Nonprofit Hospital Systems: Survey on Executive Compensation
Policies and Practices (30-JUN-06, GAO-06-907R).
As a part of Congress's continuing efforts to oversee the
activities of the nonprofit sector, it asked us to review
executive compensation issues at selected private, nonprofit
hospital systems to gain an understanding of the policies and
practices related to the salaries, benefits, travel, gifts, and
entertainment expenses paid by these hospital systems. Our
study's key questions were as follows: (1) What corporate
governance structure do selected hospital systems report as
having in place over executive compensation? (2) What is the
basis for the compensation and benefits earned by, awarded to, or
paid to the executives as reported by selected hospital systems?
(3) What internal controls do selected hospital systems report as
having in place over the approval, payment, and monitoring of
executive travel and entertainment expenses, gifts, and other
perquisites? On June 5, 2006, we briefed Congressional staff on
the results of our work. This report transmits the briefing
provided to Congressional staff, as amended to reflect some
additional observations.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-907R
ACCNO: A56238
TITLE: Nonprofit Hospital Systems: Survey on Executive
Compensation Policies and Practices
DATE: 06/30/2006
SUBJECT: Executive compensation
Fringe benefits
Hospitals
Internal controls
Nonprofit organizations
Pay
Payroll systems
Private sector
Private sector practices
Surveys
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GAO-06-907R
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United States Government Accountability Office Washington, DC 20548
June 30, 2006
The Honorable William M. Thomas Chairman Committee on Ways and Means House
of Representatives
Subject: Nonprofit Hospital Systems: Survey on Executive Compensation
Policies and Practices
Dear Mr. Chairman:
As a part of Congress's continuing efforts to oversee the activities of
the nonprofit sector, you asked us to review executive compensation issues
at selected private, nonprofit hospital systems to gain an understanding
of the policies and practices related to the salaries, benefits, travel,
gifts, and entertainment expenses paid by these hospital systems. Our
study's key questions were as follows:
o What corporate governance structure do selected hospital systems
report as having in place over executive compensation?
o What is the basis for the compensation and benefits earned by, awarded
to, or paid to the executives as reported by selected hospital
systems?
o What internal controls do selected hospital systems report as having
in place over the approval, payment, and monitoring of executive
travel and entertainment expenses, gifts, and other perquisites?
In answering our study's key questions, we used the American Hospital
Association's AHA Guide (2005) to identify private, nonprofit hospital
systems according to the number of staffed beds reported. We developed an
electronic survey to gather information from selected hospital systems and
administered the survey in two phases. In the first phase, we judgmentally
selected 15 hospital systems considering geographic diversity. At least 1
hospital system was selected from each of the nine geographic regions, as
defined by the Census Bureau. We briefed your staff on the results of our
initial survey and, at your request, selected an additional 85 hospital
systems to survey. The 15 and 85 hospital systems combined were the top
100 that we identified from the AHA Guide (2005). We revised our initial
survey instrument based on responses received. We analyzed the survey
responses to identify unusual, incomplete, or inconsistent responses and
followed up with the hospital systems to the extent possible after
considering any survey comments provided. We did not seek to validate the
responses provided.
Our survey was not designed to draw any conclusions with respect to the
adequacy or sufficiency of the policies, practices, or procedures of any
individual hospital system or whether hospital systems are complying with
applicable laws and regulations. Since we did not randomly sample from the
entire population of private, nonprofit hospital systems, we could not
generalize the results of our work to this population. We conducted our
work from June 2005 through June 2006 in accordance with generally
accepted government auditing standards.
On June 5, 2006, we briefed your staff on the results of our work. This
report transmits the briefing provided to your staff, as amended to
reflect some additional observations (see Enclosure I). This report also
includes a copy of the survey instrument with the number of responses to
each question (see Enclosure II).
Summary
We received responses from 65 of the 100 hospital systems. The hospital
systems reported similarities in certain governance and compensation
policies and practices. For example, hospital systems commonly reported
policies and practices such as
o having an executive compensation committee or entire board with
primary responsibility for approving executives' base salary, bonuses,
and perquisites;
o having a conflict of interest policy that covers members of the
executive compensation committee and compensation consultants; and
o relying upon comparable market data of total compensation and benefits
prior to making compensation determinations.
With respect to perquisites and entertainment and travel expenses for
their executives and the related internal control for these payments, the
65 hospital systems reported a range of practices. For example, hospital
systems commonly reported that they provide for payment of
automobile-related expenses as a perquisite to executives. They also
commonly reported having written policies that cover business travel and
entertainment expenses. However, hospital systems reported a mix of
practices related to payment for other perquisites such as memberships in
recreational and social clubs and audits of perquisites and entertainment
expenses.
As we agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution of it until 30
days from the date of this letter. At that time, we will send copies to
the Ranking Minority Member of your Committee and other interested
congressional committees. We will also make copies available to others
upon request. In addition, the report will be available at no charge on
GAO's Web site at http://www.gao.gov.
If you have any questions about this report, please contact me at (206)
287-4809 or by e-mail at calboml@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. Key contributors to this assignment include Kimberly
Brooks (Assistant Director), Cindy Gilbert, Curtis Groves, Bret Kressin,
Matt Michaels, Scott McNulty, and Terry Richardson.
Director Financial Management and Assurance
Enclosures - 2
Enclosure I - Briefing on Survey Results
Nonprofit Hospital Systems: Survey on Executive Compensation Policies and
Practices
Briefing Chairman, Committee on Ways and Means House of Representatives
Contents
o Objectives, Scope, and Methodology
o Results in Brief
o Background
o Survey Results
Objectives, Scope, and Methodology
The Chairman of the House Ways and Means Committee asked GAO to review
executive compensation issues at selected private, nonprofit hospital
systems, including the policies and practices related to the salaries,
benefits, travel, gifts, and entertainment expenses paid by the hospital
systems. The study's key questions were as follows:
o What corporate governance structure do selected hospital systems
report as having in place over executive compensation?
o What is the basis for the compensation and benefits earned by, awarded
to, or paid to executives as reported by selected hospital systems?
o What internal controls do selected hospital systems report as having
in place over the approval, payment, and monitoring of executive
travel and entertainment expenses, gifts, and other perquisites?
