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Approach to CEO Compensation

Approach to CEO Compensation

The Chief Executive Officer (CEO) is the only employee of the District who is hired directly by the Washington Township Health Care District Board of Directors.

In setting the CEO’s compensation, the Board considers data provided by an independent health care compensation consultant, Integrated Healthcare Strategies/Arthur J. Gallagher & Company, and any other factors the Board considers important.

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 compensated towards the bottom. The District’s compensation philosophy of marketplace parity establishes a base salary for the CEO at around the 65th percentile of the CEO’s peer group with a possible incentive award of up to 25% of base salary. Benchmarking executive compensation based on peer group data is standard practice for establishing reasonable compensation for executives working for non-profits.

According to the CEO’s Employment Agreement, the Board was due to consider an annual base salary adjustment and incentive award by October 31, 2022, for the fiscal year ended June 30, 2022. Due to the lingering impact of the COVID-19 Pandemic and other factors, the Board’s consideration was delayed until April 12, 2023.

On April 12, 2023, at the Board’s regular meeting, the Board considered a base salary adjustment and an incentive award. Prior to taking any action, the Board reviewed a report from Arthur J. Gallagher & Company. Gallagher is a leading healthcare compensation consultant in the United States. Hundreds of healthcare systems use Gallagher’s services as an independent consultant to satisfy Internal Revenue regulations for determining the range of reasonable compensation.

The Gallagher Report assesses the competitiveness of cash compensation for the Chief Executive Officer. Appendix A of the Gallagher Report includes a list of similarly situated California organizations in Gallagher’s proprietary database. The Gallagher Report for the current fiscal year, dated March 2023, was posted on the District’s website for this agenda item.

The Gallagher Report provides the Board with appropriate comparability data in accordance with IRS regulations. In its report, Gallagher reviewed background data on the District for the 2021-2022 and 2022-2023 fiscal years. Gallagher then compiled data on compensation levels for California healthcare systems regressed for size using data from Gallagher’s proprietary database and salary surveys. Based on the foregoing, Gallagher prepared market charts summarizing compensation survey data at the 25th, 50th, and 65th percentiles for the California peer group. The charts are prepared for both base salary and total cash compensation.

At the April 12, 2023, meeting, the Board considered the CEO’s performance for the fiscal year ended June 30, 2022. The Board members commented that the CEO’s performance was outstanding, particularly given the unprecedented challenges of the COVID-19 Pandemic. In particular, under the CEO’s leadership the District achieved a positive EBITDA budget variance of $28,652,000 which will fund needed capital improvements and state of the art technology. The District is continuing to grow its affiliation with UCSF including the establishment of a Washington-UCSF Health Cancer Services Joint Venture. Also, under the CEO’s leadership, Alameda County designated Washington as the next Level 2 Trauma Center in Alameda County.

With these achievements in mind, the Board decided to adjust the CEO’s base salary to 95% of the 65th percentile, which equals $955,700. The Board also indicated that the adjustment was consistent with its intent to adjust the CEO’s base salary to make progress toward setting the CEO’s base salary at the 65th percentile over time, consistent with the Board’s compensation philosophy.

In addition, the Board awarded the CEO an incentive award of $120,000, also due to the CEO’s outstanding performance. A summary of the CEO’s performance can be found in the CEO’s memo to the Board (posted as part of this agenda item). Under the terms of the Employment Agreement, the CEO was eligible to receive an incentive award of up to 25% of base salary or $215,250. Although the CEO’s performance justified a maximum award of $215,250, the Board felt that a $120,000 award was appropriate given the anticipated financial challenges facing the District.

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