The only major hospital CEO to also be a blogger, Paul Levy at Beth Israel Deaconess, is wondering whether his salary of $1m is too much. My flip answer is, well of course it is, but would you turn it down?
Much of the issue is that salaries for high end positions are set “competitively.” In other words the compensation board of for-profit and non-profit institutions and wants to reward their CEO better than his peers. Like in Lake Woebeggon, every board in Boston and way beyond thinks it has the best CEO, so they deserve more than average—so the spiral increases. And the bigger the non-profit gets the bigger the salaries. Someone sent me a form last year with salaries for the top brass of Kaiser Permanente. I didn’t bother verifying it but I recall that it claimed that more than a dozen senior execs had total comp of over $1m.
I wrote a long article about this last year, called Overpaid Facility Managers?, looking at the salary of a decent sized community hospital in the SF Bay Area with some $300m in revenues—as opposed to Beth Israel Deaconess’ $1 billion. That CEO too was on close to $1m total comp.
The problem is that there are almost 2,000 hospitals of that size or larger. If all their CEOs get that amount, or even $500,000 a year, then the whole comparison inflation cycle goes on. And really how hard is it to run a $300 million business, where most of the income walks in the door because of location, referrals of agents (physicians) and government subsidies? I don’t know.
Paul compares himself to a sports star. But the sports stars make so much because they fill hours of TV cheaply which generates lots of advertising revenue. Would we watch the same teams with less good stars? I doubt it, and it’s for sure that the owners are not willing to risk finding out. Which is why the big stars who are measurably better in both statistics and winning percentage get so much more money than those not quite as good. There are only so many Kobe Bryants, Ronaldinhos, Derek Jeters et al.
The question Paul needs to ask himself is not whether he works hard and does a good job relative to other big AMC CEOs. Of course he does. The real question is are there more than couple of hundred people who could do his job roughly as well. In other words if the board changed out a .300 hitter for a .265 hitter, would the effect on Beth Israel Deaconess be noticeable the way it would be for the Lakers if Kobe was traded for a journeyman shooting guard.
My guess is that the cult of the CEO is well overblown. And that while Paul is by no means a big offender in creating it (and may be helping to knock it down), we are stuck in a cycle where no one dares take the risk the way the Oakland A’s do in baseball—get unrecognized young talent in, pay less for it and get just as good results. But it’s unlikely to change for some time.