| BY SHARON ANDERSON WILSON For editorial comment on this report, see “Fair Compensation.” —Editors.
In late 1999 the Washington Post published a series of articles about patient-care issues at Shady Grove Adventist Hospital in Rockville, Maryland, the largest hospital operated by Adventist HealthCare, Inc. After reporting that the Joint Commission for Accreditation of Healthcare Organizations (JCAHO)1 had moved to revoke the accreditation of Shady Grove because of concerns about the quality of patient care,2 the Post published an article on December 1 that alleged a link between large increases in executive compensation at Adventist HealthCare (AHC) and cutbacks in patient-care personnel at the hospital. According to the Post article, executives at AHC had received large increases in salary and bonuses even though the hospital and its parent organization claimed it was necessary to make personnel cuts.
On February 3, 2000, Shady Grove Hospital received word that it had successfully appealed the November JCAHO action, and the hospital received conditional reaccreditation, contingent on a JCAHO site visit within 90 days. JCAHO made its visit February 22-25, and the hospital remains at conditional accreditation, with a full survey to take place within six months. Far more troubling to many Adventist members and church leaders, however, was the public revelation of size of the annual compensation packages being paid to health-care executives. “There’s certainly a gap in understanding about fair compensation between the average North American Adventist and leaders of Adventist health-care organizations,” says one church leader. “Someone has to do some educating, or at least some explaining.” A 30-Year Discussion
“The issue of hospital workers’ compensation has been raised each decade over the past 30 years,” says Neal C. Wilson, retired General Conference president (1979-1990). Wilson notes several milestones along the way: a 1968 decision to compensate nurses at Adventist hospitals at community rates; a 1978 decision to move all health-care employees except top administrators to market rates; and an action of the 1989 Spring Meeting of the General Conference acting as a North American Division committee. At the 1989 meeting the salaries of top health-care administrators were reviewed in depth. Pivotal Decision “This action allowed changes that were competitively necessary and legitimized certain things already being done by some organizations,” says Mardian Blair, recently retired president of Adventist Health System Sunbelt Healthcare Corporation and related entities. “It allowed those who were trying to follow policy to pay their leaders on an equal basis.”7 The national component of the Adventist Health System, referred to as AHS/US, provided some helpful services, yet it did not have functional authority over the regional components, recalls Ron M. Wisbey, former president of the Columbia Union Conference (1985-1994) and recently retired chair of AHC. (see sidebar, p. 22).8 Wilson notes that when AHS/US collapsed in the early 1990s, there was no church-sponsored entity to monitor compliance with the 1989 compensation vote.9 In 1994 Alfred C. McClure, president of the church’s North American Division, attempted to elicit corporate cooperation with the 1989 action. The Regional Corporate Management Council10 met in Battle Creek, Michigan, to address the issue of top executive compensation. According to Adrian Zytkoskee, former vice president of Adventist Health System/West (currently known as Adventist Health), and several other leaders present, representatives of what is now known as AHC strongly opposed disclosure of compensation levels and policies and did not join in covenants that adhered to the spirit of the 1989 action.11
AHC and its allied system, Kettering Adventist HealthCare, apparently employed a very different approach. According to one former member of the compensation committees at both entities, both organizations chose to compensate top executives at a seventy-fifth percentile rate relative to market. Confirmation of AHC’s course of action is also found in documents obtained by the Adventist Review from AHC and the Columbia Union Conference’s internal report prepared for executive committee members.13 Executive Compensation Rates The fundamental process used by tax-exempt not-for-profit entities to determine executive compensation is established, in part, by federal tax-exemption requirements. According to federal guidelines, an independent compensation committee must annually review a market analysis of compensation in comparable institutions, and apply that data as the committee determines executive compensation levels. The required compensation committee is often a subcommittee of the full board. In the Adventist health-care organizations, a union conference president usually chairs both the compensation committee and the board. The number of members on the compensation committee has varied between organizations, ranging from as few as four14 to approximately 15 members. The compensation committee may delegate to employees of the organization the task of retaining compensation experts to prepare the market analysis. The retained experts present the data to the compensation committee, which, depending on its authority, may either take final action or make a recommendation to the full board for its approval. While a recommendation may contain actual dollar amounts, the practice in AHC was to define any change in compensation in terms of a percentage of the previous year’s compensation without stating a dollar amount. Several church leaders and health-care administrators have noted that they now believe that it would be more appropriate if the compensation committee itself retained the experts who provide data on wage scale for a given region, or better yet, if a national firm were employed to survey the market, with breakouts for each region, as called for in the 1989 action. In the present system even though they are not members of the compensation committee, health-care executives are in the difficult ethical position of contracting with compensation experts who then make recommendations about those same executives’ annual salaries and bonuses. Understanding the Numbers The Adventist Review obtained copies of the publicly available 990 returns filed by the eight regional parent corporations for the fiscal period closest to calendar years 1996 through 1998. (The two exceptions are the 1995 return for Portercare and the 1998 return for Atlantic Adventist Healthcare Corporation, the parent corporation of the now-closed Boston Regional Medical Center. As of March 10, the return for AAHC has not been filed with the state attorney general’s office.)
