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Valley Medical Center Executive Compensation Study

Valley Medical Center Executive Compensation Study. November 23, 2009 Presented by: John Hankerson 1301 Fifth Avenue, Suite 3800 Seattle, Washington 98101-2605 206/504.5965 or 206/504.5545. Scope of Analysis. Milliman evaluated the total compensation of the Chief Executive Officer:

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Valley Medical Center Executive Compensation Study

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  1. Valley Medical CenterExecutive Compensation Study November 23, 2009 Presented by: John Hankerson 1301 Fifth Avenue, Suite 3800 Seattle, Washington 98101-2605 206/504.5965 or 206/504.5545

  2. Scope of Analysis • Milliman evaluated the total compensation of the Chief Executive Officer: • Milliman’s assessment included a comprehensive analysis of total compensation and its components (base salary, annual incentives, long-term incentives and major benefits) for this position. Current Last Actual Base Annual Total Salary Incentive Cash Name Position Rich Roodman CEO $587,800 $0 $587,800

  3. SAO Summary Data Base Salary Overall Competitiveness CEO - Valley ($309.3M) Systems 2009 Comp Mkt 25th % Mkt 50th % Mkt 75th % 25th % 50th % 75th % Base Salary $587.8 $454.2 $518.1 $591.9 129.4% 113.5% 99.3% Actual Annual Incentive as a % of base 0.0% 31.6% 31.2% 30.9% Actual Annual Incentive $0.0 $182.9 $143.5 $161.9 Total Cash Compensation $587.8 $597.7 $680.0 $774.8 98.3% 86.4% 75.9%

  4. Data Sources • Milliman used the following published surveys to evaluate CEO compensation: • Mercer Executive • MSA Healthcare Executive • Hay Hospital Report • Mercer Integrated Health Networks • Sullivan Cotter Healthcare Management • Clark Consulting Healthcare Executive • In addition Milliman collected information on CEO compensation from the following • “regional” organizations: • Evergreen Medical Center Southwest Washington Medical Center • Multicare Health System Virginia Mason Medical Center • University of Washington Medical Center Legacy Health System

  5. Base Salary Comparisons

  6. Total Cash Comparisons

  7. Cash Comparison Table CEO Valley Medical Center vs. Published Market Data Base Salary Total Cash Compensation VMC vs. VMC vs. VMC vs. VMC vs. Market Market Market Market Market Market VMC Median Market 75th Median 75th VMC Median Market 75th Median 75th $587,000 $502,768 $596,330 117% 98% $587,000 $619,484 $762,188 95% 77% Regional Organizations: $662,500 $771,098 89% 76% $807,700 $1,139,028 73% 52% Base pay among the regional organizations ranges from a low of $477,372 to a high of $895,000. Total cash (base plus annual incentive only) ranges from a low of $477,372 to a high of $1,326,061.

  8. Annual Incentive Comparisons

  9. Annual Incentives • VMC establishes a target bonus of ~32% (of base salary) for the CEO and all other executives. The table below contains typical market incentive levels in the industry for the CEO: • Annual incentive opportunity should always be calibrated with base salary to produce competitive total cash compensation, appropriate for the individual’s and the organization’s performance. • In addition, total cash compensation should be aligned with the board’s pay philosophy and the magnitude of any long-term compensation. Target Maximum Position CEO 40% 80%

  10. Other Compensation • It is our experience that several factors should play a prominent role in the • process used to develop appropriate compensation and benefit plans for • executives. Market practice information can provide a useful frame of reference but • prevalence of a particular practice does not determine appropriateness. In other • words, doing what everyone else is doing is not necessarily the best approach for a • particular organization or situation. We believe that: • Specific plans should be adopted because they meet a critical business need • Plans should always work to further the short and long-term objectives of the organization • Plans should reflect good business judgment of the situation and integration with market practices • Plans together should create a total compensation package that: • Improves performance • Improves retention • Aligns with short and long-term business strategies • Assists with attracting executive talent

  11. Total Compensation Comparison *The numbers reflected here are individual values for each element and do not reflect the actual aggregate practice of specific organizations or executives

  12. Detailed Market Data Chief Executive Officer Survey Name Survey Job Title Scope Base 25th Base 50th Base Avg Base 75th TCC 50th TCC 75th TCC 90th 17. Mercer Executive CEO Healthcare; <5000 ees $402,302 $413,912 $465,292 --- $483,223 $556,097 --- 18. MSA Healthcare Executive CEO System Net Rev: $300-$500M $488,510 $507,016 $517,361 --- $600,580 $699,776 --- 19. Hay Hospital Report CEO Net Rev: $250-$500M $546,236 $541,295 $581,920 $632,426 $541,295 $765,938 $892,313 20. Mercer Integrated Health Networks CEO Net Rev: <$400M $551,729 $717,823 $852,421 --- $878,399 $1,162,424 --- 21. Sullivan Cotter Healthcare Mgmt CEO Net Rev: <$500M $460,085 $463,085 $515,936 --- $535,438 $602,945 --- 25. Clark Consulting Healthcare Exec CEO Net Rev: $250-$750M $567,747 $577,522 $645,049 --- $677,970 $785,947 --- Average: $502,768 $536,775 $596,330 $632,426 $619,484 $762,188 $892,313

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