Approach to CEO Compensation

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The Chief Executive Officer is the only employee of the District who is hired directly by the Washington Township Health Care District Board of Directors. Annually, the Board reviews the CEO’s performance as required by the employment agreement. As a part of that process, the Board considers data provided by an independent health care compensation consultant, Integrated Healthcare Strategies/Arthur J. Gallagher & Company, and any and all other factors the Board considers important. The Board then decides whether or not the CEO’s base salary should be adjusted and whether to make an award of “at-risk” compensation. Concurrently, the Board also considers whether to make any other revisions to the Chief Executive Officer’s Employment Agreement with the District.    

The District has a long-standing philosophy of wage parity for all employees, which includes the CEO. Wage parity means the CEO is not paid at the top of the scale nor is she compensated towards the bottom. The District’s compensation philosophy of marketplace parity establishes a base salary for the CEO at the 65th percentile of her peer group and total cash compensation for the CEO in the range of the 75th percentile of her peer group with a maximum possible “at-risk” award of 20 percent of base salary. Benchmarking executive compensation based on peer group data is not only a standard practice but an accepted methodology that is required by the IRS for establishing reasonable compensation for executives working for non-profits. The District’s compensation philosophy not only reflects the District’s long-standing philosophy of wage parity for all employees but also acknowledges the CEO’s 30-plus years of experience as a health care executive.      

Last year, Washington Hospital Healthcare System continued to find success in a challenging financial environment largely due to the Affordable Care Act, in conjunction with continued reductions in Medicare reimbursement, and the proliferation of high deductible, high co-pay insurance products. Hospitals and health care systems across the country experienced a dramatic reduction in reimbursements.    

Notwithstanding these challenges, Washington Hospital’s CEO made significant progress to enhance services and to preserve the Hospital’s ability to deliver quality health care to its residents and patients. The Board of Directors noted that the District’s performance last year was nothing short of outstanding and thanked Ms. Farber and her executive team for leading the District and confronting the challenges of an increasingly difficult economic environment. Income from operations during FY 2015-16, provided the District with a total bottom line of $24.5 million, which was 5.8 percent over budget, despite patient net revenue being below budget by $4.1 million or just less than one percent.   

Additionally, the Board of Directors mentioned the following achievements in setting the compensation of the CEO, Nancy Farber:

  • The construction of the parking garage was substantially completed during the FY 2015-16.  As we know, it opened in August 2016.  The Parking Garage, which is for staff, physicians and volunteers has already helped to alleviate the parking challenges faced by our patients, their families and visitors.  The Morris Hyman Critical Care Pavilion is moving forward on time and on budget and will comply with California’s stringent seismic safety standards, with a “base isolation” system similar to that of other advanced facilities in the Bay Area and many earthquake-prone areas throughout the world. Once complete, the facility will house a greatly expanded Emergency Room that will be approximately four times the size of the current one and will also house a state-of-the-art intensive care unit (ICU) as well as an advanced coronary care unit (CCU). The new ICU and CCU will have 48 beds compared to the current capacity of 28 beds. All of the rooms will be private and larger in size. The pavilion will also have an additional 68 private med-surg beds and support space.
  • The refinancing of the General Obligation Bonds that were approved through the passage of Measures FF and Z, both of which help fund the Morris Hyman Critical Care Pavilion and other seismic improvements ensuring Washington Hospital complies with California’s unfunded seismic mandates for all hospitals in California.  As responsible stewards of these funds, the District was able to refinance the bonds at a lower interest which saves the residents of the District $5.8 million in interest payment over the life of the bonds.
  • The District is also continuing with the implementation of its Lean transformation journey which is based on the extensively proven Toyota Production System.  The program, which has been part of Washington Hospital for more than two years, will help Washington Hospital reach its goal to be the high-quality, low-cost provider of choice. Lean is critical to the Hospital’s mission of successfully serving the health care needs of the residents of the District now and into the future.  Lean focuses on improving patient safety and quality while reducing non-value-added services from our operations.     

In 2015, Washington Hospital again has been recognized by Healthgrades as one of the top hospitals in the United States for excellence in patient safety in 2015. Healthgrades is a leading source of safety, quality and patient satisfaction information about hospitals and physicians. The Hospital was listed in the top five percent for patient safety among the 5,000 hospitals evaluated by Healthgrades and received, for the third year in a row, the Healthgrades Distinguished Hospital award in Clinical Excellence.  Several clinical services within the hospital, including cardiac care, critical care, general surgery, orthopedics/joint replacement, pulmonary care and stroke also were cited for excellence by Healthgrades.  

Hospital and health care system CEOs face unique challenges and their pay reflects the complexity of the job. At WHHS, the CEO oversees all health care system operations, which run 24-hours-a-day, seven days a week. Regardless of the challenges created by the Affordable Care Act, Washington Hospital Healthcare System is vital to meeting the health care needs of the community by providing a wide range of acute care and diagnostic services, supporting public health needs and offering a myriad of other community services to promote the health and well-being of the community.    

WHHS receives no taxpayer or government financial support to cover its operations, aside from local voter-approved funds dedicated only to capital improvement projects required by California’s unfunded, state-mandated seismic standards. So, when reimbursements are reduced, whether from government payors (i.e. Medicare) or from private payors (i.e. insurance companies), the CEO must find a way to address reduced reimbursements while still making sure that WHHS provides exceptional quality of care for its patients and needed services for its residents.    

At its September 14, 2016 meeting, the Board voted to adjust the CEO’s base salary to $808,000, which is the 65th percentile of her peer group and is consistent with the Board’s compensation philosophy.  As a result of numerous achievements noted by the Board of Directors, the Board also voted to provide the CEO with an “at risk” compensation award equal to 20 percent the base salary which is also consistent with the Board’s compensation philosophy.      

The vote was unanimous.  

To review the CEO's contract, click on the link below:

CURRENT CEO CONTRACT 

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