CEOs of Isle healthcare nonprofits get top pay
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By Rick Daysog
Advertiser Staff Writer
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When the nonprofit Hawaii Medical Service Association disclosed that Chief Executive Officer Robert Hiam earned more than $1 million in 2006, it raised eyebrows among state lawmakers, regulators and critics of the local health insurer.
But Hiam wasn't the only highly paid nonprofit executive in Hawai'i last year.
Two others — Queen's Health System CEO Arthur Ushijima and Hawaii Pacific Health CEO Charles Sted — received more than $900,000 in total compensation last year.
"At this level, there's very little difference between what a nonprofit hospital pays its executive and what a publicly traded company pays," said Jim Brennan, senior associate at ERI Economic Research, a Redmond, Wash.-based company that specializes in executive compensation and cost-of-living studies.
The pay figures for the healthcare executives were among the findings of an Advertiser computer-assisted study of compensation paid to more than a dozen of the heads of the state's largest nonprofit organizations.
The study found the largest healthcare nonprofits in Hawai'i pay their chief executive more than $820,000 on average. Large foundations and trusts in Hawai'i pay an average of $341,000 to their top manager. Executives at a sampling of service providers were paid the least, averaging $133,100.
Executive pay has become a key issue in the national debate over curbing the soaring cost of healthcare.
Several congressional leaders — including Rep. Charles Grassley, R-Iowa, and Max Baucus, D-Mont. — are looking at ways to rein in what they consider excessive pay for healthcare CEOs.
In Hawai'i, the chairman of the state House Health Committee, Rep. Josh Green, D-6th (N. Kona, Keauhou, Kailua, Kona), has singled out HMSA's pay practices as excessive.
Green, a Big Island doctor, said he has no complaint against local hospitals for their pay practices. But the state lawmaker said money the local insurer pays its executive would be better spent on providing quality healthcare.
He added that HMSA has been too slow to reimburse physicians in the past, contributing to the exodus of doctors and medical specialists from Hawai'i.
"Those salaries would pay for a handful of doctors or a lot of nurses in Hawai'i," Green said of executive pay at HMSA.
COMPETITIVE MARKET
Local healthcare companies say they need to offer competitive pay to retain their top managers, given the complexity of the business and financial pressures brought on by declining government reimbursements for programs such as for Medicaid. They add that the compensation is performance based.
HMSA, which generates about $2.1 billion in annual revenues, would not comment on Green's remarks. But the company said Hiam's pay reflects his "outstanding" performance in 2006 and the pay was comparable with that paid to CEOs of similar-sized Mainland health plans.
For instance, the chief executive of Sierra Health Services, a managed-care health plan based in Nevada with annual revenues of about $1.4 billion, earned $3.4 million, while the head of Coventry Health Care, a managed-care plan based in Maryland with $1.7 billion in annual revenues, received $2.7 million, HMSA said. HMSA also noted that the CEO of Harvard Pilgrim Health Care, a New England health-benefits company with nearly $2.2 billion in annual sales, earned $1 million last year.
"Bob (Hiam) is an exceptional business leader, and achieved strong results compared to our annual strategic objectives," Allan Landon, chairman of the HMSA board of directors, said in a news release in March.
A majority of the nonprofit executives surveyed by The Advertiser received pay raises last year, and seven earned more than $500,000 in 2006.
On average, top executives of the state's largest hospitals and health insurers earned $823,526.50 last year — up 15.6 percent from $712,209 in 2005.
The heads of the state's largest private foundations — which includes Kamehameha Schools, the Harry and Jeanette Weinberg Foundation and the University of Hawai'i Foundation — earned an average of $340,884 last year, a 36.8 percent gain from $249,153 in 2005.
Nonprofit service providers such as Child and Family Service and the Hawaii Foodbank Inc. paid their top executives much less. Federal tax filings show that the service providers paid their CEOs and executive directors between $100,000 and $153,000 last year.
BY THE NUMBERS
Here's a snapshot of pay figures:
The pay figures don't include salary information for several prominent tax-exempt organizations such as Kaiser Permanente, the Aloha United Way and the Harold K.L. Castle Foundation, which have yet to file their 2006 statements with the IRS.
They also don't include figures for executives of the state's largest for-profit companies.
MAINLAND COMPARISON
An Advertiser study in May found the chief executives at Hawai'i's seven largest publicly traded companies earned an average of about $2.6 million in 2006.
Compared with their Mainland counterparts, the heads of the major local hospitals and large grant-making foundations or charitable trusts were well compensated. But the pay for local service providers generally lagged behind the national average.
The $825,000 average paid to top local healthcare executives compares with a national average of about $518,000 for hospitals with $1 billion in assets, said ERI Economic Research.
The average pay for heads of Hawai'i private foundations and charitable trust — $340,883.80 — was slightly above what Mainland CEOs earn.
According to ERI, the national average pay for the head of a large multibillion-dollar trust is about $302,000. Trusts with less than $500 million in assets pay about $171,000 or less.
In contrast with healthcare and foundations, pay for service providers in Hawai'i lags behind the national norm. In Hawai'i, the average compensation for a large social service nonprofit was about $133,000 last year. A similar job on the Mainland pays between $105,000 to $180,000.
Kelvin Taketa, president and CEO of the Hawai'i Community Foundation, believes that gap is widening.
While the Mainland social service providers and foundations have increased the pay for their executives, executive search experts say compensation levels at local nonprofits have remained relatively flat in recent years, making it difficult to recruit and retain talented managers, Taketa said.
Taketa added that departing nonprofit service executives often cite burnout and more attractive retirement and health benefits in the private and government sectors as reasons for leaving.
"Most of the nonprofit executives recognize that ... they are not going to be paid as much as you would working for a private-sector company," Taketa said.
A lot end up leaving because "they have to face the reality of retirement or healthcare benefits," Taketa said.
Reach Rick Daysog at rdaysog@honoluluadvertiser.com.
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