el camino hospital board of directors joint meeting ... · 2015 executive compensation philosophy...
TRANSCRIPT
A copy of the agenda for the Regular Meeting will be posted and distributed at least seventy (72) hours prior to the
meeting. In observance of the Americans with Disabilities Act, please notify us at 650-988-7504 prior to the meeting so that we
may provide the agenda in alternative formats or make disability-related modifications and accommodations.
AGENDA EL CAMINO HOSPITAL BOARD
JOINT MEETING OF THE BOARD AND THE EXECUTIVE COMPENSATION COMMITTEE
Wednesday, March 12, 2014
5:30 – 6:30 p.m.
Location:
El Camino Hospital, Conference Rooms, E, F & G, ground floor
2500 Grant Road
Mountain View, California
and
via teleconference:
Zayed 2nd
Street, Tower Building, 19th
Floor, #1903
Abu Dhabi, UAE
and
33 Longwood Drive,
Callawassie Island, SC 19910-4232
EL CAMINO BOARD MISSION: To be an innovative, publicly accountable and locally controlled comprehensive healthcare
organization which cares for the sick, relieves suffering, and provides quality, cost competitive services to improve the health and
well-being of our community.
EXECUTIVE COMPENSATION COMMITTEE MISSION: The purpose of the Executive Compensation Committee
(“Compensation Committee”) is to assist the El Camino Hospital (ECH) Hospital Board of Directors (“Board”) in its
responsibilities related to the Hospital’s executive compensation philosophy and policies. The Compensation Committee shall
advise the Board to meet all applicable legal and regulatory requirements as it relates to executive compensation.
AGENDA ITEM PRESENTED BY
1. CALL TO ORDER Neal Cohen, MD
Board Chair
5:30 – 5:31 p.m.
2. ROLL CALL Neal Cohen, MD
Board Chair
5:31
3. POTENTIAL CONFLICT OF
INTEREST DISCLOSURES
Neal Cohen, MD
Board Chair
5:31 – 5:32
4. EL CAMINO HOSPITAL
EXECUTIVE COMPENSATION
PHILOSOPHY
ATTACHMENT 4
Nandini Tandon, Chair,
Executive Compensation
Committee
Michael Stewart,
Sullivan & Cotter
public
comment possible motion
5:32 – 6:15
5. PUBLIC COMMUNICATION
A. Oral Comments
This opportunity is provided for persons in
the audience to make a brief statement, not
to exceed 3 minutes on issues or concerns
not covered by the agenda.
B. Written Correspondence
Neal Cohen, MD
Board Chair
6:15 – 6:18
Agenda: Join Meeting of the El Camino Hospital Board and Executive Compensation Committee March 12, 2014 Page 2
AGENDA ITEM PRESENTED BY
6. ADJOURN TO CLOSED SESSION Neal Cohen, MD Board Chair
6:18 – 6:19
7. Gov’t Code Sections 54957 and 54957.6 for
report and discussion on personnel matters. - El Camino Hospital Executive
Compensation Philosophy
Nandini Tandon, Chair, Executive Compensation Committee Michael Stewart, Sullivan & Cotter
information 6:19 – 6:29
8. RECONVENE OPEN SESSION Neal Cohen, MD Board Chair
6:29 – 6:30
To report any required disclosures regarding permissible actions taken during Closed Session.
9. ADJOURNMENT Neal Cohen, MD
Board Chair 6:30 p.m.
Administration
DATE: ECH Hospital Board – March 12, 2014
TO: El Camino Hospital Board of Directors
FROM: Nandini Tandon, Chair and David Reeder, Acting Chair,
Executive Compensation Committee
SUBJECT: Discussion Regarding Executive Compensation Philosophy
BOARD
ACTION: Information
Executive Summary:
One of the Executive Compensation Committee’s goals is to recommend the FY
2015 executive compensation philosophy as well as benefit and compensation
plan design to the Board.
The Board requested a joint discussion with the committee members.
The community members will share their expertise and experience to provide
education, perspective, and ideas for best practices with the Board.
The Committee wants to engage the Board in a meaningful discussion on
executive compensation philosophy. Mike Stewart from Sullivan Cotter will
facilitate the discussion.
Next Steps:
The Committee is meeting on March 20, 2014 to discuss the input from the
Board and to develop recommendations for the April or May Board meeting.
The Board will need to approve any recommendations no later than the June
meeting for a July 1, 2014 effective date.
attachments
Presented to:
© 2014 Sullivan, Cotter and Associates, Inc. The material may not be reproduced or copied without written consent of SullivanCotter.
