Executive Compensation Program

Summary

Effective July 21, 2009

The Baptist Health Systems executive compensation program is:

  • Overseen by The Chairman’s Council, a Committee of the Board of Trustees that is designated by the full Board of Trustees for this purpose, whose members are independent of any conflict in their decision making, and that follows the highest standards and best practices in its governance of executive compensation at Baptist Health Systems.
  • Guided by a formally structured and Board approved executive compensation philosophy that defines the nature of various roles in the management of executive compensation, identifies the competitive level at which the Committee seeks to position Baptist Health Systems executive pay, and also identifies the peer group of organizations against which Baptist Health Systems compares its executive pay
  • Characterized by the same elements of executive compensation (salary, regular and executive benefits, perquisites) typically found at other health care organizations, and those in Baptist Health System’s peer group

Governance of Executive Compensation at Baptist Health Systems

Executive compensation at Baptist Health Systems is governed and controlled by the Chairman’s Council; a Committee of the Board of Trustees according to polices set by the Board of Trustees as a whole. Those policies include corporate bylaws and Chairman’s Council charter approved by the Board of Trustees. The bylaws and charter that govern the Chairman’s Council define the purpose, responsibilities and process.
     

The Chairman’s Council is made up entirely of community leaders, none of whom are employed by Baptist Health Systems. Only independent Trustees without any conflicts of interest with regard to executive compensation serve on the Chairman’s Council.

The Chairman’s Council operates in an independent manner. Decisions on executive compensation are deliberated on and made in an executive session without the presence of any executives. The Chairman’s Council meets regularly, typically three to four times per year.

The Chairman’s Council determines pay levels at Baptist Health Systems by making comparisons to other tax-exempt health systems that are similar to Baptist Health Systems in size and complexity. The Chairman’s Council looks primarily at market values for health care organizations located throughout the United States, but also references market values for health care organizations located in the Southeast.

The Chairman’s Council reviews comparability data on base salary levels, total cash compensation levels (base salary plus incentive or compensation), and benefit and perquisite levels. The Chairman’s Council assesses the competitiveness of each element of compensation independently. The Committee also reviews total compensation in aggregate.     The Chairman’s Council selects, hires, and directly supervises the consulting firm that advises the Chairman’s Council on executive compensation. These consultants regularly assess executive compensation levels in order to assure the Chairman’s Council that executive compensation at Baptist Health Systems remains reasonable. The Chairman’s Council requests its consultant to be present in person for meetings at which compensation decisions are made.

The Chairman’s Council diligently maintains minutes of its meetings to provide a record of its decisions and deliberations. The minutes record the members who were present during the debate on the transaction or arrangement that was approved, those who voted on it, and what comparability data was obtained and relied upon in decision making.

Baptist Health Systems Chairman’s Council governance practices closely follow best practices guidelines in governing executive compensation. The Chairman’s Council understands current processes and steps prescribed by the Internal Revenue Service (IRS) for governing executive compensation in non-public tax-exempt organizations, and asks its executive compensation consultants to regularly update it on any changes on the best practices guidelines recommended by the IRS for governing executive compensation in tax exempt organizations. The Chairman’s Council strives to follow, and where possible exceed the intent of, any and all applicable laws, guidelines and best practices in the governance of executive compensation at Baptist Health Systems.

Baptist Health Systems Hospital's Executive Compensation Philosophy

Executive pay levels at Baptist Health Systems are based on its executive compensation philosophy, which was again formally approved by the Board of Trustees in 2008. The objective of the compensation philosophy is to promote compensation that is internally equitable, reflective of performance against financial and mission objectives, rewarding of individual contribution and simple to understand and administer. Baptist Health Systems believes its ability to attract and retain a highly skilled and motivated executive team is key to achieving its mission.

That philosophy defines the nature of the peer group Baptist Health Systems uses for comparison of its executive compensation, and it defines how it intends to position executive compensation competitively. Each of these is addressed in the sections immediately following.

Peer Group

The Baptist Health Systems executive compensation philosophy calls for comparing its executive pay levels to a carefully chosen group of tax-exempt health systems located throughout the nation that are similar to Baptist Health Systems in size and complexity. As an additional reference, Baptist Health Systems also regularly compares its executive pay to tax-exempt health systems located in the South and Southeast

The Chairman’s Council has found that the labor market for its executives is national in scope, particularly that for senior executives. If Baptist Health Systems needs to recruit executives, it conducts a national search. Baptist Health Systems is also aware that its executives could be recruited to another health system anywhere in the country, as often occurs in the health care industry. Also, the Chairman’s Council consultants have reported that the difference in executive pay levels between the South and Southeast region and national rates are minimal.