Objectives, Scope, and Methodology
o We used the American Hospital Association's AHA Guide (2005) to
identify private, nonprofit hospital systems according to the number
of staffed beds reported. We identified 172 systems as private,
nonprofit systems within the top 200 private or nonfederal
governmental hospital systems (state or local) that we identified from
the guide.
o We developed an electronic survey to gather information from selected
hospital systems and administered the survey in two phases. Although
the majority of survey questions were closed-ended, hospital systems
were given the opportunity at the end of the survey to provide
comments about any of the questions.
Objectives, Scope, and Methodology
o In the first phase, we judgmentally selected 15 hospital systems from
the list of 172 considering geographic diversity. At least 1 hospital
system was selected from each of the nine geographic regions as
defined by the Census Bureau.
o We briefed your staff on the results of our initial survey and, at
your request, selected an additional 85 hospital systems to survey.
The 15 and 85 hospital systems combined were the top 100 from our list
of 172 systems. We revised our initial survey instrument based on
responses received.
Objectives, Scope, and Methodology
o We also followed up with the 13 hospital systems that responded during
the first phase to obtain their responses to questions that were
either added or modified from the initial survey. We provided an
opportunity for the two hospital systems that did not respond during
the first phase to respond during the second phase; one of these two
ultimately did respond.
o We analyzed the survey responses to identify unusual, incomplete, or
inconsistent responses and followed up with the hospital systems to
the extent possible after considering any survey comments provided. We
did not seek to validate the responses provided.
Objectives, Scope, and Methodology
o Our survey was not designed to draw any conclusions with respect to
the adequacy or sufficiency of the policies, practices, or procedures
of any individual hospital system or whether hospital systems are
complying with applicable laws and regulations.
o Since we did not randomly sample from the entire population of
private, nonprofit hospital systems, we could not generalize the
results of our work to this population.
o We conducted our work between June 2005 and June 2006 in accordance
with generally accepted government auditing standards.
Results in Brief
We received responses from 65 of the 100 hospital systems. The hospital
systems reported similarities in certain governance and compensation
policies and practices. For example, hospital systems commonly reported
policies and practices such as
o having an executive compensation committee or entire board with
primary responsibility for approving executives' base salary, bonuses,
and perquisites;
o having a conflict of interest policy that covers members of the
executive compensation committee and compensation consultants; and
Results in Brief
o relying upon comparable market data of total compensation and benefits
prior to making compensation determinations.
With respect to perquisites, entertainment and travel expenses and related
internal control for their executives, the 65 hospital systems reported a
range of practices. For example, hospital systems commonly reported that
they provide for payment of automobile-related expenses as a perquisite to
executives. They also commonly reported having written policies that cover
business travel and entertainment expenses. However, hospital systems
reported a mix of practices related to payment for other perquisites, such
as memberships in recreational and social clubs and audits of perquisites
and entertainment expenses.
Background
o The AHA Guide (2005) defines hospital systems as consisting of two or
more hospitals owned, leased, sponsored, or contract-managed by a
central organization, or consisting of a single, freestanding hospital
that includes as members three or more owned or leased nonhospital
health care organizations.
o Hospital systems are classified as "501(c)(3)" organizations exempt
from taxation under 26 U.S.C. S: 501(a) if (1) they serve a charitable
purpose, (2) no part of their net earnings goes to the benefit of any
private shareholder or individual, and (3) they do not participate in
political campaigns for or against candidates or carry on propaganda
or lobbying as a substantial part of their activities.
10
Background
o The Internal Revenue Code (I.R.C.) and regulations provide a framework
for nonprofit organizations regarding executive compensation and the
travel and entertainment expenses paid for executives.
* I.R.C. prohibits the payment of excessive compensation and other
transactions that provide excessive economic benefit to
executives
* (I.R.C. S: 4958).
o Regulations encourage organizations to have executive compensation
arrangements approved in advance by members of an "authorized body" of
the organization (such as the board), none of whom have a conflict of
interest with respect to the transaction (Treas. Reg. S:
53.4958-6(a)).
Background
o Regulations also encourage but do not require organizations to take
certain actions when determining compensation. Regulations provide that an
organization has a "rebuttable presumption" that compensation is not an
excess benefit transaction if an authorized body (1) approved the
compensation arrangement in advance, (2) obtained and relied on
appropriate data as to the comparability and reasonableness of the total
compensation, and (3) documented the basis for its determination at the
time it made its decisions (Treas. Reg. S: 53.4958-6(a)).
12
Background
o Recently, Congress has raised questions about the adequacy of
oversight, reporting requirements, and overall governance of nonprofit
and tax-exempt organizations.
o The Independent Sector, a group that represents nonprofit
organizations, convened a Panel on the Nonprofit Sector and in 2005
proposed actions to strengthen governance and accountability of
nonprofit organizations. The panel made specific recommendations to
promote better governance over executive compensation, including
proposals that encourage compliance with the "rebuttable presumption"
regulations and better reporting on travel expenses.
Survey Results
The following pages summarize responses provided by the 65 hospital
systems to selected survey questions.
o We did not obtain responses to every survey question from all 65
hospital systems either because the hospital systems did not provide a
response and should have, or because the question did not apply to their
circumstances. As a result, the response frequencies will not always total
65.