Discussion on
Executive Compensation Philosophy
El Camino Hospital
• Components of Executive Compensation in Not-For-Profit Health Care Market:
– Base salary – reflects experience and sustained performance. Salary ranges are broad (50%) and approximate P25 to
P75 of market data
– Annual incentives – include downside risks and upside potential, based on performance.
– Long-term incentives – less prevalent than annual incentives and focuses on longer-term objectives and retention of
executives.
– Standard benefits – provided to all employees.
– Executive benefits – typically focused on supporting executive retention and addressing areas where standard benefits
are capped for higher earners.
• Current Guiding Principles of Executive Compensation Philosophy at El Camino Hospital:
– Support the Hospital’s ability to attract, retain, and motivate a highly-talented executive team with the ability and
dedication to manage the Hospital accordingly.
– Support the Hospital’s mission to improve the health and well-being of the communities we serve through quality health
care, education, and research, and to provide care to those in need regardless of the patient’s ability to pay.
– Support the vision of the Hospital as the preferred community healthcare destination in Silicon Valley based on quality,
innovation, and the individualized patient experience.
– Develop and administer cash compensation and benefit programs that allow the Hospital to attract, retain and motivate
executives.
– Considers the Hospital’s financial performance and ability to pay which shall be balanced with the Hospital’s ability to
attract, retain and motivate executives.
– Govern the executive compensation programs to comply with state and federal laws.
– Attract and retain talented executives, who are committed to accomplishing the goals of the Hospital.
Executive Compensation Philosophy
and Competitive Positioning
1
Peer Groups:
– National, not-for-profit hospitals and health systems of similar size and complexity.
• El Camino Hospital competes for talent nationally.
• National data are more robust and more consistent than regional data.
• El Camino Hospital uses a geographical adjustment to the market data to reflect the “geographic
salary differential” of the Silicon Valley.
Current Compensation Philosophy Market Positioning.
• Salary ranges set based on 50th percentile, actual salaries based on a combination of paying
competitively, rewarding performance, recognizing competencies, credentials, and experience.
• Target incentives and total cash compensation intended to create 50th percentile market positioning,
based on organization and individual performance.
• The combination of median total cash compensation and competitive (median) benefits intended to
produce 50th percentile total compensation.
• An important consideration has been whether to focus on percentile position of individual
components of pay or to focus on the whole program (i.e., total cash compensation or total
compensation (including benefits)).
Executive Compensation Philosophy
and Competitive Positioning
2
• It is essential that the executive compensation program be designed so that it aligns with the critical
business and mission interests of the organization.
– A blend of fixed and variable compensation that provides appropriate security, performance
expectation and retention to executives responsible for leading execution of the organization’s
strategy.
• Each organization must assess its strategic business interests, its mission, its organizational culture
and the national and regional competitive factors that affect recruitment and retention of senior
executives.
• The changes that are occurring within health care have influenced organizations to reconsider their
focus on key organizational measures of performance.
– Increased focus on quality and patient satisfaction while maintaining fiscal performance.
– Responsiveness to the regulatory environment.
• It is the role of the Compensation Committee to oversee executive compensation philosophy and
design and to ensure that the program, including all elements of compensation, is both competitive and
rigorous in its support of the mission and business interests of the organization.
Role of Executive Compensation
3
• Executives typically have a portion of their total cash compensation “at risk” (i.e., its delivery is based
on organization and individual performance against a set of well-vetted goals and performance
metrics).
• The level of target award opportunities usually varies by both the size of the organization and the level
of the executives.
– For organizations similar to El Camino Hospital, typical CEO target award opportunities range
between 25% and 40%. For the next level of executives, target incentives range between 20% and
30%.
• Typically, incentive plans are designed in conjunction with competitive base salaries to provide an
opportunity to leverage total cash compensation to a higher position in the market based on
organization and individual performance.
• Annual incentive plans are highly prevalent throughout the not-for-profit health care industry.
– Long-term plans are employed by approximately 30% of health systems and hospitals and they are
used to focus attention on strategic business goals and to serve as retention vehicles for senior
executives.
– It is also possible to incorporate elements of longer-term organization priorities into an annual
incentive plan.
• At the heart of the effectiveness of any variable pay program based on organization and individual
goals is the rigor and the transparency of the goal setting and assessment process.
Variable (Incentive) Compensation
4
• Typical market practice is to have a blend of organization and individual goals, usually with a heavier
emphasis on organization performance.
