CEO/President Executive Compensation Committee
Thursday, August 6, 2020
9:30 a.m.
AGENDA
PRESIDENT/CEO EXECUTIVE COMPENSATION COMMITTEE MEETING AUGUST 6, 2020 AT 9:30 A.M. Location: Med Plaza One, Suite 405, 9800 S. HealthPark Dr. Ft. Myers FL 33908 Teleconference Dial-In # 1 415 655 0002 Access Code 479 493 525
1) Call to Order – (David Collins, Board Chair, Committee Chair)
2) Public Input Statement
3) Minutes of President/CEO Executive Compensation Committee Meeting 6/22/20
(Approve)
4) Attorney Items (George Knott, Deputy Board Counsel)
5) Tax Issues (Tracy Pyles, Senior Managing Attorney – Employment)
6) Follow up of Additional Information needed for Board consideration of extension to
President/CEO Contract (Mike Wukitsch, Chief Human Resources Officer)
a. Benefit package survey
b. Average length of CEO contract term
c. Percentage of CEO contracts that have annual adjustments to base pay not tied to
performance
7) Next Steps – Recommendations to Full Board (David Collins, Board Chair, Committee Chair)
8) Adjourn
Date of Next Meeting TBD
Statement regarding PUBLIC INPUT
All public input will take place at the Board of Directors Meetings, (not Committee Meetings). At that time input is limited to three minutes and a “Request to Address the Board of Directors” card should be completed and submitted to the Board Staff prior to meeting. Non-Committee members are present to observe only and not to participate. Please contact the Board Office with any questions. (239) 343-1500
UNAPPROVED PRESIDENT/CEO EXECUTIVE COMPENSATION COMMITTEE MEETING MINUTES
Monday, June 22, 2020 Gulf Coast Medical Center, Medical Office Building Boardroom, 13685 Doctor’s Way, Fort Myers, FL 33912 Teleconference 1-415-655-0002 Access Code 479 493 525
MEMBERS PRESENT: David Collins, Board Chair Therese Everly, Board Vice Chair Donna Clarke, Board Treasurer Diane Champion, Board Secretary OTHERS PRESENT: Sanford Cohen, M.D., Board Member Stephen Brown, M.D., Board Member George Knott, Board Counsel Mike Wukitsch, Chief Human Resources Officer Larry Antonucci, M.D., President/CEO Mary McGillicuddy, Chief Legal Counsel Tracy Pyles, Senior Attorney
The President/CEO Executive Compensation Committee Meeting was called to order at 1:01 p.m. by David Collins, Board Chair.
PUBLIC INPUT Chair David Collins read the Public Input Statement.
David Collins Board and Committee Chair shared his initial thoughts to aid discussion. He stated, the Board owe our CEO Dr. Larry Antonucci thanks for his excellent leadership before and during this global pandemic. In the last year Larry’s leadership has resulted in many positive outcomes. To name a few: Standard and Poor’s bond rating increased from A to A+, Lee Health has received many quality awards including A grades from Leapfrog for Acute Care Hospitals, transformed the organization culture through ExceptionaLee, and Baldrige Quality framework for operational and performance excellence.
During the COVID pandemic Dr. Antonucci modeled excellent communications; used in house labs to speed up testing results; applied for and received additional funding. On behalf of the Board, David Collins thanked Dr. Antonucci and stated the Board continues to support him as our CEO/President, but the Board want to be sure his work on Lee Health’s behalf is recognized and appropriately rewarded.
Dr. Antonucci’s employment contract ends on 9/30/21 and the Board is obligated to begin discussions and negotiations about that contract within 60 days of October 1,
UNAPPROVED PRESIDENT/CEO EXECUTIVE COMPENSATION COMMITTEE MEETING MINUTES – 6/22/20
2
2020. This is being done a little early, because in January 2020 Dr. Antonucci offered to keep the employment contract terms as they are for the next 4-year period.
David Collins suggested this committee be formed to continue ensuring governance best practices, to be sure the Board is looking at national best practices for our CEO’s compensation in a changing world. This committee will help the board to do one of the most important parts of its job, CEO oversight. This work is an essential, central duty of the Board. The Board need to do their due diligence.