14
Governance and Compensation Policies and Practices
Written Policies for the Executive Compensation Body
o 40 of the 65 hospital systems reported having written criteria for
selecting members of the body that governs executive compensation; 20
of the 40 reported that the criteria address the knowledge for
members, 19 of the 40 reported that the criteria address the skills
for members, and 21 of the 40 reported that the criteria address the
experience for members.
o All 65 of the hospital systems reported having a conflict of interest
policy that covers members of the Executive Compensation Body, and
they all reported that the policies require disclosure of potential
conflicts.
Governance and Compensation Policies and Practices
Use of Outside Consultants to Advise on Compensation Matters
o All of the 65 hospital systems reported that the Executive
Compensation Body can hire outside consultants to advise on
compensation and benefit issues.
o 63 of the 65 hospital systems reported that the Executive Compensation
Body has hired outside compensation and benefits consultants since
January 1, 2004.
o 40 of the 65 hospital systems reported having a policy that requires
compensation consultants to be free of any conflicts of interest.
16
Governance and Compensation Policies and Practices
Practices Related to Compensation Determinations
o All of the 65 hospital systems reported that they rely upon comparable
market data of total compensation and benefits prior to making
compensation determinations for the CEO and 63 of the 65 hospital
systems reported doing this for the other top four executives.1
o 64 of the 65 hospital systems reported that for the CEO, they
documented the basis for compensation determinations at the same time
the determination was made, and 58 of the 64 responding hospital
systems reported doing this for the other top four executives.
1The other top four executives are the four highest compensated executives
other than the CEO.
Governance and Compensation Policies and Practices
Responsibility for Approving Top Executives' Compensation
o Hospital systems reported that an Executive Compensation Committee or
Entire Board is primarily responsible for:
o approving the CEO's base salary-58 of the 65 hospital systems
o approving the CEO's bonuses-55 of the 65 hospital systems
o approving the CEO's perquisites-59 of the 65 hospital systems
18
Governance and Compensation Policies and Practices
Responsibility for Approving Top Executives' Compensation
o Hospital systems reported that an Executive Compensation Committee or
Entire Board is primarily responsible for:
o approving the other top four executives' base salary-50 of the 65
hospital systems
o approving the other top four executives' bonuses-50 of the 65 hospital
systems
o approving the other top four executives' perquisites-51 of the 65
hospital systems
Governance and Compensation Policies and Practices
Deferred Compensation Provided to Top Executives
o 51 of the 65 hospital systems reported providing supplemental executive
retirement plans (SERPs)^2 to the CEO, and 50 of the 65 hospital systems
reported providing SERPs to the other top four executives.
^2SERPs are maintained by an employer primarily for the purpose of
providing deferred compensation to a select group of management or highly
compensated employees. For example, when an executive is limited to the
amount that can be contributed to a 401(k) or similar plan because his or
her salary exceeds the statutory limit for contributions, employers can
add to SERPs, an amount equal to that which an executive would have
contributed under the company's 401(k) if not for the limits. SERP
"accounts" are not funded in advance. When benefits are paid to an
executive in the future, they are paid from the general assets of the
employer.
20
Governance and Compensation Policies and Practices
Deferred Compensation Provided to Top Executives
o 18 of the 65 hospital systems reported providing split-dollar life
insurance^3 plans to the CEO and to the other top four executives.
^3In split-dollar life insurance policies, the employer and the covered
executive ordinarily split the costs and benefits, sometimes unequally. In
some cases, these policies can provide for death benefits up to four times
base salary for survivor life insurance. Also, with split-dollar policies,
the employer can pay close to 100 percent of the premiums, that earn
interest and are not subject to tax. When an executive retires, the
employer is repaid--without interest--for the amount it contributed in
premiums. Treasury regulations provide guidance on, among other things,
the taxation of these benefits.
Governance and Compensation Policies and Practices
Deferred Compensation Provided to Top Executives
o 55 and 54 of the 64 responding hospital systems reported providing
457(b) plans for the CEO and the other top four executives,
respectively.
o Hospital systems also reported providing 457(f) and 403(b) plans4:
o 33 of the 64 responding hospital systems reported 457(f) plans for the
CEO, and 34 of the 65 for the other top four executives; and
o 45 of the 65 hospital systems reported 403(b) plans for the CEO, and
46 of the 65 for the other top four executives.
4These plans are so named by the specific section of the Internal Revenue
Code that provides guidance for the plans. These plans generally allow
employees to defer wages for tax purposes. Each plan has its own features,
including those related to contributions, distributions, loans, and
rollovers.
22
Governance and Compensation Policies and Practices
Severance Packages Provided to Top Executives
o 41 of the 65 hospital systems reported that since January 1, 2004, a
person serving as CEO or in one of the top four executive positions
has left the system.
o 2 of the 41 hospital systems reported that since January 1, 2004, they
made a severance payment to a departing CEO who resigned, and 5 of the
41 hospital systems reported that they made a severance payment to one
of the top four executives who resigned.
o 3 of the 41 hospital systems reported that since January 1, 2004, they
made a severance payment to a departing CEO who was involuntarily
terminated, and 20 of the 41 hospital systems reported that they made
a severance payment to one of the top four executives who was
involuntarily terminated.
Governance and Compensation Policies and Practices
Perquisites Provided to Top Executives and Related Internal Control
o 55 of the 65 hospital systems reported that they provide for
automobile-related expenses as a perquisite to the CEO.
o 21 of the 55 hospital systems reported having an internal audit since
January 1, 2004 of automobile-related expenses for the CEO. Two other
systems reported having an internal audit of automobilerelated
expenses, but reported that they did not provide this perquisite to
the CEO. These two systems provided an explanation for this. See
footnote "M" in the survey instrument (Enclosure II).
