Overview of CEO Compensation

Annually, the publicly elected Board of Directors of the Washington Township Health Care District (also known as Washington Hospital or the Washington Hospital Healthcare System) reviews the CEO’s base salary and considers an award of At-Risk Performance Compensation. This year, the Board conducted its review during two open public meetings of the District.

On December 12, 2012, the Board affirmed the CEO’s employment contract with no increase in base compensation. Nancy Farber, CEO, elected to forego any consideration of an increase to her base salary in recognition of the management salary freeze that is in place. On February 13, 2013 the Board considered an award of At-Risk Performance Compensation for the CEO for 2012.

The purpose of the annual review is to consider adjustments to the CEO’s compensation based on the Board of Directors’ compensation philosophy and the performance of the CEO during the past year. The Board of Directors exercises its oversight responsibilities over the District by hiring the CEO who is entrusted to make sure that Washington Hospital remains financially strong and capable of meeting its responsibilities to provide high quality health care to its patients.

Although the Washington Township Health Care District is a public entity, unlike cities or counties, it does not receive any taxpayer funds to cover its operations. Rather, the District is required to compete against other profit and not-for-profit healthcare providers to cover not only its operational costs (including employee salaries) but also to fund its community and charity care programs.

2012 Discussion Regarding Adjustments to the CEO’s Compensation
At the end of each year the Board of Directors reviews the performance of the CEO, Nancy Farber, and makes adjustments to her compensation consistent with the hospital’s compensation philosophy. The Board’s process includes a review of the CEO’s achievements for the prior year. The Board also typically receives a report from its independent compensation consultant to satisfy Internal Revenue Service guidelines for determining the range of reasonable compensation.

In previous years, the Board has engaged an independent executive healthcare compensation consultant to provide the board with a report which shows the Board how the CEO’s compensation compares to the cash compensation paid to her peers. An executive healthcare compensation consultant was not engaged this year as the CEO declined to be considered for a base salary increase. Because an independent analysis was not conducted this year, the Board of Directors is using last year’s report of an average 3 percent increase as a conservative approach to the “at risk” compensation discussion.

The 2011 report used for this year’s compensation analysis was provided by Integrated Healthcare Strategies. Integrated Healthcare Strategies is the leading healthcare compensation consultant in the United States. Hundreds of healthcare systems use Integrated Healthcare Strategies’ services on an annual basis to assist those organizations with the very same process that is followed at Washington Hospital.

Integrated Healthcare Strategies helps the Board properly align the CEO’s compensation rate with other similar hospitals in California and across the country that compete for the same executive talent. Integrated Healthcare Strategies uses its own proprietary database and in addition, uses two other commercially available databases in its analysis.
Previously, the Board determined that the CEO’s base salary should be administered using ranges built around the 65th percentile of the selected peer group and that her overall cash compensation should be administered using ranges targeting the 75th percentile of the selected peer group.

Achievements

Despite the recent financial challenges, the Health Care District is well managed and has a long history of meeting the needs of this community. Washington Hospital’s changing financial performance is unfortunate but typical of what is happening throughout the health care environment as the industry struggles to adapt. Decreases in state and federal reimbursement rates as well as private insurance reimbursements, and increasing costs, particularly labor costs, are having a significant impact on the bottom line.

Ms. Farber is a very experienced hospital administrator with an outstanding track record and longevity with the district. The CEO has a responsibility to the long-term fiscal health of the system so that we can continue to provide the highest quality of health care for District residents. A difficult decision was made to reduce the workforce. Taking difficult actions for fiscal responsibility is just as important as making decisions to expand services.

In spite of the workforce reduction, there are many positive initiatives that were accomplished this past year. Significant milestones were reached that continue to reinforce the reputation of the institution as a premiere medical facility committed to meeting the health care needs of our community.

Washington Township Health Care District provides many benefits to the community. One direct benefit to the community that receives little notice is the health care that is provided free or for which the District is not fully compensated. In the past year, Washington provided more than $48 million in health care to the community’s medically indigent who could not pay, $3 million for community education and other expenses, and an additional $100 million for the uncompensated cost of care for Medicare patients and bad debt.

Significant accomplishments include:

• In November 2012, Measure Z passed with over 73 percent of voter approval. Measure Z will fund the construction of the Morris Hyman Critical Care Pavilion which will house the much needed, expanded Emergency Room and Critical Care Units.  The community has spoken through their vote and this referendum demonstrates their commitment to the Health Care District, its leadership and staff.
• In 2012, the complex implementation of the Epic electronic health records system began. The Epic infrastructure was completed last year and is now going live in phases.
• Two major construction projects were completed on time and on budget: The Central Utility Plant and The Center for Joint Replacement building.

Awards and recognition received by the Hospital include:

• Washington Hospital maintains Magnet® accreditation from the American Nurses Credentialing Center. The Magnet Recognition Program® recognizes health care organizations for quality patient care, nursing excellence and innovations in professional nursing practice.
• Washington Hospital is designated a Breast Imaging Center of Excellence by the American College of Radiology (ACR), and in December 2012 the Washington Radiation Oncology Center received a new three year term of accreditation by the ACR.
• U.S. News & World Report ranked Washington Hospital as the 4th Best Hospital in the Bay Area.
• Washington Hospital’s cancer program received a three-year accreditation award with commendation from the American College of Surgeon’s Commission on Cancer.
• Beta Healthcare Group recognized Washington Hospital for its Quest for Zero quality initiative focusing on improving patient safety in the Emergency Department.
• The U.S. Department of Health and Human Services awarded Washington Hospital with its Bronze Medal of Honor for its work to reduce the number of people waiting for an organ or tissue transplant.
• Over the past year Healthgrades recognized Washington Hospital with numerous awards including a ranking among the Top 10 hospitals in California and the top 5 percent in the nation for joint replacement, as well as a five star rating in Neurosciences.

As a result, the Board determined that the CEO’s performance has been exceptional especially when considering the difficult economic climate and the great uncertainty surrounding health care reform. Washington Hospital Healthcare System achievements are in large part the result of Nancy Farber’s strong leadership and commitment to building a healthcare system that will serve this community for years to come.

Action Taken

At the December 12, 2012 meeting of the Washington Township Health Care District, the Board of Directors took the following action:

• Because the CEO included herself in the management salary freeze and elected to forego any consideration this year of an increase in her base salary, despite information that the national average increase for healthcare executives was 3 percent for 2012, the Board did not consider an increase in base pay.

At the February 13, 2013 meeting of the Washington Township Health Care District, the Board of Directors took the following action:

• The Board voted to award the CEO an “at risk” compensation award of 25 percent of base salary.  The vote was unanimous.