PRELIMINARY COMMENTS George Knott, Deputy Board Counsel reviewed current Sunshine Law and this Committee’s limited mandate. REVIEW BY COUNSEL OF CONTRACT PROVISIONS IN PRESIDENT/CEO EMPLOYMENT AGREEMENT George Knott reviewed the 16 provisions in the current President/CEO contract. He referred to Board Policy 40.02J President/CEO Compensation & Performance Review. Discussion ensued. Board members asked questions about the employment agreement and the short and long term incentives.
DISCUSSION OF GALLAGHER REPORT Mike Wukitsch, Chief Human Resources Officer presented the Gallagher President / Chief Executive Officer Total Cash Compensation Review prepared in May 2020 to the Committee. Key points of report include;
• Compensation positioned at the median of the peer group • President/Chief Executive Officer’s compensation compared with a
combination of National, Southeast Regional, and Florida peer groups of systems and hospitals similar to LH in terms of size and organizational complexity
In addition, Mike shared with the committee the supplemental information requested from Gallagher dated June 19, 2020 addressing the impact of COVID-19 on the reasonableness of the CEO’s total compensation. Discussion ensued.
REVIEW BY CHIEF HUMAN RESOURCES OFFICER OF CURRENT PRESIDENT/CEO SHORT TERM AND LONG TERM INCENTIVE PLAN(S) Topics discussed included the System Strategic Scorecard and the timeline for its approval. Therese Everly asked when the new information would be available and Larry Antonucci said in August or September. Therese asked the committee if the Scorecard is what they should use to drive what is included in the short and long-term incentives. Donna Clarke stated she thinks Larry’s Incentive Goals should be composed of Margin for a financially sustainable organization, Growth and Quality, and
UNAPPROVED PRESIDENT/CEO EXECUTIVE COMPENSATION COMMITTEE MEETING MINUTES – 6/22/20
3
that the system scorecard could be used by Larry to incentivize his executives. The committee will discuss this in more depth at their next committee meeting.
ADDITIONAL INFORMATION NEEDED FOR COMMITTEE CONSIDERATION OF SHORT TERM AND LONG TERM INCENTIVE PLAN
Benefit package survey Average length of CEO contract term Percentage of CEO contracts that have annual adjustments to base pay not tied to performance Tax implication(s) if any Force Majeure clause
The committee feels comfortable with the information already submitted from Gallagher and decided that with the additional information they have requested that it is not necessary to consult with another outside agency. NEXT STEPS RECOMMENDATIONS TO FULL BOARD The committee discussed various recommendations regarding contract renewal. Mary McGillicuddy system counsel asked for clarification. Mary said the Board has been presented with the request to renew the contract under the current terms. She stated she was unclear if the motion is accepting that offer subject to the force majeure and tax implications, and with the understanding that the short and long term incentives be formed after the contract is entered into, as was done with the first contract.
Therese Everly believes it is the intent of the Board to renew the employment contract. With the formation of this committee, she does not want to mislead the organization that there is any lack of confidence in the CEO. Therese further stated the idea of this motion is to state that it is the Board’s intent to absolutely renew the contract of employment with the CEO. However, we have to negotiate the terms, so to your point, no, it’s not saying we are accepting the exact contract. That is still to be determined. Therese Everly made a motion to recommend to the Board the renewal of the employment contract subject to the negotiation of appropriate terms. The motion was seconded by Donna Clarke. The motion was carried with no opposition. NEXT REGULAR MEETING The next Presidents/CEO Executive Compensation Committee Meeting will be held on August 6, 2020, at 9:30 a.m. at Gulf Coast Medical Center, Medical Office Building Boardroom, 13685 Doctor’s Way, Fort Myers, FL 33912
UNAPPROVED PRESIDENT/CEO EXECUTIVE COMPENSATION COMMITTEE MEETING MINUTES – 6/22/20
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ADJOURNMENT The Presidents/CEO Executive Compensation Committee Meeting adjourned at 12:10 p.m. by David Collins, Board Chair.