24
Governance and Compensation Policies and Practices
Perquisites Provided to Top Executives and Related Internal Control
o 52 of the 65 hospital systems reported that they provide for
automobile-related expenses as a perquisite to the other top four
executives.
o 21 of the 52 hospital systems reported having an internal audit since
January 1, 2004 of automobile-related expenses for the other top four
executives. Three other systems reported having an internal audit of
automobile-related expenses, but reported that they did not provide
this as a perquisite to the other top four executives. Two of these
systems provided an explanation for this; an explanation from the
other system was not available. See footnote "M" in the survey
instrument (Enclosure II).
Governance and Compensation Policies and Practices
Perquisites Provided to Top Executives and Related Internal Control
o 45 of the 65 hospital systems reported that they provide for
memberships in recreational or social clubs as a perquisite to the
CEO.
o 19 of the 45 hospital systems reported having an internal audit since
January 1, 2004 of memberships in recreational or social clubs for the
CEO. Two other systems reported having an internal audit of these
expenses for the CEO, but reported that they did not provide this as a
perquisite to the CEO. One system provided an explanation for this; an
explanation from the other system was not available. See footnote "N"
in the survey instrument (Enclosure II).
26
Governance and Compensation Policies and Practices
Perquisites Provided to Top Executives and Related Internal Control
o 35 of the 65 hospital systems reported that they provide for
memberships in recreational or social clubs as a perquisite to the
other top four executives.
o 14 of the 35 hospital systems reported having an internal audit since
January 1, 2004 of memberships in recreational or social clubs for the
other top four executives. Three other systems reported having an
internal audit of these expenses, but these three systems reported
that they did not provide this as a perquisite to the other top four
executives. One system provided an explanation for this; an
explanation from the other two systems was not available. See footnote
"N" in the survey instrument (Enclosure II).
Governance and Compensation Policies and Practices
Other Perquisites Provided to Top Executives
o 25 and 23 of the 65 hospital systems reported that they provide for
financial or tax planning as a perquisite to the CEO and the other top
four executives, respectively.
o 17 and 13 of the 65 hospital systems reported that they provide tax
preparation as a perquisite to the CEO and the other top four
executives, respectively.
o 7 of the 65 hospital systems reported that they provide for attorney
fees as a perquisite to the CEO and the other top four executives.
o 13 and 8 of the 64 responding hospital systems reported that they
provide for personal travel expenses for the spouse of the CEO and the
other top four executives as a perquisite, respectively.
28
Governance and Compensation Policies and Practices
Certain Perquisites Generally Not Provided to Top Executives
o 63 of the 65 hospital systems reported that they do not make loans or
state law prohibits them from making loans to the CEO and the other
top four executives; 2 systems reported that they make loans.
o 64 of the 65 hospital systems reported that they do not pay for
automobile related expenses for spouses and family members of the CEO
and the other top four executives; 1 system did not respond to the
specific questions about paying for these expenses for spouses and
family members.
Governance and Compensation Policies and Practices
Certain Perquisites Generally Not Provided to Top Executives
o 63 and 64 of 65 hospital systems reported that they do not pay for
memberships in recreational or social clubs for spouses of the CEO and
the other top four executives, respectively. Two systems did not
respond to this question for the CEO, and 1 did not respond for the
other top four executives.
o 64 of the 65 hospital systems reported that they do not pay for
memberships in recreational or social clubs for family members of the
CEO and other top four executives. One system did not respond to this
question for the CEO, and 1 did not respond for the other top four
executives.
30
Governance and Compensation Policies and Practices
Entertainment Expenses for Top Executives
o 63 of the 65 hospital systems reported providing payment for
entertainment expenses. Regarding sports events,
o 28 systems reported that they pay for the CEO to attend sports events,
34 reported that they do not pay, and 1 did not respond to the
specific question about paying for sports events.
o 29 systems reported that they pay for the other top four executives to
attend sports events, 33 reported that they do not pay, and 1 did not
respond to the specific question about paying for sports events.
Governance and Compensation Policies and Practices
Entertainment Expenses for Top Executives
o 63 of the 65 hospital systems reported providing payment for
entertainment expenses. Regarding holiday or other company parties,
o 49 systems reported that they pay for the CEO and the other top four
executives to attend holiday or other company parties, 13 reported
that they do not pay, and 1 did not respond to the specific question
about paying for these expenses.
32
Governance and Compensation Policies and Practices
Entertainment Expenses for Top Executives
o 63 of the 65 hospital systems reported providing payment for
entertainment expenses. Regarding various off-site activities,
o 48 systems reported that they pay for the CEO to attend meetings,
retreats, or other off-site activities involving trips to resort
locations or private, exclusive clubs. Fourteen systems reported that
they do not pay and 1 did not respond to the specific question about
paying for these types of expenses. For the other top four executives,
46 systems reported that they pay for these expenses, 16 reported they
do not, and 1 did not respond to the specific questions about paying
for these types of expenses.
Governance and Compensation Policies and Practices
Entertainment Expenses for Top Executives
o 63 of the 65 hospital systems reported providing payment for
entertainment expenses. Regarding theatre performances,
o 17 systems reported that they pay for the CEO to attend theatre
performances, 45 reported that they do not pay, and 1 did not respond
to the specific question about paying for these types of expenses.
o 16 systems reported that they pay for the other top four executives to
attend theatre performances, 46 reported that they do not pay, and 1
did not respond to the specific question about paying for these types
of expenses.
34
Governance and Compensation Policies and Practices
Entertainment Expenses and Related Internal Control
o 63 of the 65 hospital systems reported providing payment for
entertainment expenses. Of those 63 systems:
o 56 systems reported having a written policy covering entertainment
expenses. 55 and 53 of the 56 reported that the policy describes the
documentation necessary to support business entertainment expenses for
the CEO and the other top four executives, respectively.
