Now Is the Time to Fix VA Executive Pay
The SES pay system will make it difficult to attract needed talent.
If this is the time to “fix the VA” as every headline now reads, it would be a mistake to ignore the pay system for members of the Senior Executive Service. Whenever a chief executive is replaced, there is normally a shuffling of chairs and he or she makes changes in the supporting cadre of executives. A CEO has to have people who are committed to making the changes needed to correct problems. In this situation that could include hospital-level executives who allowed the appointment scheduling problem to continue.
In the current climate those jobs are not likely to be seen as attractive career moves. Aside from the political pressure, the fact is those jobs are severely underpaid. Anyone with proven credentials in health care management in both not-for-profit and for-profit hospital systems is making far more than the salaries paid under the SES system. Sacrifice is normally expected but here the truly qualified individuals already have jobs where they have the satisfaction of working in health care—and are paid far more.
This is an era in which high compensation levels are common. The Washington Redskins recently signed a former Philadelphia Eagles player to a four-year $32 million contract. The highest paid corporate CEOs often make more than $10 million a year. The Washington area no doubt has hundreds of executives, lawyers and physicians making more than $1 million. The average member of Congress is now a millionaire.
Executive compensation levels in health system organizations rival those in other sectors. The 2013 total compensation of the CEO of Universal Health Services Inc. (a large for-profit system where I worked for a time) was reported to earn $13 million in 2013 when all elements of his package are considered. At least half a dozen Washington-Baltimore health system/hospital CEOs were paid more than $1 million in 2012. The highest was paid $2.6 million. Even rural community hospitals typically pay their CEO $500,000 to $1 million.
Salaries in that range are common for the highly regarded systems across the country. Dr. Delos Cosgrove, the CEO of the Cleveland Clinic and a name that has surfaced as a possible new VA Secretary, earned a base salary of $2.278 million in 2012. His total compensation was $3.2 million. His counterparts at the Mayo Clinic and Giesinger made less but in the same ballpark.
The more germane issue is the pay for jobs similar to those held by SES members. Cosgrove’s chief of staff was paid $1.09 million. His chief legal officer earned $641,000 and his chief financial officer earned $902,000. In a relatively small hospital system close to my home in suburban Philadelphia, the CFO was paid $692,000 in 2010 and the chief legal officer, $472,000.
Hospital management jobs are difficult. Their 24/7 operation is far more complex than the typical business. Every day is different, and there is no way to know with any certainty what may unfold. There are a lot of relatively large egos that are difficult to manage. Moreover, the culture makes every employee somewhat more empowered to act than in other organizations. That’s essential to quality patient care. At the VA, hospitals are known to be understaffed, which would make the jobs that much more demanding.
Reports suggest the quality of care at VA hospitals is excellent. The problems appear to be limited to a few executives and the bureaucracy above the patient care level.
The VA already has a market sensitive pay system in Title 38 for physicians, dentists, nurses and another 11 or so allied health occupations. It is not clear how competitive salaries are but the pay system functions better than the General Schedule system. Local area salary surveys are used to adjust salaries.
VA facilities would clearly benefit from more flexibility to adjust the pay levels of executives and managers. It’s unlikely those salaries will ever be fully competitive but at current levels they are not going to attract the best talent. And any actions to freeze salaries or eliminate bonuses will be counterproductive. In the long run that possibility will prevent qualified candidates from considering VA and it will almost certainly drive out those individuals the VA system needs to keep.
As I discussed in an earlier column, there clearly was a problem with the payment of SES bonuses. The majority of hospital systems have executive incentive plans. Interestingly the Cleveland Clinic is one that does not; Cosgrove is paid a base salary. The local DC area hospital system, Medstar, for example, reported bonus and incentive compensation that ranged from 107 percent of salary for the CEO to 40 percent for the lowest reported executive. The CEO of Geisinger earned an incentive award equal to 76 percent of base pay. His CFO’s award was 57 percent of salary.
Incentives, when properly planned and managed, are intended to help plan participants focus on key organizational and individual performance goals. They also hold down fixed costs and preclude that sense of entitlement that seems to be pervasive in government. Salary increases for executives and managers in health care would universally be linked to performance.
Any fix should address the way VA executives and managers are compensated. The problems identified in media reports are management problems, and the fix will necessitate a rethinking of the way these people are rewarded. Any decision to eliminate cash awards completely would be a mistake.