Minutes were recorded by Kathy J. Hagen/Assistant to the Board
Signed by:
, Committee Chair
Date:
Lee Memorial Health System Board of Directors
PRESIDENT/CEO EXECUTIVE COMPENSATION COMMITTEE
BOARD COUNSEL ITEMS
George Knott, Deputy Board Counsel
Lee Memorial Health System Board of Directors
PRESIDENT/CEO EXECUTIVE COMPENSATION COMMITTEE
TAX ISSUES
Tracy Pyles, Senior Managing Attorney- Employment
Lee Memorial Health System Board of Directors
PRESIDENT/CEO EXECUTIVE COMPENSATION COMMITTEE
ADDITIONAL INFORMATION FOR
BOARD CONSIDERATION
Mike Wukitsch, Chief Human Resources Officer
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PRESIDENT / CEO COMPENSATION REVIEW SUPPLEMENTCEO Benefits and Contract Provisions
LEE HEALTHFort Myers, Florida
Kevin Talbot | Managing Director and Practice LeaderNica Syers | Senior ConsultantJohn Allison | Senior ConsultantJuly 2020
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President/CEO Benefits
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Information Presented
This section includes• Overview of the executive benefit program• Benefit expenditure analysis in comparison to a peer group of healthcare organizations
‒ Quantify benefit expenditures and compare to competitive standards in the healthcare industry‒ Individual expenditures for President/CEO
• Benefit provision analysis in comparison to competitive standards for the healthcare marketplace‒ Review specific benefit provisions for competitiveness, efficiency, and legal impact
• Findings
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Lee Health Executive Benefit Program
Lee Health provides executives with the following benefits at employer cost• Medical coverage • Disability salary continuation (short-term disability)• Group term life and AD&D insurance• Individual supplemental life insurance• Group long-term disability insurance• Qualified retirement benefit [403(b) employer matching contribution]• Non-Qualified supplemental retirement plan• Paid Time Off (vacation, holidays, personal time, and sick time)• Business expenses (phone, laptop, and professional memberships/dues)
Dental and Vision coverage
Section 125 Spending Accounts
(healthcare reimbursement or dependent care)
Additional long-term disability insurance
Additional supplemental life insurance
403(b) Deferral Plan
457(b) Elective Deferral Plan
Lee Health allows executives to elect additional benefits at their own cost
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Benefit Expenditure Comparison
0%
5%
10%
15%
20%
25%
30%
35%
40%
President/CEO (Antonucci, M.D.) National Healthcare Market Data
15.4%
Per
cen
t o
f S
alar
y
25th Percentile Median 65th Percentile 75th Percentile 90th Percentile
30.0%28.0%
35.0%
25.0%
32.0%
Expenditure for the CEO is below the 25th percentile
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Benefit Expenditures as a Percentage of Salary
1 Employer premium contribution based on elected level of coverage 2 At employee cost3 Coverage of 1x to 3x salary to a maximum of $600,000 – maximum allow ance is $1,126 annually4 Coverage of 66.67% up to a maximum of $20,000 monthly – actual cost5 100% match on f irst 5% of compensation contributed by executive up to the legislative limit of $285,000 in 2020 6 Annual premium for individual coverage7 Employer contributions vary by level - $75,000 for President/CEO8 FICA calculated at 6.2% of salary to 2020 legislative limit of $137,700. Medicare calculated at 1.45% of total compensation
Antonucci, MD
Salary $1,054,019
Actual Incentive Award $0
Total Cash Compensation $1,054,019
Medical Plan1$13,763
Dental Coverage2$0
Group Term Life and AD&D3$1,126
Executive Long-Term Disability4$3,359
403(b) Plan Employer Match5$14,250
Supplemental Life Insurance6$31,361
Supplemental Retirement Plan7$75,000
Social Security/Medicare8$23,821
Total Benefits $162,680
Benefits as a Percentage of Salary 15.4%
Note: The value of Paid Time Off is reflected in an employee’s salary; therefore, it
is not included in the analysis of benefit expenditures as a percentage of salary
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Benefit Analysis – Health Care
COMPETITIVE STANDARD Lee HealthMedical: A majority of employers provide between 70% and 84% of the total premium cost for family medical coverage, a median employer contribution of approximately $17,000 per year for family coverage level• Over 80% of employers offer a wellness program Roughly 80% of employers with wellness
programs offer a premium reduction for participation (median discount of approximately $500)
Medical coverage• One comprehensive self-insured medical plan with cost sharing of plan
premiums Lee Health pays between 71% and 84% of the total premium, depending on
level elected Higher premiums are applied if an employee does not participate in the
wellness program Employees may opt out of coverage and receive $100 per pay period
instead
Prescription Drug• Prescription drug benefits are included in the medical coverage
