As healthcare CEO compensation continues to rise, nonprofit hospitals are turning to alternative methods to remain competitive, according to an April 24 blog post from the Lown Institute.
Since nonprofit hospitals do not offer stock options like their for-profit peers, they are finding other ways to attract executives — and retain them despite frequent turnover. Common strategies include housing bonuses and supplemental executive retirement plans, or SERPs, according to Judith Garber, a senior policy analyst at the Lown Institute.
"Hospital boards consider how much to pay CEOs and how to structure their compensation plans based on comparisons with other peer hospitals," Ms. Garber said. "As hospitals pay their CEOs more, it creates an upward spiral in which this raises the threshold that other hospitals have to match."
Vikas Saini, MD, president of the Lown Institute, recently noted that board composition has influenced CEO pay to remain competitive. Hospitals have been tapping more board members from the private sector who "are oriented to the bottom line" and "think about [hospitals] like a regular business," Dr. Saini told the Fresno Bee.
High CEO compensation packages have been criticized by lawmakers and the public; recently, Valley Children's Healthcare in Madera, Calif., opted to provide 24-hour security at President and CEO Todd Suntrapak's home after his paycheck came under fire. Mr. Suntrapak was paid $5.1 million in the fiscal year ending 2022 and $5.5 million in 2021, with the majority of his pay coming from bonuses.
Mr. Suntrapak also received a $5 million "loan for residence in lieu of other compensation," the Bee reported. The chair of Valley Children's board of trustees defended the perk to the Fresno City Council, writing that these loans are "not at all unusual as a retention tool." Other health systems, including Norman (Okla.) Regional Hospital Authority and Kettering (Ohio) Health Network, have also enabled home purchases for their CEOs, according to the Lown Institute.
"In the for-profit world, in the big corporate world and Wall Street, this is sort of standard practice" and "a remarkably attractive perk," Dr. Saini said.
SERPs — deferred, non-qualified compensation plans, often paid out in a lump sum once an executive is vested — are also being used as C-level retention tools. The mature plans provide substantial payouts for executives; the CEO of Norfolk, Va.-based Sentara Health received $33 million in 2021, most of which was from the payout of his SERP, Ms. Garber reported. The CEO of Danbury, Conn.-based Nuvance Health received $23 million from his SERP the same year.
As nonprofit hospitals continue competing for executive talent — "not only with other nonprofits, but with for-profit hospitals as well" — CEO pay and perks will be pushed "into a higher realm," Ms. Garber said.