Erlanger hospital CEO Kevin Spiegel will get a 25 percent increase in his pay this year, boosting his targeted annual compensation package above $1.5 million, if he meets the hospital's goals and stays at Erlanger through his contract term.
By a 7-1 vote Thursday night, Erlanger trustees approved a new five-year contract with Spiegel that boosts his annual salary from $800,360 to $900,000 and provides Spiegel additional performance and longevity bonuses each year if he meets hospital performance targets and stays in his current job.
Compensation consultants hired by the board said the raise brings Spiegel's pay more in line with comparable hospitals of Erlanger's size and should help ensure the 61-year-old executive stays at Erlanger.
"If Mr. Spiegel left and you had to hire a new CEO, I think you would have to pay even more than what this salary is, and there would also be a big cost to the organization," said Toni Dolby, manager director and senior adviser of Gallagher Benefit Services. "Turnover is very costly, but in this industry, the typical CEO's tenure is just 3.8 years."
Dolby said Spiegel's accomplishments at Erlanger "have been extraordinary," and the salary adjustment will move Spiegel from near the bottom 30 percent of comparable hospital CEOs up to just above average among the 72 hospitals included in the consultants' study.
But Erlanger trustee Phil Smartt voiced opposition to giving Spiegel and other executives double-digit raises again this year while most of Erlanger's 6,000 employees didn't get a raise last year and will get raises averaging just over 2 percent in the fiscal year that begins Saturday.
"Any good organization rewards everybody, and we are not doing that at this hospital," Smartt said. "I think we are top-heavy with executives and we are getting out of range - and I am very concerned about that."
Jennifer Stanley, the Erlanger trustee who is chairwoman of the board's compensation committee, said she shares concerns about executive pay, but Erlanger needs to be competitive to keep strong managers.
"It is so much money and we can't get around it," Stanley said. "It really stinks that CEO pay has gotten out of whack, but this is what it costs to keep a high-performing hospital CEO, and my concern is for the stability of Erlanger and its leadership."
Erlanger Chairman Jack Studer said Spiegel has helped turn around Erlanger's fortunes, and bond rating agencies frequently ask about about whether Spiegel will stay at Erlanger.
"I know a few years ago, Erlanger was in a position of weakness and now we are in a position of strength. And I think Mr. Spiegel has helped our entire team get to that point and we need to keep him," Studer said.
Even with the higher pay, Spiegel still will make significantly below the CEOs of Saint Thomas hospital in Nashville, Methodist Healthcare in Memphis and Baptist Memorial Healthcare in Memphis.
In 2014, the most recent year for which nonprofit reports are available, Saint Thomas Health CEO Dr. Mike Schatzlein was the highest paid hospital executive in Tennessee with a compensation package of more than $2.7 million.
In the same year, CHI Memorial Hospital CEO Jim Hopson was paid $808,053, which was comparable to Spiegel's pay package, even though Memorial's revenues and staff size are smaller than Erlanger's. Hamilton Health Care System in Dalton, Ga., which is smaller than both Erlanger and Memorial, paid CEO Jeffrey Myers total compensation of $884,847 in 2014.
Dolby said private hospital businesses often pay 10 times more than what public and nonprofit hospitals pay their CEOs. She said the pay for Erlanger's CEO should be compared with that of hospitals across the country, even though Chattanooga's after-tax cost of living is estimated to be 8 to 10 percent below the U.S. average and the typical worker's pay is 16 percent less than the U.S. average.
As the seventh-largest public hospital system in the nation, Erlanger must compete for top talent from across the country, not just the local market.
Spiegel's pay has consistently increased since he was hired in 2013 as Erlanger revenues and market share have grown.
"When we brought Mr. Spiegel here in 2013, we brought him at the lower end because it was the first time he had operated multiple hospitals," Stanley said.
During his four years at Erlanger, Spiegel has helped increase hospital revenues by 51 percent, and Erlanger is targeting another 10 percent growth in the next fiscal year - the highest of any hospital in Tennessee. Under Spiegel, the hospital has added its heart and lung institute, launched an expansion of its children's hospital, completed a $50 million addition at Erlanger East, improved its bond ratings, and increased its market share from 38 percent to 41 percent.
Erlanger projects its revenues should top $1 billion for the first time by fiscal 2018-2019.
Spiegel, who left the board meeting during the discussion of his new contract, thanked the board "for the opportunity for staying at Erlanger for a long-term commitment."
Contact staff writer Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.