Dental: Approximately one-third of employers pay up to half of the total premium for dental benefits; about 40% of employers pay for 50% to 70% of the total dental premium• Median employer contribution is $630 annually for
family coverage
Dental coverage• Dental coverage is available at employee cost
Vision: Approximately one-fifth of employers pay a portion of the premium for vision benefits when a separate vision plan is offered
Vision coverage• Vision coverage is available at employee expense
$13,900
$17,000 $19,070
P25 P50 P75
COMMENTSMedical / Dental / Vision
• Competitive levels of coverage and premium sharing for medical benefits– Lee Health’s portion of the medical premium is competitive
• Employer premium contribution for family medical coverage ($19,983) is slightly above the 75 th percentile
• Employees pay for the entire cost of dental and vision coverage, only about 13% of employers do not contribute to the cost of dental benefits
$630$880
P50 P75
No, 80%
Yes, 20%
Employer Contribution to
Vision Plan Premiums
Employer Contribution to
Family Dental Premiums
Employer Contribution to
Family Medical Premiums
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COMPETITIVE STANDARD Lee HealthSection 125: Almost all organizations make pre-tax spending accounts available to allow employees to defer salary to pay for medical and dependent care expenses
HSA and HRA: With the move to high deductible health plans, the prevalence of HRAs and HSAs has grown, with 80% of employers now offering one and contributing to the account
• Median employer contribution of $600 for employee only coverage and $1,200 for family coverage
Section 125• Medical Reimbursement - up to $2,500 annually• Dependent Day Care - up to $5,000 annually
Post-Retirement: Seldomoffered to the general workforce but sometimes offered to CEOs retiring with career service
• Contribution toward pre-Medicare coverage provided to approximately 10% of CEOs and 8% of executives
• Contribution toward post-Medicare coverage provided to approximately 6% of CEOs and 4% of executives
• Overall prevalence of this benefit is decreasing
• None provided
COMMENTS
Section 125 Accounts• Competitive opportunity to pay medical expenses and dependent care costs on a pre-tax basis
Post-Retirement Medical Coverage
• Lack of a post-retirement benefit is consistent with market practice
$600
$1,200
Employee Only FamilyP50 P75
$715
$1,238
No, 90%
Yes, 10%
Employer-paid CEO Post-Retirement
Medical - Pre-Medicare
HRA/HSA Employer Contribution
Benefit Analysis – Health Care
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Benefit Analysis – Short-Term Disability
COMPETITIVE STANDARD Lee HealthShort-Term Disability: Salary continuation through long-term disability waiting period provided via one or more plans, most commonly self-insured disability salary continuation, insured short-term disability, and/or sick leave
• About 70% of organizations, dependent on position, provide 100% of salary for up to 6 months
• The remaining organizations use a combination of sick leave days and short-term disability benefits to provide coverage (median replacement of 60% of salary)
About 40% offer a sick day accrual program (median of 8 days with a median maximum accrual of 56 days)
o About 15% of organizations cash out sick time at termination
A majority provide/offer short-term disability plans to replace salaries at 60% but the maximum weekly benefit ($2,500 at median) typically falls well short of replacing the targeted percentage of salary for executives
Disability Salary Continuation
• 100% salary continuation for up to 3 months if unable to work due to a health-related problem
• No elimination period
COMMENTS
Short-Term Disability
• Disability salary continuation benefits are competitive
Offer 2 of 3 STD Options, 38%
Offer all 3 STD Options, 6%Offer 1 of 3 STD
Options, 56%
Types of Short-term Disability (STD)
Coverage Offered
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Benefit Analysis – Long-Term Disability
COMPETITIVE STANDARD Lee HealthLong-Term Disability: Nearly all organizations provide employer-paid group long-term disability coverage
• 60% of salary is typically provided
• Median monthly maximum is $16,000
Between 40% and 50% of organizations offer individual disability coverage to executives to supplement or replace group long-term disability coverage (depending on position)
• Typically targets replacement of 60% of salary subject to carrier limits and often with the following provisions:
− Coverage in executive’s “own occupation” to age 65
− Full mental/nervous disorder coverage to age 65
− Portability at termination of employment
Executive Long-Term Disability• 66.67% of salary up to a monthly maximum benefit of $20,000
(maximum earnings covered of $360,000)• 90-day elimination period
Executives may purchase additional disability coverage at their own cost
COMMENTSLong-Term Disability
• Group coverage provides a level of benefit that is consistent with the median level in the market
– Due to the benefit cap, the President/CEO would be impacted by the group long-term disability benefit limit and not be eligible for the full 66.67% replacement in the event of a disability (benefit is approximately 23% of salary)