– El Camino Hospital has a 70/30 weighting on organization and individual performance. CEO is 80/20.
• Organization goals are typically developed by management and recommended to the Board or a Board
Committee for approval.
• In recent years, there has been a clear movement to a balanced scorecard approach to goal setting
that reflects not only the mission of the organization, but the changing realities of the health care
market.
– Quality
– Financial
– Patient satisfaction
– Others
• Best practice suggests that, in most circumstances, goals should be results and metrics driven, not
process driven.
• A truly effective performance-based executive compensation program will have a rigorous, well-vetted
set of goals that reflect the annual and, increasingly, long-term business interests of the organization.
• It is incumbent on management and the Board to engage in full and transparent discussions of both
goal-setting and performance assessment against the goals.
Performance Goal Setting
5
• Total Compensation includes base salary, incentive compensation, and benefits
• Competitive benefits help attract and retain employees
• Some benefits provide security (i.e., severance, retirement plans, disability and life
insurance)
• Cost of basic employee benefits are higher in Silicon Valley than national median
• Certain employee benefits are capped, and executives do not receive the same benefit
(as a percent of pay) as employees (i.e., disability and retirement)
• Benefits may be strategic and/or earned long-term (i.e., current SERP has 5-year vesting
period) to enhance retention
• Competitive severance pay may be critical to attracting and retaining executive talent
• Employment agreements increase executives’ sense of security and help forge a stronger
commitment to the hospital. More importantly, they avoid protracted negotiations in the
event of termination of an executive.
• El Camino Hospital’s executives are recruited nationally from both non-profit and for-profit
healthcare organizations. For-profit organizations frequently offer stock options as a part
of total compensation.
Benefits and Total Compensation
6
• As the Committee develops recommendations, what fundamental elements of the executive
compensation philosophy and design does the Board want us to consider?
– Peer group definition (note: typical is revenue 50% to 200%; ECH is using 50% to 150%)
– Competitive positioning in the market (current position is median across all components adjusted for
geographic labor differential in Silicon Valley)
– Incentive opportunities levels (i.e., modest opportunity to leverage increased total cash compensation
based on strong organization performance).
– Supplemental executive benefits
– Severance
– Longer term rewards for achieving strategic goals
• Does the Board want to weigh executive and/or organizational performance to a greater degree in
compensation design and administration?
• Does the existing process for organization goal setting and assessment of performance against the
goals provide adequate rigor and transparency?
• How can the Compensation Committee and Board improve their interaction to ensure confidence in the
role of the compensation program as a vehicle to support the recruitment, performance and retention of
key executives as well as the mission and business goals of the organization?
Going Forward
7
Approval: 2/13/13
\\San01\policies & procedures\BOARD\03.03_BOD_ExecutiveBenefitsPlan.DOC
El Camino Hospital Rev.: 11/30/12jj
EL CAMINO HOSPITAL
BOARD OF DIRECTORS POLICIES AND PROCEDURES
03.01 EXECUTIVE COMPENSATION PHILOSOPHY
A. Coverage:
The Chief Executive Officer (“CEO”) of El Camino Hospital (“the Hospital”) and those
executives reporting directly to the CEO and approved participants. Participation in the
plan is subject to approval by the Hospital Board of Directors.
B. Reviewed/Revised:
New: 2/08, 6/09, 12/08/10; 8/10/11, 2/13/13
C. Policy Summary:
The compensation philosophy is the official statement of El Camino Hospital’s Board of
Directors regarding the guiding principles and objectives upon which executive
compensation decisions are based, and the general parameters and components for
accomplishing these objectives.
The executive compensation program encompasses both cash compensation (salary,
incentive pay, and other cash compensation) and non-cash compensation (employer
provided benefit plans and perquisites) which in whole, represent total compensation.
The program is governed by the Board of Directors and the Executive Compensation
Committee which provide direction for governance and administration of executive
compensation programs and their effectiveness in attracting, retaining, and motivating
executives.
D. Executive Compensation Philosophy:
The philosophy describes the guiding principles and objectives of the executive
compensation program. Executive compensation decisions will be made using the
following guiding principles and objectives:
1. Support the Hospital’s ability to attract, retain, and motivate a highly-talented
executive team with the ability and dedication to manage the Hospital
accordingly.
2. Support the Hospital’s mission to improve the health and well-being of the
communities we serve through quality health care, education, and research, and to
provide care to those in need regardless of the patient’s ability to pay.
2
3. Support the vision of the Hospital as the preferred community healthcare
destination in Silicon Valley based on quality, innovation, and the individualized
patient experience.
