HEALTH CARE CEO SEVERANCE
WHAT'S HAPPENING OUT THERE?
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Today’s Presenters
Tom Flannery Partner Patricia Kopacz Principal Jena Abernathy Vice President Doug Mancino PartnerSurvey Content
Outplacement Services Benefit Continuation
Severance Terms
Mitigation and Non-Compete Clauses
About the Respondents
Organization Type
Health Care Provider System (e.g., multi-hospital system) Health Care Subsidiary System
(e.g., multi-hospital system owned by another system) Health Plan/Managed Care Organization
Fully Integrated System
(e.g., both hospital and health plan operations) Stand-alone Hospital
System-owned Hospital
Non-Hospital Health Care System Non-Hospital Health Care Facility Other 47% 2% 10% 10% 13% 7% 3% 2% 6%
Severance Terms
Where are the terms of the CEO’s severance benefit outlined?
In the CEO's employment contract 75% Both 7% In a written severance plan that
applies to the CEO and/or other
executives 18%
Severance Terms
What types of termination trigger severance?
15% 19% 29% 65% 90% 0% 20% 40% 60% 80% 100% Involuntary termination with cause
Good reason Non-renewal of contract Change-in-control Involuntary termination without cause
Severance Terms
What is the severance period?
12 months 25% 18 months 14% 24 months 49%
Less than 12 months 4%
Other 2% 36 months
Severance Terms
How is compensation defined?
Base salary only 73% Base salary + annual incentives 18% Base salary + annual incentives + long-term incentives 9%
Severance Terms
How is annual incentive pay determined?
Target bonus 40% Average bonus for a
select number of years
28%
Pro-rated for months eligible
10%
Most recent bonus paid
99% 88% 54% 43% 25% 7% 0% 20% 40% 60% 80% 100% Health insurance Dental & vision Life insurance Long-term disability insurance Retirement plans Perquisites
Benefit Continuation
Benefit Continuation
How are continued benefits paid?
CEO pays 6% Other 10% As if still employed 84%
Mitigation and Non-Compete Clauses
How is mitigation handled?
Provided with a minimum number of months
but offset if the CEO is re-employed 69%
Provided with a minimum number of months 19%
Mitigation and Non-Compete Clauses
What is the minimum number of months regardless of re-employment?
6 months 26% 9 months 2% 18 months 6% 24 months 19%
Mitigation and Non-Compete Clauses
What are the terms of the non-compete/non-solicitation agreement?
5% 5% 17% 30% 64% Other Unable to work for any other health care provider for a
fixed period
Unable to work for direct competitors for a fixed
period
Unable to work for any other health care provider within a fixed radius for a fixed period
Unable to work for direct competitors within a fixed
Mitigation and Non-Compete Clauses
What happens if the non-compete/non-solicitation agreement is broken?
Severance benefits cease
66%
Severance benefits cease & prior payments must be
repaid 28%
Other 6%
Change-in-Control Provisions
Is severance provided in the event of a change-in-control?
65% provide severance upon a change-in-control 55% pay in the event of a single trigger (change-in-control regardless of termination) 45% pay in the event of a double trigger (change-in-control in conjunction with involuntary termination)
Change-in-Control Provisions
How is change-in-control defined?
64% 50% 23% 14% 22% 0% 20% 40% 60% 80% 100% Acquisition or merger with another entity New entity obtains a 50% or greater ownership Turnover in at least 50% of the Board Introduction of a management firm Other
Outplacement Services
What is the term of the outplacement services?
Less than 1 month 2% 1 month to 3 months 13% Greater than 3 months 58% Other 16%
Fixed dollar amount 11%
SEVERANCE AS AN ATTRACTION &
RETENTION TOOL
What Boards and Employers Need to Know
With health care reform and
consolidation, severance has become a major issue in recruitment and
retention
Negotiate severance up front; it is a business transaction,
not an emotional one
Standardize your practices based on industry benchmarks; avoid surprises
or outliers that could compromise the organization’s budget or morale
What Executives and Candidates Need to Know
Tales from the Front Lines: Do your homework;
know market standards to understand what you
should expect Don’t be overzealous in
negotiating severance; it could be a red flag or
deal-breaker
Understand the details of the package and how
Affordable Care Act’s (ACA) Impact on Executive Career Paths
ACA signed into law
Career path for health care executives paved by career-driven
or family-driven moves, but seldom by industry-wide events
ACA has made the
employment market for senior health care executives more
volatile
ACA Employment Market Changes
ACA Employment Market Changes New Strategic Alliances Competition for Talent Provider Cost EfficienciesNew Forms and Risk-Sharing
Alliances
ACA Is Driving Consolidation
Providers and Health Plans are Challenged to:
Invest in
Primary
Care
Network
to Attract
Covered
Lives
Convert
to Electronic
Health
Records
Achieve
Economies
of Scale
Key Employment Contract Terms
Cash compensation
Short-term incentives
Long-term incentives
Deferred compensation
Severance
Change-in-control
Fringe benefits
Health Care CEO Perquisite Trends
• Of 261 health care organizations surveyed, 68% provide at least one perquisite to their CEO.
0% 10% 20% 30% 40% 50% 60% Legal Services Spouse Travel Perquisite Allowance Luncheon/Dinner Club Physical Examination Financial Counseling/Tax Advice Country Club Car/Car Allowance 2007 2013
Other Key Issues
Duties and Responsibilities Term of Contract Termination Renewals Post-Employment RelationsAdditional Health Care Survey Offerings
http://www.imercer.com/content/us-healthcare-industry.aspx
Health Care
Board Compensation
Executive Benefit & Perquisite Practices
IHN Health Care Compensation