At the same time, however, the Chairman’s Council continues to ask its consultant to provide it with information on the regional health care labor market for executives, to keep track of changes in these labor markets.

The Chairman’s Council believes that the use of this peer group provides for a competitive executive compensation program that affords the Chairman’s Council the ability to recruit and retain talented executives in a highly competitive national labor market.

The size of the organizations selected for the peer group reflect organizations ranging in size from roughly half as large as Baptist Health Systems to roughly twice as large. In pricing any executive position, the peer group reflects a median size very close to the current size of Baptist Health Systems.

The complexity of the organizations selected for the peer group reflects health care organizations that are independent, free-standing health care systems that manage one or more acute care hospitals. Both public and non-public health care systems are included in the peer group, although no for-profit health care organizations are included. When reviewing executive positions at the level of one of Baptist Health Systems, similar sized hospitals within a system are used for the peer group.

Competitive Positioning

The Board of Trustees has set a policy of positioning total executive total compensation above average, at the 75th percentile of Baptist Health Systems peer group. In the section following, the competitive positioning of each individual element of Baptist Health Systems executive pay is discussed.

The policy of positioning executive compensation at the 75th percentile ensures that the Board of Trustees can recruit and retain the type of highly skilled and motivated leadership it needs to meet the needs of Central Mississippi for high quality, cost effective health care services, while still being able to provide free care to poor members of the community and to provide a wide variety of other special programs to improve public health in the communities served. Baptist Health Systems recognizes how difficult it is to manage a large health care system when everyone wants the best possible care, but insurers, government agencies, and many people aren’t really willing to pay what it costs.

The Elements of Executive Compensation at Baptist Health Systems

Executive compensation at Baptist Health Systems includes many of the elements typically found in an executive compensation program in an organization such as Baptist Health Systems. The elements included are base salary, annual incentive, a package of benefits designed to meet the health, welfare, insurance, and retirement needs of executives, and a few selected perquisites intended to meet the business needs of executives.

Baptist Health Systems positions its base salaries in ranges centered on peer group 50th percentile base salary. These salary ranges are similar conceptually to those used by executives and other employees at many organizations. The lower part of the salary range is generally reserved for new hires with limited experience and recently promoted individuals. The upper part of the salary range is appropriate for highly experienced individuals with a demonstrated record of consistently exceeding performance expectations.

The actual current positioning of Baptist Health Systems salaries against national peer group 50th percentile will depend upon many factors, however, including individual performance of the executive, position of individual salaries in their salary range, competitive market demand for the position, and even the salary of each executive at hire or promotion into the current position.

The executive compensation program includes an annual incentive plan that pays awards only if the organization meets predetermined goals for the year. These goals are consistent with Baptist Health Systems annual strategic objectives. The annual strategic plan is approved by the Board of Trustees in order to address “stretch” performance levels. In most cases, these performance levels are above average for organizations in Baptist Health Systems peer group. Having pay at risk in an incentive plan means that if executives don’t perform well, they won’t be paid particularly well either. If Baptist Health Systems executives don’t achieve the goals set by the Board their total compensation will be below average.

Baptist Health Systems positions its benefit expenditures at approximately 36 percent of base salary. The benefit program includes benefits provided to all employees as well as supplemental executive benefits such as life insurance and supplemental retirement plans. Supplemental executive benefits are designed to deal with rules and limits that keep employers from providing higher-paid executives with benefits comparable to those provided to other employees. The rules place limits on the amount of income that can be taken into account in determining benefit levels under benefit plans all employees participate in. For example, the amount of income that can be taken into account to determine a retirement benefit is restricted to a specific maximum amount.

Baptist Health Systems provides a conservative severance benefit that includes continuation of salary and benefits for executives at levels and for lengths of time that are competitive with peer group levels. The benefit is provided only in cases where the executive is terminated for performance or cost related reasons, not for malfeasance or wrong doing.

Baptist Health Systems also provides a conservative set of perquisites that includes an auto for the CEO, professional memberships for selected executives, reimbursement of seminar expenses for executive professional development, and cellular phones. These perquisites are designed to meet business purposes only. Executives are taxed on personal usage, per tax law.

By positioning executive compensation as it does, the Board of Trustees intends to achieve three goals:

  • Retain talented executives who might otherwise be lured away by larger local organizations or by for-profit health care companies
  • Focus executives on strategic objectives important to the organization by placing a significant amount of pay at risk of forfeiture if the objectives are not met
  • Attract executives from other organizations to ensure the fresh leadership Baptist Health Systems needs to be successful

Any individual exceptions to Baptist Health Systems compensation philosophy are carefully monitored by the Chairman’s Council to ensure that the compensation of all executives is reasonable and falls well within the bounds of competitive practice.

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