Governance and Compensation Policies and Practices
Entertainment Expenses and Related Internal Control
o 63 of the 65 hospital systems reported providing payment for
entertainment expenses. Of those 63 systems:
o 60 systems reported that the CEO's entertainment expenses are reviewed
after being incurred, 1 reported that they are not reviewed, and 2 did
not respond to the specific question about reviews of these expenses
for the CEO.
o 59 systems reported that the other top four executives' entertainment
expenses are reviewed after being incurred, 2 reported that they are
not reviewed, and 2 did not respond to the specific question about
reviews of these expenses for the other top four executives.
36
Governance and Compensation Policies and Practices
Entertainment Expenses and Related Internal Control
o 63 of the 65 hospital systems reported providing payment for
entertainment expenses. Of those 63 systems:
o 39 and 40 systems reported having an internal audit since January 1,
2004, of entertainment expenses for the CEO and one or more of the
other top four executives, respectively.
o 9 and 7 systems reported having an external audit (separate from the
annual financial statement audit) since January 1, 2004, of
entertainment expenses for the CEO and one or more of the other top
four executives, respectively.
Governance and Compensation Policies and Practices
Travel Expenses and Related Internal Control
o 62 of the 65 hospital systems reported having a written policy
covering travel expenses for the CEO and other top four executives. Of
those 62 systems:
o 59 systems reported that their policy describes what are legitimate
domestic business travel expenses for the CEO and the other top four
executives, and 3 systems reported that their policy does not.
o 61 and 62 systems reported that their policy describes the
documentation necessary to support domestic business travel expenses
for the CEO and the other top four executives, respectively. One
system did not respond to the question for the CEO.
38
Governance and Compensation Policies and Practices
Travel Expenses and Related Internal Control
o 64 of the 65 hospital systems reported that the CEO's and other top
four executives' travel expenses are reviewed after being incurred.
One system did not respond to the specific questions about reviews of
these expenses.
o 40 and 41 of the 65 hospital systems reported having an internal audit
since January 1, 2004, of travel expenses for the CEO and one or more
of the other top four executives, respectively.
o 10 and 9 of the 65 hospital systems reported having an external audit
(separate from the annual financial statement audit) since January 1,
2004, of travel expenses for the CEO and one or more of the other top
four executives, respectively.
Enclosure II - Copy of Survey Instrument with Number of Responses for Each
Question
2. Do the written criteria for selecting members of the Executive
Compensation Body address the following factors?
Yes No
TT
a) Knowledge? 20 20
b) Skills? 19 21
c) Experience? 21 19
3. Is either the CEO or one of the Other Top Four Executives a voting
member of the Executive Compensation Body?
11 Yes AE Please list each person by name and title:
54 No
4. Since January 1, 2004, has the CEO attended Executive Compensation Body
meetings when his or her own compensation was being discussed? B
0 Yes 65 No
5. Since January 1, 2004, have any of the Other Top Four Executives
attended Executive Compensation Body meetings when their own compensation
was being discussed?
1 Yes 64 No
6. Does your hospital system have a conflict of interest policy that
covers members of the Executive Compensation Body? Note: Such a policy
could include one that exists specifically for the members or one that
exists for all Board Members who may serve on the Executive Compensation
Body.
65 Yes
0 No AE SKIP TO QUESTION #8
B Hospital systemsprovided comments that the CEO maybe present during
Executive CompensationBody meetings to provide input onsuch thingsas the
performance of other executives, but theCEO is excused froma meeting when
the CEO's compensation is to be discussed.
3
7. Does your hospital system's conflict of interest policy that covers members
of the Executive Compensation
Body ...
Yes No
T T
a) require disclosures of potential conflicts of interest? 65 0
b) outline conditions when members must recuse themselves from 59 6
particular discussions?
c) provide guidance on what may constitute a conflicting situation? 62 3
8. Within your hospital system, which entity or person has primary
responsibility for reviewing and approving all transactions between the
hospital system and disqualified persons as defined by 26 USC S: 4958(f)
and related regulations? Note: If multiple entities or persons have
primary responsibility, please check the last item, list or describe. Mark
one response _ for each subquestion.
12 Entire Board
18 Executive Compensation Committee
1 Chairperson of the Board
1 Chief Executive Officer
C
33 Other entities or persons AE please list or describe:
9. Can the Executive Compensation Body hire outside consultants to advise
on compensation and benefit issues?
65 Yes
0 No
10. Since January 1, 2004, has the Executive Compensation Body hired
outside compensation and benefits consultants?
63 Yes
2 No
C Hospital systems cited various individual or multiple committees. These
committees included Executive, Finance, Audit, Ethics, Conflict of
Interest,and Contract Approval. Hospital systemsalso cited
individualssuchas the ChiefCompliance Officer, Business PracticesOfficer,
and executives in charge of various departments or functions.
4
11. To whom do the following entities report? Note: If multiple entities
or persons have primary responsibility, please check the box in the last
column, list or describe. Mark one response _ for each subquestion.
Chief
Executive
Executive Other Entities or Persons (list or
Compensation Chairperson Entire Board Committee of the Board Officer
describe)
TT TTT
a) Outside
compensation and 2 490 1 13AE ( )
benefits consultants?
b) Outside legal 4 240 5 32AE ( )D
advisors?
c) Other outside 5 220 4 27AE ( )E
advisors?
12. Does your hospital system have a policy that requires compensation
consultants to be free of any conflicts of interest?
40 Yes 25 No
D Hospital systems cited thegeneral counsel. E Hospital systems reported
that it varied depending on the situation in which the advisor was
engaged. 5
1. Within your hospital system, which entity or person has primary
responsibility for the following roles regarding the goals and
objectives on which incentive bonuses are based? Note: If multiple
entities or persons have primary responsibility, please check the box
in the last column, list or describe. Mark one response _ for each
2. Which entity or person within your hospital system has primary
responsibility for each of the following with respect to the CEO?