4. Develop and administer cash compensation and benefit programs that allow the
Hospital to attract, retain and motivate executives.
5. Considers the Hospital’s financial performance and ability to pay which shall be
balanced with the Hospital’s ability to attract, retain and motivate executives.
6. Govern the executive compensation programs to comply with state and federal
laws.
7. Attract and retain talented executives, who are committed to accomplishing the
goals of the Hospital. Total compensation at the El Camino Hospital median is
not intended to be a single or controlling factor in an executive’s decision to join
or stay with the Hospital. Rather, attraction and retention will be based primarily
on executive challenges and commitments to the goals of the Hospital, which are
supported by the total compensation program.
E. Components:
The three key components of the executive compensation program are base salary,
performance incentive compensation, and benefits.
1. Base Salary. Each executive position will be assigned a salary range that is
competitive with comparable hospitals and accounts for the higher cost of labor in
Silicon Valley. The midpoint of the salary range will reflect the El Camino
Hospital median. An individual’s placement in the range will be determined based
on a combination of the following factors: paying competitively, rewarding
performance, and recognizing competence, credentials, and experience. Salary
administration guidelines will be established to assist management in balancing
these factors and to support fair and consistent practices. The Executive
Compensation Committee reserves the right to establish lower salary ranges or to
freeze salary ranges and/or base salaries when financially prudent.
2. Performance Incentive Compensation. Each executive will be eligible for a goal-
based performance incentive compensation program. The target amount for
incentive pay will be competitive with those at comparable hospitals. An
executive’s performance incentive payout will be based on their performance
against pre-defined organizational and individual goals and objectives aligned
with the Hospital’s mission, vision, and strategic goals.
3. Executive Benefits and Perquisites. The Hospital may provide executives with
supplemental benefits that are competitive with comparable hospitals as described in
the executive benefits policy. It is the Hospital’s practice to minimize the use of
perquisites in total executive compensation.
3
The Executive Compensation Committee shall maintain written policies and
procedures regarding the administration of each component.
F. Definitions
Comparable Hospital – To measure the competitiveness of the executive compensation program, the Hospital will use, in general, compensation information from tax-exempt independent hospitals from across the United States comparable in size and complexity to the Hospital. The hospitals will be comparable in size and complexity based upon net operating revenues.
Competitive Position – A determination of where the Hospital places executive salaries,
incentives, and benefits relative to comparable hospitals nationally. El Camino Hospital’s
competitive position for base salaries is the median plus a cost-of-labor adjustment for Silicon
Valley to account for the higher than cost-of-labor and cost-of -living in Silicon Valley.
Cost of Labor Adjustment – Recognizes the significantly higher cost-of-labor and cost-of-living in Silicon Valley. The Committee will periodically analyze cost-of-labor and cost-of-living data to ensure the geographic differential is appropriate and accurately projecting the El Camino Hospital median. El Camino Hospital Median – Reflects the median base pay of the comparable hospitals plus
the cost-of-labor adjustment for a particular position. The Hospital increases the comparable
hospital compensation data by 20% to calculate the El Camino Hospital median which provides
some recognition of the significantly higher cost-of-labor and cost-of-living in Silicon Valley.
Incentive Pay(out) – The payment received by an executive under the annual incentive
compensation program.
Other Cash Compensation – Other cash compensation excludes base salary or incentive pay
but includes a hiring, retention, or relocation bonus.
Performance Incentive Compensation - The amount paid in recognition of an executive’s
performance against pre-defined organizational and individual goals and objectives aligned with
the Hospital’s mission, vision, and strategic goals. The amount of performance incentive
compensation paid to an executive is determined annually and paid in a lump sum.
Salary Range - A range established as 20% below to 20% above the salary range midpoint,
resulting in a maximum amount that is 150% of the minimum amount. The Committee can
approve salaries above the normal salary range for hard-to-recruit positions or positions deemed
critical to the success of the organization.
Salary Range Midpoint - The midpoint of the salary range for each executive position will be
set at the El Camino Hospital Median. The Compensation Committee reserves the right to
establish lower salary ranges or to freeze salary ranges and/or base salaries when financially
prudent.
4
Total Cash Compensation – includes base salary plus annual incentive compensation (and other
cash) paid to an executive. Total cash compensation opportunity will be competitive to El
Camino Hospital median total cash compensation in comparable hospitals when performance is
at targeted levels.
Total Compensation – Total cash compensation, employee and executive benefit programs and
any other compensation payable to the executive.