HR Pulse - Fall 2007 - (Page 26)

HOW Transparent Should By John Bernat In the for-profit world, disclosure requirements continue to escalate. For-profit businesses now have to make far more disclosures to shareholders, especially regarding compensation for top-level staff. This article will first talk about some of the key developments in compensation transparency for CEOs and senior leadership of for-profit organizations, but will focus more on the useful implications for all staff at not-for-profit health care organizations. Transparent at the Top? This culminated a trend begun some years ago, with Enron and Worldcom attracting so much attention2. Stock exchanges have instituted new reporting requirements in response to high-profile scandals. Taken together with tougher auditing standards under the landmark Sarbanes-Oxley Act, the measures have pushed boards and managers to become far more diligent in preparing and reporting accurate financial information. Investors and directors want companies to move toward separating the roles of CEO and chairman, to make directors more independent and accountable, and to scale back and restructure executive compensation so that it is aligned more closely with the creation of long-term value. The focus has been on the transfer of wealth from owners to top management. And it’s well-known that this has been astounding. In 1992, the top five executives at the 1,700 largest U.S. companies cashed in options worth $2.4 billion. By 2000, that number had soared to $18 billion. Moreover in 2000, the annual income of U.S. CEOs peaked at a multiple of 531 times the average production worker’s wage. In short, the combination of cash, bonuses, stock grants, benefits, and options has decoupled compensation from performance. In the past, the board’s compensation committee would typically benchmark executive pay against a broad industry average and then, as a show of support and goodwill, peg total compensation to the top quartile. But competition for top leadership talent has intensified. That, plus disclosure, plus the ready availability of survey data, has created a competitive environment for top salaries that presses these salaries upward. But these higher and higher salaries are being disclosed more often and more fully than ever before, in the for-profit world. How has this affected health care? Health care in the United States has been criticized for cost increases outpacing the rate of inflation. However, recently the cost of compensating leaders in health care has been cited as a factor. NPR’s “Marketplace” series recently3 discussed compensation to health care CEOs in depth. Some of their findings: If you suspect that, just maybe, some health care CEOs are getting extremely lucrative deals, let me mention a name: William McGuire, ex-CEO of United Health Group. His $1.8 billion in embedded options is certainly a record-breaker. McGuire’s actual salary before all those stock options was mere millions. Overall, insurance company CEOs aren’t exactly hurting compared with their peers. The median total compensation for chief executives was just under $7 million. But for the executives in the insurance industry, it was almost $11 million. …Pharmaceutical companies pay their CEOs pretty well, too: an average annual salary of nearly $9 million, not counting stock options4. The “Marketplace” story went on to say that health care CEOs head up businesses that employ 26 HR Pulse Fall 2007

Table of Contents Feed for the Digital Edition of HR Pulse - Fall 2007

Contents Executive Director’s Letter President’s Message HR Leader Profile: Lisa McDaniel Spotlight on Community Citizenship Culture of Engagement How Transparent Should Healthcare Compensation Be? The Value of Assessment Testing in the Recruitment Process Technology Dramatically Changes FMLA Compliance Creating a Magnetic Culture™ Taking It to the Hill: An Advocacy Update 401(k) / 403(b) Fee Lawsuits – Are You the Next Target? Compensation Offers – A Better Process Find It Again Pulse Points Who, Why and Where Conference Highlights Schedule at a Glance Keynote Speakers Social Events Conference Sponsors Exhibitors Index to Advertisers

HR Pulse - Fall 2007

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