Note: If multiple entities or persons have primary responsibility,
please check the box in the last column, list or describe. Mark one
response _ for each subquestion.
subquestion.
Executive Chief
Compensation Executive
Committee Officer Other Entities or
Chairperson of the Persons (list or
Entire Board Board describe)
T T T T T
a) Developing goals and 0 16 0 20 26AE ( )G
objectives?
b) Approving goals and 12 37 1 3 10AE ( )
objectives?
c) Evaluating goals and 2 41 0 4 15AE ( )
objectives?
d) Overseeing the
application of goals and 4 29 0 9 21AE ( )H
objectives?
Executive
Compensation Chairperson Other Entities or Persons (list or Entire Board
Committee of the Board describe)
T TTT
a) Approving the CEO's salary 20381 6AE ( )
b) Approving the CEO's bonuses 17380 8AE( )
c) Approving the CEO's perquisites 19400 5AE( )
d) Approving the CEO's severance 21350 7AE( ) package
e) Approving the CEO's other 19400 5AE( ) compensation
G Hospital systems commonly cited multiple members of the executive
managementteam, such as theCEO, Executive Vice President, Chief Operating
Officer, and the executive in charge of human resources. One hospital
system reported that their Strategic PlanningCommittee had this
responsibility; another system reported that goalsand objectivesare
developedbythe entire Board, the Executive Compensation Bodyand the senior
executive team.
H Hospital systems reported that numerous committeesand management share
this responsibility. 7
18. Which entity or person within your hospital system has primary
responsibility for each of the following tasks with respect to the CEO?
Note: If multiple entities or persons have primary responsibility, please
check the box in the last column, list or describe. Mark one response _
for each subquestion.
Executive
Other Entities or Persons (list or
Compensation Chairperson Entire Board Committee of the Board describe)
TT TT
a) Evaluating the CEO's 1728 7 13AE ( ) performance
b) Recommending adjustments to CEO's salary based on their 4465 10AE ( )
evaluations
c) Recommending adjustments to CEO's incentive bonus based on 3473 10AE (
) their evaluations
d) Approving adjustments to CEO's 21372 5AE ( ) salary based on
evaluations
e) Approving adjustments to the CEO's incentive bonus based on 19371 6AE (
) evaluations
9
19. Which entity or person within your hospital system has primary
responsibility for each of the following tasks with respect to the Other
Top Four Executives? Note: If multiple entities or persons have primary
responsibility, please check the box in the last column, list or describe.
Mark one response _ for each subquestion.
T
No T
Chief Other Entities or
Executive
Executive Persons (list or
Compensation Chairperson Entire Board Committee of the Board Officer
describe)
T
T
a) Evaluating the Other Top Four Yes T
Executives' performance 060 581AE ( )
T
b) Recommending adjustments to Other Top Four Executives' 060 553AE ( )
salary based on their evaluations No TT
c) Recommending adjustments to Other Top Four Executives' 0
T
incentive bonus based on their 5 0 526AE ( ) evaluations
Yes TT
d) Approving adjustments to Other Top Four Executives' salary 5 40 1 163AE
( ) based on evaluations
T
e) Approving adjustments to the Other Top Four Executives' 6 40 0 116AE (
) incentive bonus based on evaluations
T
Any of the Other Top CEO Four Executives
20. Since January 1, 2004, has the CEO or any of the Other Top Four
Executives received compensation from any party related to either the
hospital system or its 4 61
5 60 affiliates?
Incentive and Bonus Programs
Any of the Other Top CEO Four Executives
Yes No
Yes No
21. Does your hosptial system provide guaranteed bonuses to the CEO or any
of the Other Top Four Executives
0 64
regardless of their performance? 3 61
10
Any of the Other Top Four Executives
CEO No T
T
N/A T
N/A T
22. Does your hospital system provide incentive bonuses that reward the
CEO or any of the Other Top Four Executives for achieving certain
performance goals or 57 8
59 6
T
No T
No T Yes T
objectives?
T
IF YOU ANSWERED "NO" TO BOTH PARTS OF
Yes T
Yes T
No T QUESTION #22, SKIP TO QUESTION #26;
otherwise, continue ...
N/A T N/A TT
Yes T
Any of the Other Top Four
T
No T
No T
CEO
Executives
23. What is the method for calculating
T
Yes Tincentive bonuses? Yes T
a) Percentage of salary only 406 3
426 1
b) Another method, please describe:
238 7
238 6
Any of the Other Top Four CEO Executives
24. Are minimum performance targets set under which no incentive bonuses,
regardless of how calculated, would be 56 1 2
581 0 paid?
Any of the Other Top Four CEO Executives
Yes No N/A
Yes No N/A
25. Are maximum performance targets set over which such incentive bonuses,
regardless of how calculated, would be 55 2 2
572 0 capped?
11
Benefit Programs and Perquisites
Any of the Other Top
No T
No T
26. Does your hospital system provide the following CEO
Four Executives
nonqualified deferred compensation plans to its CEO or
any of the Other Top Executives?
a) Excess retirement benefit plan
15 50
Yes T 15
50 Yes T
b) Supplemental executive retirement plan (SERP) 51 14
50 15
c) Split-dollar life insurance plan 18 47
18 47
d) Section 457(b) plan No T
No T 559
54 10
e) Section 457(f) plan 33 31
34 31
f) Section 403(b) plan 45 20
46 19
g) Other (please specify)
12 36
Yes T 1336 Yes T
Any of the Other Top Four Executives
27. Does your hospital system make severance payments to CEO departing
CEOs or any of the Other Top Four Executives in the following situations?
a) Resignation (for any reason) 6 59
6 59
b) Involuntary termination 61 4
60 5
c) Change of corporate control events 41 24
37 28
d) Other (please specify) I
16 30
12 34
28. Has your hospital system had anyone in the CEO or Other Top Four
Executive positions leave since January 1, 2004?
