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Pay practices hurting morale at Ontario hospitals, report finds

Doctor holding stethoscope

Oleg Prikhodko/iStockphoto/Oleg Prikhodko/iStockphoto

A mandatory wage freeze on non-unionized public sector workers in Ontario is hurting morale at many hospitals and making it more difficult for them to attract highly-qualified senior managers, a new report says.

As well, many hospitals are applying new accountability rules linking pay to performance in a haphazard fashion, undermining the government's efforts to rein in executive compensation, says the report released Friday by the Ontario Hospital Association.

The morale problem is a concern particularly in smaller hospitals, where pay differentials between unionized employees and executives are shrinking, the report says.

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The report does not conclude that chief executive officers of the province's hospitals are overpaid. But the report found inconsistent compensation practices in mid-sized hospitals, those with operating budgets of $25-million to $250-million.

Health Minister Deb Matthews said she hopes the report will encourage hospital boards of directors to examine their compensation practices.

"It's clear that there are some outlier hospitals," she said in an interview.

Among the key findings:

> CEOs of hospitals with operating budgets of less than $25-million earn lower incomes.

> CEOs of mid-size hospitals have highly variable incomes that are poorly correlated to differences in hospital budgets.

> CEOs of larger teaching hospitals with budgets of $250-million or more tend to have fairly similar incomes.

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The report's authors, led by John Manley, a former deputy prime minister and CEO of the Canadian Council of Chief Executives, compared the compensation of hospital executives to their counterparts in the private sector.

New Democrat Leader Andrea Horwath said on Friday that stronger action need to be taken to get executive compensation under control. She has called for a hard cap on hospital CEO pay.

"For patients who have seen local emergency rooms close or watched the nurse helping them fight cancer get fired, tinkering with the status quo isn't good enough," Ms. Horwath said in a statement.

"In tough times, we need to set priorities and make sure that health-care dollars are directed to helping people get and stay healthy – not on sky-high CEO salaries."

Progressive Conservative Leader Tim Hudak said compensation should be tied to performance.

"If you ...give higher pay raises and don't ask for something in return, then you'll probably get somebody who is overpaid," he said.

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In general, the report says, hospital CEOs' compensation was below the 25th percentile of the cash component of private sector CEOs. However, in many mid-sized hospitals, CEOs earn compensation that exceeds the 25th percentile of the private sector. In a few cases, the report adds, these hospital CEOs earn above the median of their private-sector counterparts.

"The wide range of compensation levels at mid-size hospitals . . . highlights the need for a more consistent approach to determining hospital CEO compensation," the report says.

The report recommends that all hospitals introduce pay-for-performance programs within three years that links 10 per cent to 30 per cent of a CEO's compensation to achieving strategic priorities.

Under new accountability rules introduced by the government earlier this year, a portion of the pay of hospital CEOs is now linked to their progress in meeting targets, ranging from improving hand hygiene to freeing up beds by discharging patients earlier in the day.

Many of the larger teaching hospitals had already implemented some form of pay-for-performance before the legislation was introduced, the report says. These hospitals appear to have achieved a high degree of alignment between hospital priorities and compensation.

In contrast, those hospitals that introduced pay-for-performance in response to the legislation have struggled to identify performance expectations, the report says. At these hospitals, performance pay tends to account for five per cent or less of total executive compensation. As well, a number of hospitals have set unambitious quality improvement targets, in some cases below existing performance levels.

"For these hospitals, the pay-for-performance requirement combined with the salary freeze effectively resulted in a reduction in base salaries," the report says.

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