0 Presented To Institute of Healthcare Executives & Suppliers Presented By F. Kenneth Ackerman, Jr., FACHE, FACMPE Chairman Kevin Haeberle, Executive Vice President Kevin Talbot, Senior Vice President www.IHStrategies.com Exclusive to Healthcare. Dedicated to People. SM Securities offered through First Allied Securities, Inc., A Registered Broker Dealer, Member FINRA/SIPC. March 10, 2010 Ponte Vedra Beach, FL
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Challenges in Executive Compensation: Are You and Your Board Prepared?
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www.IHStrategies.com
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Presented To
Institute of Healthcare Executives & Suppliers
Presented By
F. Kenneth Ackerman, Jr., FACHE, FACMPE
Chairman
Kevin Haeberle, Executive Vice President
Kevin Talbot, Senior Vice President
www.IHStrategies.com Exclusive to Healthcare. Dedicated to People. SM
Securities offered through First Allied Securities, Inc., A Registered Broker Dealer, Member FINRA/SIPC.
March 10, 2010
Ponte Vedra Beach, FL
www.IHStrategies.com
Agenda
Integrated Healthcare Strategies Overview -
Ken Ackerman
o Challenges in Executive Compensation
o Best Practices in the Governance of Executive Compensation
Drafting Together: Improved Performance Through
an Aligned Compensation Strategy - Kevin Haeberle
and Kevin Talbot
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Integrated Healthcare Strategies Overview
Presentation by:
F. Kenneth Ackerman, Jr., Chairman
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Introducing…
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Our Mission and History
We are dedicated to helping the people of Healthcare succeed by
strengthening relationships between an organization and its
employees, leaders, physicians, and boards of directors.
Founded in 1967
Initial public offering on NASDAQ in 1998
Moved from NASDAQ to NYSE in 2002
Private in 2007
Clark Consulting and MSA combined to create –
Integrated Healthcare Strategies
Exclusive to Healthcare. Dedicated to People.
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Integrated Healthcare Strategies Practices
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Who We Are
Offices in Minneapolis and Kansas City
Nearly 120 Associates
Clients include:
■ 1,200 major healthcare providers
● 1,800 hospitals
● 400 integrated systems
■ 500 physician groups
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Who We Serve
Hospitals and health systems
Academic medical centers
Children’s hospitals
Large, integrated provider networks and systems
Large, multi-specialty group practices
National and state healthcare associations
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Our Markets
Market Share > 40%
76% of all NACHRI member free-standing children’s hospitals
54% of all multi-hospital systems
52% of all state hospital associations
38% of all COTH member teaching hospitals
26% of all AMGA member medical groups
27% of all free standing hospitals with 100 or more beds
Outrage Over Executive Pay! Bonuses at Wall Street firms after bailout ignited
firestorm
New rules for firms taking TARP $
New Fed rules for pay at banks
Compensation czar for firms getting exceptional help
Recession, jobless recovery add fuel to fire
Regulators & public are on a roll
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Healthcare may be Next Multiple opportunities for new regulation
Healthcare reform legislation
New form 990
Federal, state, local regulatory activity
■ Massachusetts attorney general’s review
■ Rhode Island’s proposed compensation limit
■ Congressional proposals, demands for
investigation
● Section 4958 being challenged
● Questioning of tax exemption
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One Study After Another Studies and audits at request of Congress
Senate Finance Committee study and proposals
IRS abbreviated audits of executive compensation
practices (1200 HCOs)
IRS survey to assess compliance with Section 4958
(500 hospitals)
GAO survey on structure & basis for determining
executive pay (100 HCOs)
IRS study of charity care, community benefit at tax-
exempt hospitals (10 hospitals)
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Focus of Criticism
Use of rebuttable presumption
Compensation committees’ independence
Inappropriate comparability data
Over-reliance on national comparisons
Consultants’ conflicts of interest
Inappropriate or ineffective process
Level of pay
Perquisites and supplemental benefits
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Boards Engaged, Cautious
Insisting on more transparency, disclosure
Questioning
Compensation philosophy
Peer group
Pay above median
Supplemental benefits
Raising performance expectations
Resisting generous severance
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Best Practices in the Governance
of Executive Compensation
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Best Practices
Dedicated compensation committee
Clear competency standards
Committee charter
Full disclosure to the board
Executive sessions
Self-evaluation/committee evaluation
Review form 990 reporting with full board
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Best Practices (cont’d)
Regularly scheduled meetings
3-4 per year
■ 2 meetings for major decisions
Adequate time to –
■ Deliberate
■ Consider appropriateness of programs
■ Consider physician compensation
■ Conduct CEO appraisal
Continuing education (governance and regulations
Evaluate committee performance
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Other Best Practices
New member orientation
Audit of travel and entertainment expenses
Tally sheets
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TOTAL VALUE ANALYSIS TALLY SHEET PREPARED FOR
JOE M. SMITH PRESIDENT & CEO
THE ABC HEALTH ORGANIZATION
CURRENT AND POTENTIAL TOTAL COMPENSATION*
Current Compensation
Target Potential
Maximum Potential
Salary $550,000 $550,000 $550,000
Annual incentive payout $42,399 $165,000 $247,500
Benefits $201,788 $207,355 $211,100
Perquisite Allowance $20,000 $20,000 $20,000
Total Compensation $814,187 $942,355 $1,028,600
RETIREMENT INCOME AND SEVERANCE BENEFIT
Retirement Income at Age 65 Lump Sum
Annual Value As % of FAS
Qualified Plans
Cash Balance Pension Plan $553,945 $50,981 7.6%
401(k) Match $358,648 $33,007 4.9%
Social Security N/A $15,048 2.2%
Non-Qualified Plans
Cash Balance Restoration Plan $235,560 $21,679 3.2%
Net SERP (after offsets) $3,287,406 $302,548 45.0%
Capital Accumulation Account $324,785 $29,891 4.4%
Total Value of Retirement $4,760,344 $453,154 67.3%
LUMP SUM SEVERANCE BENEFIT (FOR TERMINATION WITHOUT CAUSE)
Now In 2010
2 x Salary $1,100,000 $1,338,000
2 x Continuing Benefits $30,302 $36,832
Total Value of Severance $1,130,302 $1,374,832
This Tally Sheet is an estimate of the value of Mr. Smith’s total compensation, as of July 1. * Please find assumptions and descriptions on the back of this document for more details.
THE ABC HEALTH ORGANIZATION
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AB C T o t a l C om p e ns at i on Va l ue
TOTAL VALUE ANALYSIS TALLY SHEET
BREAKDOWN OF CURRENT AND POTENTIAL TOTAL COMPENSATION