41 Yes
24 No AE SKIP TO QUESTION #30
I The hospital systems cited numerous other situations whenseverance
paymentsare made to executives, such asa substantial change in duties,
death, disability, and breach of compensationpayment obligation.
12
Any Departing Other
T
Departing CEO No T
Top Four Executives
29. Since January 1, 2004, did your hospital system make severance
payments to departing CEOs or any of the Other Top Four Executives in the
following situations?
No T
a) Resignation (for any reason) 38
5 35
Yes T 2
Yes T
b) Involuntary termination 3 37
20 21
c) Change of corporate control events 0 40
1 39
No T T
d) Other (please specify)
2 30
3 30
Any of the Other Top
Yes T CEO?
Four Executives?
No T
State law
State law prohibits prohibits
Yes T
30. Does your hospital system make loans to its CEO or any of the Other
Top Four Executives?
Note: Answer "State Law Prohibits" if state law
254 9
prohibits nonprofit organizations from making 2 53 10 loans to executives
and the hospital system does not make such loans.
N/A T
No T
Yes T
N/A T
No T
Yes T
IF YOU ANSWERED "NO" or "STATE LAW PROHIBITS" TO BOTH PARTS OF QUESTION #30,
SKIP TO QUESTION #36; otherwise, continue ...
Any of the Other Top
Four Executives
31. Since January 1, 2004, has your hospital system CEO
made loans to its CEO or any of the Other Top
Four Executives for the following purposes?
a) Purchasing a home 020
020
b) Purchasing investments or making equity contributions in for profit
entities affiliated with the 020
020
hospital system
c) Purchasing investments in entities not affiliated with
020
the hospital system 020
d) Other reasons, please list:
020
020
13
32. Which entity or person within your hospital system has primary
responsibility for each of the following with respect to the CEO? Note: If
multiple entities or persons have primary responsibility, please check the
box in the last column, list or describe. Mark one response _ for each
subquestion.
Executive Entire Board Compensation Chairperson Committee of the Board
Other Entities or Persons T T TT (please describe)
a) Approving loans to the CEO 0011AE( )
b) Monitoring the repayment of loans made to the CEO to ensure 0002AE( )
accountability
c) Approving the forgiveness of loans 0110AE( ) made to the CEO
33. Which entity or person within your hospital system has primary
responsibility for each of the following with respect to the Other Top
Four Executives? Note: If multiple entities or persons have primary
responsibility, please check the box in the last column, list or describe.
Mark one response _ for each subquestion.
Chief
Executive
Executive
Entire Board Compensation Chairperson
Committee of the Board Officer Other Entities or Persons
T TTTT (please describe)
a) Approving loans to the Other Top 01010AE ( ) Four Executives
b) Monitoring the repayment of loans made to the Other Top Four 00011AE (
) Executives to ensure accountability
c) Approving the forgiveness of loans made to the Other Top Four 01010AE (
) Executives
any of the Other Top Four the CEO?
Executives?
Yes No N/A
Yes No N/A
TTT
TTT
34. Since January 1, 2004, has your hospital system forgiven any loans
owed by ... 1 1 0
110
35. Since January 1, 2004, has your hospital system refused to accept any
loan payments owed by ... 0 2 0
020
14
36. Does your hospital system provide the following perquisites to the CEO
or any of the Other Top Four Executives?
a) Personal travel expenses b) Automobile-related expenses c) Financial or
tax planning d) Tax preparation e) Attorneys fees f) Memberships in
recreational or social clubs
g) Other, please specify: J
37. Since January 1, 2004, has the CEO or any of the Other Top Four
Executives had the following expenses paid for on their behalf (or
reimbursed) from any party related to either the hospital system or its
affiliates?
a) Personal travel expenses b) Automobile-related expenses c) Financial or
tax planning d) Tax preparation e) Attorneys fees f) Memberships in
recreational or social clubs g) Other, please specify:
Any of the Other Top Four
CEO
Executives
No T
No T
3 62
2 62
55 10
52 12
Yes T
Yes T
25 40
23 42
17 48
13 52
7 58
7 58
No T No T
45 20
35 30 26 26 23 30
Yes T Yes T
Any of the Other Top Four
CEO
Executives
3 62
2 63
10 55
10 55
4 61
4 61
5 60
4 61
1 64
1 64
11 54
10 55
2 47
2 47
J The other perquisitesnotedby the hospital systems included cellular
telephonesand Blackberrys, reimbursement of professional duesand annual
membership fees, fitness center membership or home fitness equipment,
professional development and continuingprofessional educationprograms, and
allowances that canbe used at the discretion of the executive ona variety
ofperquisites.
15
Spouses of any of the Other
Top Four Executives
38. Does your hospital system provide the Spouse of CEO
No T
No T
following perquisites to the spouses of the CEO
or any of the Other Top Four Executives?
a) Personal travel expenses K 13 51
8 56
0 64
Yes T 0
64 b) Automobile-related expenses Yes T
c) Financial or tax planning 0 64
0 64
d) Tax preparation 0 64
0 64
e) Attorneys fees 0 64
0 64
No T
No T
f) Memberships in recreational or social clubs 0 63
0 64
g) Other perquisite, please list:
5 48
3 49
Yes T
Yes T
Family members
Family members
(other than spouse)
of any of the Other Top Four following perquisites to family members other
of the CEO
39. Does your hospital system provide the (other than spouse)
Executives
than spouses of the CEO or any of the Other
Top Four Executives?
a) Personal travel expenses 1 63
1 63
b) Automobile-related expenses 0 64
0 64
c) Financial or tax planning 0 64
0 64
d) Tax preparation 0 64
0 64
e) Attorneys fees 0 64
0 64
f) Memberships in recreational or social clubs 0 64
0 64
g) Other, please specify:
0 51
0 51
K Hospital systems reported that they maypay for the travel expenses of
spouses when theyare accompanying the top executives to certainbusiness
events, retreats, or educational seminars.