– The impact of the benefit cap could be lessened if the President/CEO purchased the additional coverage at his own cost
$16,000
Median LTD Max Monthly Benefit:N=685
Group Supplemental
$20,000
Maximum Monthly Benefit
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Benefit Analysis – Long-Term Care
COMPETITIVE STANDARD Lee HealthLong-Term Care: Approximately 10% of organizations offer all employees the ability to purchase long-term care coverage, with about one-third of those contributing to the cost
About 20% of organizations provide executives with fully paid coverage
Long-termcare coverage is more difficult to secure now than a few years ago resulting in stable rather than increasing prevalence
• Coverage available at employee expense
– Group coverage
– Portable at termination
– Covers facility care or home care by professionals
– Cost of living rider available
COMMENTS
Long-Term Care
• Consistent with market practice
No, 65%
Yes, 35%
Employer Contribution to Employee Long-Term Car e Benefit
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Benefit Analysis – Life Insurance
COMPETITIVE STANDARD Lee HealthGroup Term Life Insurance: Almost all organizations provide some amount of employer-paid life insurance coverage
• Median benefit provided to employees under group term life insurance is 2x salary up to a maximum of $1,000,000
Supplemental Life Insurance
• More than half of executives are provided with supplemental life insurance (median total benefits are equal to 3x salary)
Group Term Life and AD&D Insurance• Group term life and AD&D insurance coverage ranges from 1x to 3x salary to a
maximum of $600,000
• Maximum allowance paid by Lee Health for coverage is $1,126 annually
Voluntary Life Insurance
• Executives may choose to purchase additional coverage on self, spouse, or dependents at their own cost
Supplemental Life Insurance
• The majority of executives participate in Executive Life Insurance coverage with the following parameters:
– Coverage is through individual variable universal life insurance policies
– Executive is owner and insured
– Lee Health pays the annual premium to maintain the death benefit (no corporate recovery of premiums and cash values are modest)
– Death benefit is equal to 6x salary for the President/CEO
COMMENTS
Life Insurance• The amount of total life insurance coverage through the group term and the individual policies is very competitive
$1,000,000
Group Term Life Maximum Benefit:N=709
P50 P75
$1,250,000
3x
Supplemental Life Insuranceas a Multiple of Salary
P50 P75
4x
Gr oup Term Life Maximum Benefit
Supplemental Life Insurance as a Multiple of Salary
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Benefit Analysis – Retirement
COMPETITIVE STANDARD Lee HealthRetirement (Structure): Executives may voluntarily defer their compensation, on a pre-tax basis, into a qualified plan - 401(k)or 403(b) Plan
Qualified retirement plan structures are trending away from a defined benefit approach toward a defined contribution approach
The median employer contribution to a qualified defined contribution plan is 5% of compensation
A majority of organizations provide a 457(b) plan
• Majority allow only for employee pre-tax deferrals for retirement savings
• Approximately one-third of employers contribute to the plan; median contribution is 5.5% of pay
Qualified Defined Contribution Pension Plan (403(b)):
• Lee Health matches the employee deferral as follows:
0% match if less than 1% of base salary is deferred
20% match if at least 1% (but less than 2% ) of base salary is deferred
40% match if at least 2% (but less than 3% ) of base salary is deferred
60% match if at least 3% (but less than 4% ) of base salary is deferred
80% match if at least 4% (but less than 5% ) of base salary is deferred
100% match if at least 5% of base salary is deferred (Maximum ER match is 5% )
• Employee contributions up to $19,500 (plus $6,500 catch-up for eligible employees)
• Compensation is limited by the IRS each year - $285,000 in 2020
• 100% vesting after 3 years of service employer contributions
• Normal retirement at age 65
Non-Qualified 457(b) Deferral Plan
• Employees may electively defer compensation into the 457(b) Plan
• Distribution occurs at termination of employment
COMMENTS
Qualified Retirement
• Total qualified plan contributions are consistent with median level
• Qualified (403(b) Plan) and non-qualified (457(b) Plan) elective salary deferral opportunities are competitive
No, 15%
Yes, 85%
457(b) Plan Pr ovided
No, 80%Yes, 20%
457(b) PlanEmployer Contributions
4.0%
5.5%6.0%
P25 P50 P75
Total Employer ContributionDefined Contr ibution Plan
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Benefit Analysis – Retirement
COMPETITIVE STANDARD Lee HealthNon-Qualified Retirement (Structure): Executive compensation in excess of qualified plan limits ($285,000 in 2020) is likely to require non-qualified retirement benefits to provide a competitive benefit.
