Lancaster General Hospital is shown from North Duke Street.
Alex Henderson
How does your boss determine your worth?
Most likely, your pay is based on what other workers in similar positions at your company make — not including any commissions or bonuses you have coming to you.
In the world of nonprofit health care executives, it's a little more complex, not to mention lucrative.
For tax-exempt nonprofits to demonstrate to the Internal Revenue Service that they are compensating top executives responsibly, the nonprofits must hire consultants to study how similarly sized nonprofits pay their executives.
LGH's consultant is a firm called Mercer, headquartered in New York City with an office in Philadelphia. Charlie Scott, of Mercer, has in recent years helped LGH determine what to pay its highest-compensated executives.
• Click here for a searchable database of health system compensation in central Pa.
• Click here for a slideshow of the highest compensated executives at LGH
To do that, Mercer compiles information on nonprofit health care pay nationwide, then looks at regional pay. It then delivers a report to LGH trustees "with the ranges of competitive levels [of compensation] on a position-by-position basis," Scott said. Trustees determine "what they're comfortable with ... knowing that [the suggested pay range] would meet [IRS] standards of reasonableness."
"It's not our goal to be at the absolute top" of the suggested pay range, said Alex Henderson, chair of the LGH board of trustees. "We usually try to have our base compensation in the middle, and have incentive compensation at the 75th percentile."
Scott said that the law of supply and demand that applies "to any type of talent pool applies to health care executives. There's normally a lack of supply of what's considered blue-chip talent ... [and] the increasing complexity of the health care industry requires an increasing level of talent and capability."
In other words, compensation has nowhere to go but up.
Indeed, he said, many health care organizations that once might have nurtured their own talent and promoted within are now looking for top executives with more experience to help them navigate the changing industry — which also drives up compensation.
LGH is actually bucking this trend to a degree, said Regina Mingle, LGH's executive vice president of human resources: It has created "executive training programs" for physicians in order to "develop a pool internally [of] executive leaders of the future."
Nonetheless, the industrywide clamor for experienced executives has created a sort of arms race in executive compensation. If a competitor is paying its CEO or chief operating officer more, LGH may need to boost its pay to keep up. That, in turn, might force another competitor to increase its executive compensation.
One national survey found that the median base salary of health system CEOs rose 10 percent from 2011 to 2012, from $650,000 to $717,500.
(LGH CEO Tom Beeman's base compensation was $606,726 in 2010, the latest year for which figures are available).
Asked whether LGH would feel compelled to keep up if executive salaries continue escalating at this pace, trustee Henderson replied, "I can't tell you where we'll be five years from now.
"But right now, I'm very comfortable our compensation is where it should be."
