Severance Information For the CEO

Transcription

1 HEALTH CARE CEO SEVERANCE WHAT'S HAPPENING OUT THERE? SEPTEMBER 17, 2013 WEBCAST

2 Have a question? If you d like to ask a question during today s webcast you can do so by: Typing a question in the panel on the right-hand side of the presentation OR ing Tom Flannery at 1

3 Today s Presenters Tom Flannery Partner Patricia Kopacz Principal Jena Abernathy Vice President Doug Mancino Partner 2

4 SURVEY FINDINGS Presenter: Patricia Kopacz

5 Survey Content Severance Terms Benefit Continuation Mitigation and Non-Compete Clauses Change-in-Control Provisions Outplacement Services 4

6 About the Respondents Organization Type 2% 10% Health Care Provider System (e.g., multi-hospital system) 47% Health Care Subsidiary System (e.g., multi-hospital system owned by another system) 10% Health Plan/Managed Care Organization Fully Integrated System (e.g., both hospital and health plan operations) Stand-alone Hospital System-owned Hospital 13% Non-Hospital Health Care System Non-Hospital Health Care Facility Other 6% 2% 3% 7% 5

7 Severance Terms Where are the terms of the CEO s severance benefit outlined? In a written severance plan that applies to the CEO and/or other executives 18% In the CEO's employment contract 75% Both 7% 6

8 Severance Terms What types of termination trigger severance? Involuntary termination without cause 90% Change-in-control 65% Non-renewal of contract 29% Good reason 19% Involuntary termination with cause 15% 0% 20% 40% 60% 80% 100% 7

9 Severance Terms What is the severance period? 24 months 49% 36 months 6% Other 2% Less than 12 months 4% 12 months 25% 18 months 14% 8

10 Severance Terms How is compensation defined? Base salary only 73% Base salary + annual incentives 18% Base salary + annual incentives + long-term incentives 9% 9

11 Severance Terms How is annual incentive pay determined? Pro-rated for months eligible 10% Most recent bonus paid 22% Average bonus for a select number of years 28% Target bonus 40% 10

12 Benefit Continuation Which benefits are continued? 100% 80% 99% 88% 60% 54% 40% 43% 25% 20% 7% 0% Health insurance Dental & vision Life insurance Long-term disability insurance Retirement plans Perquisites 11

13 Benefit Continuation How are continued benefits paid? As if still employed 84% CEO pays 6% Other 10% 12

14 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% Other 22% 13

15 Mitigation and Non-Compete Clauses What is the minimum number of months regardless of re-employment? 24 months 19% 6 months 26% 18 months 6% 9 months 2% 12 months 47% 14

16 Mitigation and Non-Compete Clauses What are the terms of the non-compete/non-solicitation agreement? Unable to work for direct competitors within a fixed radius for a fixed period 64% Unable to work for any other health care provider within a fixed radius for a fixed period 30% Unable to work for direct competitors for a fixed period 17% Unable to work for any other health care provider for a fixed period 5% Other 5% 0% 20% 40% 60% 80% 100% 15

17 Mitigation and Non-Compete Clauses What happens if the non-compete/non-solicitation agreement is broken? Severance benefits cease & prior payments must be repaid 28% Severance benefits cease 66% Other 6% 16

18 Change-in-Control Provisions Is severance provided in the event of a change-in-control? 65% provide severance upon a change-in-control 45% pay in the event of a double trigger (change-incontrol in conjunction with involuntary termination) 55% pay in the event of a single trigger (changein-control regardless of termination) 17

19 Change-in-Control Provisions How is change-in-control defined? 100% 80% 60% 64% 50% 40% 20% 23% 14% 22% 0% 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 18

20 Outplacement Services What is the term of the outplacement services? Greater than 3 months 58% Other 16% Less than 1 month 2% 1 month to 3 months 13% Fixed dollar amount 11% 19

21 SEVERANCE AS AN ATTRACTION & RETENTION TOOL Presenter: Jena Abernathy

22 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 Tales from the Front Lines: Issues clients are having regarding severance 21

23 What Executives and Candidates Need to Know Don t be overzealous in negotiating severance; it could be a red flag or deal-breaker Do your homework; know market standards to understand what you should expect Understand the details of the package and how elements are triggered Tales from the Front Lines: Issues executives have encountered 22

24 ACA & EMPLOYMENT CONTRACT ISSUES Presenter: Doug Mancino

25 Affordable Care Act s (ACA) Impact on Executive Career Paths ACA signed into law Pre-ACA March 23, 2010 Post-ACA 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 24

26 ACA Employment Market Changes New Strategic Alliances New Forms and Risk-Sharing Alliances ACA Employment Market Changes Provider Cost Efficiencies Integrated Care Competition for Talent 25

27 ACA Is Driving Consolidation Providers and Health Plans are Challenged to: Network to Attract Covered Lives Invest in Primary Care Convert to Electronic Health Records Achieve Economies of Scale 26

28 Key Employment Contract Terms Cash compensation Short-term incentives Long-term incentives Deferred compensation Severance Change-in-control Fringe benefits 27 27

29 Health Care CEO Perquisite Trends Of 261 health care organizations surveyed, 68% provide at least one perquisite to their CEO. Car/Car Allowance Country Club Financial Counseling/Tax Advice Physical Examination Luncheon/Dinner Club Perquisite Allowance Spouse Travel Legal Services % 10% 20% 30% 40% 50% 60% Source: 2012/2013 Mercer Executive Benefit and Perquisite Practices Survey for Tax-Exempt Organizations 28

30 Other Key Issues Duties and Responsibilities Term of Contract Termination Renewals Post-Employment Relations 29 29

31 ADDITIONAL RESOURCES

32 Additional Health Care Survey Offerings Health Care Board Compensation Executive Benefit & Perquisite Practices IHN Health Care Compensation BoardComp.survey 31

33 Questions?

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