16
1. Does the policy describe the documentation necessary to support
international business travel expenses ... l
2. Since January 1, 2004, has the CEO or any of the Other Top Four
Executives had any international travel expenses paid for on their
behalf (or reimbursed) from any party related to either the hospital
system or its affiliates?
3. Are the CEO's travel expenses ...
1
a) approved prior to being incurred?b) reviewed after being incurred?
48. Are any of the Other Top Four Executives' travel expenses ...
a) approved prior to being incurred?
b) reviewed after being incurred?
6 Yes AE 59 No
64 Yes AE 0 No
15 Yes AE 50 No
64 Yes AE 0 No
for any of the Other for the CEO? Top Four Executives?
No T
No T
50 12
49 12
Yes T
Yes T
Any of the Other Top Four Executives
No T CEO No T
Yes T Yes T
21 44
25 40
What entity or person approves these expenses? please specify:
What entity or person reviews these expenses?
please specify:
What entity or person approves these expenses? please specify:
What entity or person reviews these expenses?
please specify:
1. Does your hospital system pay for entertainment expenses?
2. 63 Yes 2 No AE SKIP TO QUESTION #56
1. Does your hospital system have a written policy covering entertainment
expenses?
56 Yes 7 No AE SKIP TO QUESTION #53
18
for any of the Other Top for the CEO? Four Executives?
No T No T
51. Does the policy describe what are legitimate business entertainment
expenses ... 53 2
52 2
Yes T
Yes T
53 1 support business entertainment expenses ...
52. Does the policy describe the documentation necessary to 55 0
No T
53. Are the CEO's entertainment expenses ...
No T
a) approved prior to being incurred?What entity or person approves these
expenses?
3 Yes AE
please specify:
Yes T 59 No
b) reviewed after being incurred? What entity or person reviews these expenses?
60 Yes AE
1 No please specify:
Yes T
54. Are the Other Top Four Executives' entertainment expenses ...
a) approved prior to being incurred? What entity or person approves these
expenses?
7 Yes AE
please specify: 55 No b) reviewed after being incurred? What entity or
person reviews these expenses?
59 Yes AE
2 No please specify:
Any of the Other Top Four
CEO
Executives
55. Does your hospital system pay for the following expenses for which its
CEO or any of the Other Top Four Executives can attend?
a) Sports events 28 34
29 33
b) Holiday or other company parties 49 13
49 13
c) Meetings, retreats, or other off-site activities involving trips to
resort locations or private, 48 14
46 16
exclusive clubs
d) Theatre performances 17 45
16 46
e) Other, please specify:
11 32
10 33
19
any of the Other Top the CEO? Four Executives?
No T
or paid T
56. Does your hospital system have written policies:
a) regarding the purchase of gifts by the hospital system and
No T
37 27
given by... 38 26
Yes T
b) regarding the purchase of gifts by the hospital system
34 30
33 31
for... Yes T
Any of the Other Top
No T Four Executives
CEO or paid T
57. Since January 1, 2004, has your hospital system had an internal audit
of the following for the CEO or any of the Not
Not
Other Top Four Executives? Note: If any of the following No T
offered
is not offered or paid for by the hospital system, check the offered
corresponding response.
Yes T Yes T
a) Travel expenses 4023 0
4123 0
b) Automobile-related expensesM 2332 7
2431 7
c) Loans and loan repayments 0 13 51
0 13 51
d) Memberships in recreational or social clubsN 2131 12
1728 19
e) Entertainment expenses 3922 3
4020 4
f) Other perquisites, please specify:
9 31 14
1030 14 g) Components of other compensation, please specify: 8 30 12
7 32 12
M
Two systems reported having an audit of these expenses for the CEO and the
other top four executives but reported that they did not provide this
perquisite to the CEO or other top four executives. One of the systems
explained that their audits were of auto expenses as part of executives'
travel reimbursement and the other system stated that audits were
performed in 2004 when they used to explicitly pay for automobile
expenses, but in 2005 they began granting executive business allowances
that covered various types of expenses, including auto expenses. Also, 1
other system reported having an audit of these expenses for the other top
four executives but reported that they did not provide this as a
perquisite to the other top four executives. An explanation was not
available from this system.
N
One system reported having an audit of membership expenses for the CEO and
the other top four executives but reported that they did not provide this
as a perquisite to the CEO and the other top four executives. This system
stated that they had an audit in 2004 when they used to explicitly pay for
membership expenses, but in 2005 they began granting executive business
allowances that covered various expenses including membership expenses.
Also, 1 system for the CEO, and 2 systems for the other top four
executives reported having an audit of these expenses but reported that
they did not provide this as a perquisite. An explanation was not
available for these systems.
20
Page 62 GAO-06-907R Nonprofit Hospital Systems
Any of the Other Top CEO Four Executives
58. Since January 1, 2004, has your hospital system had an
external audit(separate from the annual financial or paid T
statement audits) of the following for the CEO and the
Not
Other Top Four Executives? Note: If any of the following Not
offered
offered No T
is not offered or paid for by the hospital system, check the corresponding
response.
Yes T 10
a) Travel expenses 55 0
9 55
0
b) Automobile-related expenses 1049 5
1047 7
c) Loans and loan repayments 0 19 46
0 20 45
or paid T
d) Memberships in recreational or social clubs 749 9
6 45 13
No T
e) Entertainment expenses 953 3
754 4
f) Other perquisites, please specify:
2 41 13
2 41 12
Yes T
g) Components of other compensation, please specify:
3 38 15
3 39 14
59. Do you have any other comments regarding this survey? If so, please
type them here.
21
(190151) Page 63 GAO-06-907R Nonprofit Hospital Systems
*** End of document. ***