Compensation is adjusted for regional differences in cost of living. For the Washington, D.C., region, a high-cost area, the rate for an ordained minister or elementary teacher is $44,316. Compensation—Includes salary, fees, bonuses, and severance payments actually paid during the report year, even if previously reported as deferred compensation. While this does require that some amounts appear in different categories in different years, in any given year the amount should be only reported once. Contribution to Benefit Plans—Includes medical, dental, and/or life insurance, severance pay, etc., and also all forms of compensation earned during the report year, but not yet paid, such as retirement amounts, whether or not taxable, funded, or vested. Other Allowances—This is a catchall category, including expense accounts. Two examples are the value of personal use of the organization’s assets, such as housing or automobiles, and reimbursements for undocumented business expenses that the recipients must report as income on personal tax returns. Because of the many variables that attend the remuneration packages of the health-care executives included in this three-year review (1996-1998), this report will focus primarily on the “Compensation” category. It should be noted, however, that there is a dramatic range of difference between executives in the other two categories: While some IRS 990 forms report “0,” others show amounts as high as nearly $300,000 in a given year. (For a fuller itemization of these categories and comparable information on the top three positions at each of the eight Adventist health-care corporations, please see the online “Special Report” at the Adventist Review Web site: www.adventistreview.org.) The 1996-1998 compensation data for the highest-paid executive position within each of the eight parent corporations reported on the IRS 990 forms is summarized in the table below. With the exception of the Loma Linda parent corporation, this is the president or CEO of the parent corporation. (At Loma Linda the current president has elected not to receive compensation at market rates. The executive vice president of the medical center affiliate is the highest-paid position in the parent health-care corporation, and is reported here.) AHC was unique among the Adventist organizations in that its board chairman was also an employee of the corporation, and compensated for his services.16
For 1996-1998 the IRS 990 returns show under “Compensation” (without inclusion of contributions to benefit plans or other allowances) the following ranges for the highest paid executives of the eight Adventist systems. It should be noted that the current president of the Loma Linda system has elected not to receive compensation at market rates. “Most don’t interpret it correctly,” says Wilson, himself a former Columbia Union Conference president before serving terms as General Conference vice president for North America and General Conference president. “It [the 1989 action] specifically rejected the fiftieth percentile.”18 Documents obtained by the Adventist Review reveal that AHC executives and compensation committee members several times discussed how they would deal with the expected negative publicity that would result from a media revelation or Adventist constituent discovery of the compensation packages they were then approving.19 It seems apparent that other Adventist health-care systems have followed lower levels of executive compensation. For instance, Max A. Trevino, president of the Southwestern Union Conference and chair of the board of directors for Adventist Health System Sunbelt Healthcare Corpor-ation, a large system with about $2 billion annual income, reports that that organization has adhered to a fortieth percentile maximum. Learning From Experience As noted above, some health-care and church leaders are beginning to urge that a single national firm again be employed to provide authoritative data to the regional health-care corporations as they make decisions about executive compensation. While apparently curbing, at least modestly, the autonomy of the regional corporations to set their own executives’ pay, this option could ultimately provide a more reliable and defensible method for setting compensation rates. Additional questions brought to light by these events also call for answers: Does market rate compensation help or hinder the achievement of the church’s medical ministry? Does the disparity in pay between health-care workers and other denominational employees demonstrate that health-care executive pay is too high, that denominational pay scales are too meager, or both? On an even broader scale, the fundamental relationship between the denomination and Adventist health-care corporations needs to be better understood, at least by members in the pew, and, not infrequently, by elected church leaders. Does the denomination’s voted compensation philosophy actually apply to executives of “health-care institutions [which] are managed as separate but allied structures” of the denomination? Is an “allied structure” truly accountable to the denomination? Given the recent experiences of AHC and the painful bankruptcy of Boston Regional Medical Center, this question emerges as of critical importance. “The real story here isn’t salary levels, but corporate structure and corporate responsibility,” says Zytkoskee. He and others point to the fact that those sitting as members of some union conference executive committees are, by virtue of that position, the corporate members of the union’s health-care corporation. Even if a new organizational structure for church oversight and denominational involvement in giving direction to Adventist health-care entities is established, the individuals in the key union positions must have the necessary skills to provide the checks and balances designed into the organization structure. Church members reasonably depend upon elected denominational leaders who sit on health-care governing boards to ensure that each system remains identifiably Adventist in its compensation rates. “While we cannot predict the future, we can help to shape it,” says NAD president McClure. “Operating acute-care institutions in today’s environment is extremely complex. And the church has been blessed with many top-quality personnel who have dedicated their lives to the health-care ministry. “But church governance must be structured in such a way as to ensure that the health-care arm of our work accurately represents our message and mission. This applies not only to the compensation issue but to the entire scope of activity that takes place in these community-serving organizations. It is essential that we do our best to protect the church’s assets from ascending liability while providing assurance that our health-care ministry effectively extends the healing hand of our Lord in a winsome, attractive, and mission-focused manner.”
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