• Approximately 85% of senior executives and 70% of executives receive non-qualified employer-provided retirement benefits
• Median annual employer contributions to non-qualified retirement plans are approximately:
CEOs – 15% of salary
Nonqualified Retirement (Prevalence): Non-qualified retirement plans include employer contributions to 457(b) plans; pension restoration plans; and defined contribution, target benefit, and defined benefit supplemental executive retirement plans
Retirement Income:
• Qualified and non-qualified plans provide total employer-sponsored benefits of:
− CEOs: 50% to 75% of Final (five-year) Average Salary (FAS) for 20 to 25 years of service (or 2.0% to 3.75% per year of service)
− Other executives: 40% to 60% of Final (five-year) Average Salary for 20 to 25 years of service (or 1.6% to 3.0% per year of service)
457(f) Supplemental Retirement Plan
• Lee Health credits annual contributions, subject to a financial trigger, on participants’ behalf, as follows:
– The President/CEO is eligible for a $75,000 credit
• The President/CEO is currently in a 4-year cycle of credits:
– Credit on 1/1/2019 for the plan year ending 9/30/2018
– Credit on 1/1/2020 for the plan year ending 9/30/2019
– Credit on 1/1/2021 for the plan year ending 9/30/2020
– Credit on 9/30/2021 for the plan year ending 9/30/2021
• Credits vest immediately (participant must be employed on the vesting date or the credit is forfeited)
– After taxation, account balances are held by Lee Health until termination of employment
• Lee Health credits interest based on a Treasury rate plus 1%
• In the event of an involuntary termination without cause, the account balances vest immediately
COMMENTSNon-Qualified Retirement
• Lee Health does provide supplemental retirement contributions on a non-qualified basis, which is competitive with the marketplace
– However, the $75,000 credit for the President/CEO is equal to about 7% of salary, which is significantly below the market median contribution level of 15% of salary
≈ It is not expected that the income replacement will reach a competitive level
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Benefit Analysis – Paid Time Off / Vacation
COMPETITIVE STANDARD Lee HealthPaid Time Off / Vacation
• Approximately 80% of organizations utilize a paid time off system and the remaining 20% utilize vacation and holidays
• Typical time away includes 4 to 5 weeks of vacation, often based on years of service
• 6 to 8 holidays are also provided
• The majority of organizations allow a carry -over from year to year and about 75% of organizations allow a cash-out of days
• Maximum PTO carryover of 40 days (median)
• Less than 10% of organizations have adopted an “honor system” for vacation days
Paid Time Off• Executives earn paid time off based on years of service
– Lee Health recently changed their PTO plan from one with annual accruals to an unlimited plan≈ The prior plan was frozen
COMMENTSPaid Time Off
• Level of paid time off is competitive
PTO Plan (including Holidays)
Years of Service P50 P75
One 25 37
Five 29 40
Ten 32 41
Fifteen 33 43
Twenty 34 43
Twenty-Five or More 34 43
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Benefit Analysis – Perquisites
COMPETITIVE STANDARD Lee HealthPerquisites: Provided based on organizational culture and business need. Following are examples of perquisites in the health care industry:• Automobile/Auto allowance
− About 50% of CEOs and 40% of other executives receive an auto allowance
• Country Club memberships− Approximately 10% of CEOs receive
• Health club memberships− About 7% of executives receive
• Financial planning− Around 15% of executives receive
• Spouse travel costs (typically CEO only)• Perquisite allowance
− About 30% of executives receive; median annual allowance of $10,000
Typical business expenses might include:• Cell phone/PDA• Laptop or home computer• Professional membership & dues• Tuition reimbursement
Average annual expenditures range from $8,000 to $15,000 for executives, depending on level
The President/CEO is eligible for the following business expenses:
• Auto allowance of $1,000 per month (total annual allowance of $12,000)
• Club membership – annual cost of $7,500
• Cell phone
• Laptop/computer
• Professional memberships and dues
• Tuition reimbursement
COMMENTSPerquisites
• Perquisites and business expenses are consistent with market practice
$700$1,000
P50 P75
Monthly Auto Allowance
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Conclusion
Findings• Benefit expenditures for the President/CEO are below the median of the market• Parameters of the executive benefit program are competitive for many benefits
‒ There are a few benefits that might need further discussion: Disability benefits are limited for the President/CEO Retirement contributions are low relative to market levels
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CEO Contract Provisions
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Term / Period of Employment
