The reasoning the Erlanger Health System’s board of directors gave Monday for awarding $1.9 million to Erlanger hospital’s 17 top executives and 106 other managers is not just lame — it’s embarrassing. Worse, the executive bonuses given the 123 top managers and executives are also grossly disproportional to the $4 million the board allowed to provide 2 percent raises last month to Erlanger’s 4,200 employees.
The board can’t claim ignorance: Its members emphatically pointed out Monday that the bonus system has had weak criteria the past several years and said that the standards would be much tougher next year, when it raises criteria covering operating profits, customer satisfaction ratings and lower infection rates per patient, among other specific standards.
That raises the first question: Why did the board give higher bonuses now for the 2010 fiscal year performance, which turned $8.58 million in operating profit, when it gave its top managers $200,000 less in bonuses for the 2009 fiscal year, when its operating profit then, at $10.8 million, was $2.3 million higher. In addition, its operating income halfway through the current fiscal year for 2010-11 is just $1.3 million.
The bonus awards also come when there is much stricter scrutiny, due to health care reform, on the vast gap between executive salaries and those for average health-care workers. Erlanger’s bonuses exemplify that gap: the $4 million the 4,200 hospital employees, many of whom are in relatively low-wage categories, shared roughly averages $952 each (not allowing for differences in salaries). By contrast, the Erlanger system’s top managers and executives, with far higher salaries, also received bonuses at a level several magnitudes higher.
The top 10 of the highest 17 executives at or above the vice-president level do very well in both. For example, Jim Brexler, the hospital system’s top executive, receives a $550,000 salary and just got a bonus of $192,395. His chief operating officer, Charlesetta Woodard-Thompson, earns a salary of $324,461 and got a bonus of $56,748. In all, the top 10 executives took $566,812 of the $1.9 million bonus pot, leaving the other 106 an average of $12,577.
This is not unique to Erlanger, or, probably, to any large hospital nowadays. Executives of Memorial Hospital, another nonprofit, are similarly well-paid. Executives of private, for-profit hospitals receive similarly lavish compensation.
So do many in the utility and insurance industries. TVA, a public entity, has become notorious for paying scores of executives salaries ranging from $1.5 million down a stair-stepping slope to the mid-$200,00 level. Vicky Gregg, the CEO of BlueCross BlueShield of Tennessee, officially nonprofit system, receives well over $2 million in salary, and her top executives bump up close to the million-dollar level — salaries competitive with for-profit insurers.
At the macro-level, the executive-worker salary gap — America’s has the world’s highest — is troubling because average worker pay has stagnated the last decade and averages around $30,000, or $36,000 including benefits. Executive pay, by contrast, has skyrocketed over the past two decades, robbing working Americans of a decent middle-class salary and standard of living. The median salary of a Standard & Poor’s 500 chief executive in 2009 was $1.025 million, with a total pay package in nonsalary benefits of $7.5 million, The Financial Times reported last September.
At the micro-level, at Erlanger, the executive-worker pay gap is troubling because it has been so transparently manipulated the past few years. When Brexler took over in March of 2004, for example, he inherited a successful management structure from former president Dennis Pettigrew which had just eight vice presidents and no staff attorneys.
Brexler, under boards that have been either lax or myopic, has ballooned Erlanger’s executive structure to 17 vice presidents, hired full-time lawyers and changed its management nomenclature from a hospital “system” of several units to a “health system” of several satellite units. The “health system” definition and expanded vice-president structure now qualifies (to use that word loosely) the Erlanger president to seek much higher pay — at least, under industry standards cleverly reformulated by industry executives and their consultants — never mind that the system is essentially the same. Thus, Brexler’s last big salary boost bumped him from the mid-$300,000 range to his current $550,000 figure.
Erlanger’s board owes the community more vigilance over this executive stair-step salary creep because it needlessly inflates medical costs. Cost control is crucial at Erlanger, moreover, because it was established and remains a public hospital, and it also is the region’s most comprehensive hospital and its only level one trauma center.
The state government, as well, owes Tennesseans more vigilance over the hospital and health insurance industries at large, because the health-care industry’s general rate of inflation keeps expanding at more than double the general rate of inflation. The cost creep — aggravated by the executive wage creep — is driving the nation’s health-care insurance cost crisis. It is unsustainable and begs reform.