the attractiveness to both the executives and the hospital. First, the executives would receive only a discounted tax-deduction based on their age and the federal table published by the IRS. Second, the executives would not have further access to the donated assets, being limited to receiving only the interest earned by the CRUT assets. Obviously, if there is little appeal for the executives to participate, then there will be diminished participation and limited benefit to the hospital.
A far superior win-win would result from a properly structured alternative compensation arrangement. Alternative compensation arrangements are just what the name implies — an alternative method for employees to receive funds that the employer has allocated for compensation purposes.
One alternative compensation arrangement involves the utilization of a split dollar life insurance arrangement. Such an arrangement would eliminate the drawbacks highlighted above and still provide the equivalent of a full and robust deferred charitable benefit for the hospital. Utilizing an alternative compensation arrangement, the executive, Mary, receives a full dollar-for-dollar reduction in her taxable income for each dollar contributed into the plan. She would have full utilization of her account and would not be limited to interest only. With such clear benefits to the executive, the size and frequency of the contributions to the plan would rise significantly. Perhaps the biggest hospital benefit, and the one that will shine the brightest, is every dollar contributed in this manner will ultimately be returned to the hospital upon the death of the executive. The end result is an appealing opportunity for the executives, which secures a significant future stream of cash flow for the hospital.
What a great way to change the narrative. Instead of headlines about greedy, over-paid executives, we can read headlines about executives who are giving back. All of this can be accomplished without an executive having to sacrifice his or her compensation and without cost to the hospital.
An alternative compensation arrangement is a unique approach to employee compensation and can be an instrumental tool in helping to make the executive compensation optics much more favorable.
Jason Boccardi is president of LifeSolutionz, an independent consulting firm specializing in the innovative design, implementation and service of alternative compensation arrangements. For more information visit LifeSolutionz at www.lifesolutionz.org or call (866) 234-9728.
For-Profit Hospital Executive Compensation in the Past 5 Years: 46 Statistics
When viewed on the screen, the compensation amounts often lose context. In a free-market economy, organizations need to adequately compensate their executives for their roles and responsibilities for the organization's growth. However, to the community activist looking at raw numbers, perception is reality, and in the case of executive compensation, the activist perceives healthcare executives to be grossly over- compensated. The activists often take their perception and utilize the media outlets to assert their own brand of fairness.
Take the recent Measure M in California. Voters of the El Camino Hospital District passed by simple majority a measure that caps the compensation of the executives of El Camino hospital at two-times that of the governor. The consequence of this regulation will cut the CEO's compensation in half and would affect nine other executives. A similar measure is under consideration for New York as well.
With the compensation of healthcare executives squarely in the crosshairs, what can be done to change the narrative? How can the optics be improved?
One reason why deferred compensation arrangements are often viewed with disdain from the public is that the funding and benefits are generally over and above the amounts already allocated for salary. It is often the bonuses and deferred compensation arrangements that draw the largest criticism from the community activists.
Let's look at a hypothetical situation. Assume we have a hospital CEO named Mary who is paid an annual salary of $500,000 (we will put the bonuses and deferred compensation benefits on the back burner for now). If she elected to take $100,000 of her annual salary and contribute it to a charitable remainder unitrust (CRUT) for the benefit of the hospital, what would be the effect? First, she would receive a discounted income-tax deduction for her contribution into the CRUT. Second, she would receive income from the CRUT for the rest of her life. Lastly, upon her death, the trust corpus would be delivered to the hospital since the hospital was named the charitable beneficiary of the CRUT.
The community would likely receive this type of systematic deferred charitable giving quite favorably. The executive would be lauded by the community for creating a large future gift back to the hospital.
This type of structure, while appealing on paper, does have limitations that would severely impair the attractiveness to both the executives and the hospital. First, the executives would receive only a discounted tax-deduction based on their age and the federal table published by the IRS. Second, the executives would not have further access to the donated assets, being limited to receiving only the interest earned by the CRUT assets. Obviously, if there is little appeal for the executives to participate, then there will be diminished participation and limited benefit to the hospital.
A far superior win-win would result from a properly structured alternative compensation arrangement. Alternative compensation arrangements are just what the name implies — an alternative method for employees to receive funds that the employer has allocated for compensation purposes.
One alternative compensation arrangement involves the utilization of a split dollar life insurance arrangement. Such an arrangement would eliminate the drawbacks highlighted above and still provide the equivalent of a full and robust deferred charitable benefit for the hospital. Utilizing an alternative compensation arrangement, the executive, Mary, receives a full dollar-for-dollar reduction in her taxable income for each dollar contributed into the plan. She would have full utilization of her account and would not be limited to interest only. With such clear benefits to the executive, the size and frequency of the contributions to the plan would rise significantly. Perhaps the biggest hospital benefit, and the one that will shine the brightest, is every dollar contributed in this manner will ultimately be returned to the hospital upon the death of the executive. The end result is an appealing opportunity for the executives, which secures a significant future stream of cash flow for the hospital.
What a great way to change the narrative. Instead of headlines about greedy, over-paid executives, we can read headlines about executives who are giving back. All of this can be accomplished without an executive having to sacrifice his or her compensation and without cost to the hospital.
An alternative compensation arrangement is a unique approach to employee compensation and can be an instrumental tool in helping to make the executive compensation optics much more favorable.
Jason Boccardi is president of LifeSolutionz, an independent consulting firm specializing in the innovative design, implementation and service of alternative compensation arrangements. For more information visit LifeSolutionz at www.lifesolutionz.org or call (866) 234-9728.
More Articles on Executive Compensation:
Executive Compensation: 9 Things Every Hospital CEO Should KnowFor-Profit Hospital Executive Compensation in the Past 5 Years: 46 Statistics