Wednesday, May 16, 2012

That's Real Money

One of the things we seem never to hear about in this age of strained budgets is executive compensation. But it's worth discussing. According to the Economic Policy Institute, as of 2010, the ratio of executive pay to that of an entry-level worker is 243-to-1 (click through for an easy-to-read graph). In other words, if an entry-level worker is hired at $40k per year, the CEO's average wage is $9.7 million. This is historically unprecedented territory. During the 60s and 70s, for example, it was about 30-to-1 on average, or about $1.2 million compared to the entry level wage of $40k.

The reason I bring this up is that we have some of this going on in our own back yard:
Seventeen executives of HealthAlliance of the Hudson Valley received a total of $4.6 million in base pay, benefits, bonuses and other compensation in 2010, the same year the companies’ Kingston and Benedictine hospitals lost a combined $2.75 million, according to tax records.

The company’s president and chief executive officer pulled down more than $630,000 of that total. Another $590,000-plus went to a former Benedictine CEO.

The 2010 records — which are the most recent available and which are posted at www.guidestar.org, a website regarding not-for-profit organizations in the United States — were reviewed by the Freeman after HealthAlliance announced on May 4 that it might close one of the two hospitals to cut costs.
In case math isn't your strong suit, the losses incurred by Kingston and Benedictine hospitals amount to approximately 60 percent of the salaries paid to just 17 of Health Alliance's top officials.

So, if the hospitals are losing money year-over-year, why shouldn't these officials have their compensation cut back to sustainable levels? Instead, we talk about eliminating the jobs of janitors and other low-pay workers. A 60-percent pay cut for Health Alliance CEO David Lundquist, on the other hand, would reduced his salary from $630k down to $252k. How's he supposed to live on such a paltry sum?

Closing one of the hospitals could put several hundred people out of work and take hundreds-of-million dollars out of the local economy. But we're not hearing from any of these executives regarding their bloated salaries, are we? Are their salaries more important than our jobs? Are they more important than the local economy? If you got rid of these ridiculous compensation packages, these two hospitals would be able to make ends meet. What ever happened to the CEO stepping up and taking responsibility for the poor performance of the company? Didn't Lee Iaccoca refuse to take a salary when Chrysler was floundering?

Granted, Health Alliance's salaries aren't completely insane, unlike many other companies. But cutting executive compensation could end up saving one of Kingston's hospitals, along with all of the jobs and other economic activity it creates.

I think the company's board of directors should fire the entire leadership team of Health Alliance, and then replace them with executives who are willing to work for much lower salaries.

Update: Fixed the link to the Freeman story.

11 comments:

  1. Those salaries are industry standard. They are not out of line for most companies with that number of employees, size of budget and complexity of operation. The numbers match up nicely for the press, but the reality is that the Federal reimbursement is the real, central issue.
    They have to pay executives at executive level salary or you end up with people like Mike Hein and Terry Bernardo running things.

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    1. I see. So these are the best idiots Health Alliance can afford. And they're doing such a great job. Worth every cent.

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    2. So how do you explain little Ellenville Hospital, twice bankrupt, paying $280,000 to its CEO Steve Kelly (in 2009)? Ellenville only has 25 critical access beds for Pete's sake and Kelly came to Ellenville with zero experience, unless you count his time in sales at IBM.

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  2. 12:17 "Those salaries are industry standard."
    And this is the problem, isn't it?

    There is no justification for a ratio of 243 to 1. The best man in the world is not worth 243 times more than the worst (I'm talking only about compensation).

    We got here by greed and crony capitalism. Pitchfork time!

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    1. Wow, try that CEO:Worker pay thing with a company like GE, GM, Bank of America,IBM,or Haliburton. These guys are amateurs in comparisons.

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  3. So the CEO's salary was the same multiple of an entry level worker as the average was in the 60s and 70s ($21,000 x 30 = $630,000).

    Seems a lot more reasonable that the 243 times entry level that is stated by the Economic Policy Institute. If in fact the entry level is $40,000 (which is doubtful), the CEO's multiple falls to only 16 times -- even more reasonable.

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  4. 16 times avg salary is quite reasonable, in fact I would say they may even be underpaid in today's market.

    The press (especially Kirby and the Freeman) knows when 1+1 = 3 and they present their slanted stories to create an unfair prejudice to their reader. It is designed to put a face on a scapegoat since it is very hard to put a face on government bureaucracy.

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  5. On top of everything else, the freaking 17 are lazy too. Only 3 or 4 of them posted here defending their grab.

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  6. And let's not forget that we're talking about a health services company, not a Fortune 500 operation. The ratio should be much lower.

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  7. The real problem for the losses are inefficient physical layout and bed configuration. In what world does it make sense to have two hospitals owned by the same entity, each with extra capacity, less than a mile apart? Makes sense to convert one to an alternate use.

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    1. That may be, which is why the process needs to be a transparent as possible. I would be in favor of a proposal that preserves jobs. These folks spend money in the local community and are incredibly important to the Kingston economy. Throwing several hundred people out of work may be good for HealthAlliance, but not so good for the rest of us -- especially small business that desperately need customers.

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