Management performance metrics
Source: Times Free Press archives
Despite making a profit of $5.4 million in the last fiscal year, Erlanger Health System executives will not receive bonuses because more stringent criteria were implemented.
Based on the criteria for fiscal year 2011, which ended June 30, system executives would not have received bonuses in 2010 and 2009, two years when executives received nearly $4 million in combined bonuses.
The new guidelines require that the hospital system make a profit of at least $12 million before bonuses will be awarded. The system has not achieved such a profit in the last four years.
Trustee Kim White, chairwoman of the hospital's Management and Board Evaluation Committee, said the panel decided the criteria needed to place more emphasis on operating profit as part of a compensation package.
"In order to stay in business, we have to look at it as a business," White said. "I think compensation is complicated, but the committee thought we needed to focus on operating margins -- this is what the priority is. That level has to be achieved before any bonuses are awarded."
Meanwhile, Erlanger employees have received two across-the-board raises since 2007, a 3 percent raise in July 2009 and a 2 percent raise in November 2010. Certain other employees, such as front-line nurses, have been given additional raises.
The new executive bonus criteria were established with the help of Mercer, an international consulting firm.
In the past, the only bottom-line standards at Erlanger included generating a profit at the end of the fiscal year, maintaining accreditation under the Joint Commission -- an independent nonprofit that accredits health-care facilities -- and meeting debt and financial obligations.
White, who became the committee chairwoman in January 2009, said the committee hired Mercer in January 2010 to evaluate Erlanger's compensation criteria. Committee members felt the hospital's philosophy on bonuses needed to change, she said.
"Compensation is such a touchy issue," White said. "We wanted more clarity on compensation, what other hospitals are doing."
Nationally, Erlanger's executive pay and bonus package ranks in the 50th percentile compared to comparably sized hospitals, White said, which means about half pay more and half pay less. Based on last year's compensation criteria, the hospital fell in the 65th percentile, newspaper archives show. That means only 35 percent of comparable hospitals paid more.
Despite the change in criteria, White said the committee believes the hospital will remain competitive enough to attract and retain talented executives.
"We want to remain in the midrange ranking of public hospitals," she said.
Jim Brexler, Erlanger's CEO of seven years, resigned effective Dec. 31. The board of trustees has not begun a search for his replacement, but will begin the discussion in January, board members have said.
In addition to setting a profit-margin threshold for bonuses, the new criteria put more weight on Erlanger's performance in quality measures such as reducing surgical infection rates. Other changes are based on reaching targeted admission figures.
Some criteria previously used, such as patient satisfaction and operating profit margins, remained part of the mix. But the profits were only weighted at 30 percent of the performance metrics used to determine bonus payments, compared to 35 percent in fiscal 2011.
White said that allowed the committee to place more emphasis on quality of care and infection rates.
The new criteria also allows compensation to be increased with an increasing profit, with three implementation levels.
If the hospital earns a profit between $12 million and 18 million, 25 percent of those earnings go into the bonus pool. For profits between $18 million and 21 million, 35 percent goes into the bonus pool. On profits above $21 million, all the additional money goes into the bonus pool.
FISCAL YEAR 2012
Halfway through the 2012 fiscal year, it seems even more unlikely that executives will see bonuses this year.
The hospital has lost more than $6 million, half of that in November alone. December financial information will not be made available until mid-January.
The 2012 compensation criteria will remain unchanged from 2011, White said.
Since the $12 million was based on the hospital's total budget, the threshold number on the required amount of profit will change. White said she did not know exactly what that number was.
Erlanger's spokeswoman, Pat Charles, could not be reached Friday to provide that number.
"The health care field is a complicated field and we know these are some tough goals ... a stretch. But we have to grow as a hospital," White said.