Employment Agreement TermMARKET PRACTICE Agreement terms typically take one of three approaches
SPECIFIC Defines a specific agreement duration, typically three
to five years, and identifies a window during which a
new contract would be negotiated
“EVERGREEN” Spells out an initial term (e.g., three to five years),
after which the agreement is automatically extended
one year at the end of each year, unless one of the
parties requests non-extension of the agreement or
modification of the agreement
Annual automatic renewals may include a maximum
number of renewals
PERPETUAL The agreement continues until the contract is
terminated by either party or due to the employee’s
death or incapacity
CURRENT PROVISIONS The original 4-year contract is up for renewal and is currently in negotiations
The CEO is requesting a new 4-year contract term
OBSERVATIONS / CONSIDERATIONSThere is no single best approach to setting the term, as it is customized to fit the executive and the needs of the organization
Automatic renewals are the most prevalent approach • Reduce the need to renegotiate terms that are
currently acceptable
• Occasionally results in the agreement not reflecting market provisions, as a review of the terms is not required on a periodic basis
Fixed terms are less common• Require a fresh look at agreement provisions, which
may be beneficial to both parties
• Work well as the executive approaches retirement
The desired 4-year term falls within the range of typical market practice for fixed-term contracts
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Salary Increase Terms
The contract for the Lee Health CEO has historically used a automatic increase to base salary• The CEO’s salary has been automatically updated each year to be set at the median of the
market‒ The market is defined as a blended combination of National, Southeast Regional, and Florida peer
groups of systems and hospitals similar to Lee Health in terms of size and organizational complexity
PROS CONS
Provides clear and transparent approach to
salary adjustments
Limits exposure to Board or Committee
members from stakeholder criticism and/or
conflicts of interest decisions
Salary may not align with performance
Position within the range may not align with
typical market practice (below range midpoint in
the early years, and possibly higher than range
midpoint for extensive service)
Automatic increases are atypical* for healthcare
executives, but may be prudent for certain organizations
* CEO contracts generally have either no specific provisions for annual increases or denote a process for annual increases
to be determined by the Board or authorized Committee in alignment with the organization’s compensation philosophy and based on factors such as performance and market positioning
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Salary Increase Options
SEVERAL OPTIONS FOR CEO SALARY INCREASES
COMMITTEE / BOARD MARKET UPDATE The Committee and the Board agree on a salary increase for the CEO based on a
number of factors which include peer group market data, performance, experience, market conditions, current range positioning, and
retention considerations.
Salary range decisions are usually made within a salary range with the midpoint of that range set at the targeted level of the organization’s
compensation philosophy
This is the most typical process for determining CEO salary increases
CONTINUE WITH CONTRACTUAL INCREASE TO MARKET The Committee may decide to continue with the existing
approach to set the CEO’s base salary at the median of the peer group data
This is the approach currently utilized by the Committee and Board. This approach is the least likely to draw stakeholder
scrutiny, but does not follow typical market practice and may not allow for the CEO’s salary to align with performance,
experience, or other factors
PERFORMANCE-BASED APPROACH TO CONTRACTUAL INCREASES Instead of setting the new salary to market
median, the Committee could assign an indexed increase percentage based on performance.
For Example:
• Performance is at expectations: salary increase percentage is equal to median peer group data increase percentage
• Performance below expectations: no salary increase
• Performance exceeds expectations: salary increase percentage is equal to the median peer group market increase plus 2% or 3%
• Under this approach, it may be prudent to identify and set a ceiling to the CEO’s base salary such as 15% above median or P65 / P75
This approach is similar to the typical Committee/Board market increase in that it factors in the CEO’s performance.
This approach discounts other factors that generally impact salary decisions, but increases transparency
and limits Committee and Board members to community and stakeholder scrutiny
Lee Memorial Health System Board of Directors
PRESIDENT/CEO EXECUTIVE COMPENSATION COMMITTEE
NEXT STEPS
David Collins Board and Committee Chair
ADJOURNMENT
DATE OF THE NEXT
PRESIDENT/CEO EXECUTIVE COMPENSATION COMMITTEE
To Be Determined