Royal Victoria Regional Health Centre. Executive Compensation Program

Transcription

1 Royal Victoria Regional Health Centre Executive Compensation Program February 28, 2018

2 Proposed Executive Compensation Program Background In 2010 the provincial government introduced the Broader Public Sector Accountability Act which froze compensation for all non-unionized employees in the Broader Public Sector (BPS) for a two year period and introduced controls on compensation, expenses, perquisites, business documents and procurement for hospitals, colleges, universities and other agencies. In 2012 the province lifted the compensation freeze for all nonunionized employees but continued a freeze on executive salaries and performance pay. These compensation restraint measures continued to apply until a compensation framework became effective for an employer, or by proclamation of the Lieutenant Governor. In 2014 the Government of Ontario began the process of developing public sector compensation frameworks to ensure a transparent and consistent approach to executive compensation. The Broader Public Sector Executive Compensation Act, 2014 (BPSECA) applies to all Ontario public sector designated employers including universities, colleges, hospitals and schools boards. The Broader Public Sector Executive Compensation Framework regulation (O. Reg. 304/16) came into force on September 6, 2016 under the BPSECA and introduced a new framework for determining executive compensation. Further, on June 9, 2017, the Treasury Board Secretariat released a BPS Executive Compensation Program Directive and amended the BPS Executive Compensation Guide, setting out rules and parameters for the development and approval of Executive Compensation Programs. Under the Regulations and the Directive, the Board of Directors of Royal Victoria Regional Health Centre is responsible for: Approving all wage increases for designated executives; Developing an Executive Compensation Program (ECP) that includes a compensation philosophy, sets salary and performance related caps based on a comparative analysis of each designated executive position using at least eight (8) comparable organizations, specifies a maximum rate by which the total designated executive salary and performance-related pay envelope could be increased in each year (R factor), and outlines any elements of compensation provided exclusively to designated executives with a corresponding rationale; Submitting the proposed ECP to the Ministry of Health and Long Term Care (MOHLTC) no later than September 29, 2017; After receiving approval by the MOHLTC to do so, seek public comment by posting its proposed ECP on its public-facing website for a minimum of 30 days; Submit to the MOHLTC the summary of the public feedback received and any proposed changes to be made to the ECP; Secure approval by the Minister of comparator organizations and of the proposed maximum rate of increase (R factor) to its salary and performance-related pay envelope; Approve the final ECP and post it on its website. RVH is a busy, complex regional health centre the largest in North Simcoe Muskoka providing specialized services and advanced technology to a population of over 450,000 people. RVH is also the site of a Family Medicine Teaching Unit, a partnership with the University of Toronto. The Executive Team is responsible for ensuring safe, high quality care during 444,000 patient visits annually, is accountable for a budget of $340 million, provides oversight of 3,600 employees, physicians, volunteers and learners and in will achieve its eighth consecutive balanced budget. 2

3 In 2012 RVH opened a $450 million expansion which doubled its physical size to over one million square feet and added many specialized programs, including a regional cancer program. The expansion was completed on-time and on-budget, without incurring any debt. Since then, the health centre has been designated as a Centre of Excellence for womens cancer care, and in 2016 RVH opened an in-centre dialysis clinic. With the expansion came an additional 600 employees and responsibility for an additional $60 million in operational funding. Since then, RVH has continued to grow and bring specialized care closer to home. In December 2017 RVH opened a 36-bed Transitional Care Unit as well as the Simcoe Muskoka Regional Child and Youth Mental Health program, including an eight-bed inpatient unit and day program. In January 2018 the health centre will open the Simcoe Muskoka Regional Heart program which will bring advanced cardiac services closer to home for patients from throughout the region. Despite RVH s remarkable growth (in size, service and workforce) RVH s Executive Leadership Team reduced one position in 2016 and dispersed the duties and responsibilities among the remaining executives. A new organization structure was established at that time and the hospital continues to operate under this structure. The responsibility of leading an organization as large and complex as RVH is extraordinary and must be fairly reflected in the salaries of senior executives. About RVH Largest hospital in North Simcoe Muskoka 370 beds 2,600 employees 444,300 patient visits in ,500 Emergency Department visits in ,400 surgeries in ,000 cancer visits Awarded Exemplary Standing by Accreditation Canada Best Practice Spotlight Organization, Registered Nurses Association of Ontario Gold Quality Workplace Award, Ontario Hospital Association Compensation philosophy Royal Victoria Regional Health Centre s Board of Directors is committed to strengthening the accountability of the hospital as an organization receiving valuable public funds. The RVH Board of Directors award-winning governance model provides for a rigorous and consistent approach to compensation. This balances the health centre s ability to attract and retain the most highly qualified leadership needed to deliver on its MY CARE strategy to achieve safety, quality and financial performance targets, while being responsible stewards of Ontario s health dollars. This approach includes: Establish an Executive Committee, which meets regularly to review and provide guidance on executive compensation issues; Review and approve RVH executive compensation philosophy and overall executive compensation program design; Oversee executive compensation framework and reviews, including comparator groups, market benchmarks, and competitive positioning; Review and approve the annual Quality Improvement Plan (QIP), performance plan goals, achievements and related variable performance payments. Executive compensation frameworks take into consideration the multifaceted needs of Ontario s health care system, the experience of the person in the job, comparable positions in other organizations and the scope and 3

4 complexity of the executive role. Factors also include market influences, benchmarks and a wide range of quality and safety indicators. RVH s compensation philosophy includes the following key elements: Allow RVH to attract, retain and motivate executive talent that will deliver on RVH s mission and strategy, as well as its operating goals, including Quality Improvement Plan ( QIP ) and performance plan objectives; Reward executives for the scope of their responsibilities and the delivery of high quality public services, as well as annual objectives, through an appropriate mix of fixed and performance-based variable pay; Recognize the uniqueness of RVH s competitive market and the talent requirements and know-how necessary to guide its culture and values; Total compensation must be market competitive while reflecting the organization s affordability and accountability, avoiding excessive pay levels and other unwarranted compensation elements in accordance with the Framework directions, including capped executive compensation (salary and performance-related pay) at the 50 th percentile of the relevant market maximum; Adherence to Framework principles, including: o Standardization providing consistent, evidence-based approach to setting compensation across the BPS based on research and consultation; o Balance managing compensation costs while allowing the health centre to attract and retain the talent necessary to deliver high quality public service; and o Transparency enhancing the transparency of executive compensation decisions through public consultation and posting. RVH will benchmark its executive compensation against a selected group of comparator organizations reflecting its complexity, size, location, types of operations and services, among other factors. RVH s executive team, including the President & CEO, Chief of Staff, Executive and Vice Presidents, are evaluated on their ability to meet a wide range of performance targets. A portion of their compensation is directly linked to the achievement of the organization s Quality Improvement Plan targets. For the President and CEO, additional performance objectives are also established and assessed annually by the Executive Committee of the Board of Directors. The President conducts this process for the other members of the Executive Team, subject to the board s oversight. Eligible executives can earn all, a portion or none of their variable compensation based on their level of performance in achieving mutually agreed goals. An independent, third party expert in compensation practices was engaged by the Executive Committee of the RVH Board to provide expertise and knowledge in developing this proposed Executive Compensation Program. Guided by the Board of Directors performance management program, the plan incorporates: Alignment of long term strategy and annual individual performance goals Annual 360 degree feedback for all executives Annual performance appraisals, resulting in development/learning plans Quarterly review and reporting of progress against performance agreements Analysis of appropriate comparable positions at comparator organizations In accordance with the provincial government s new framework, RVH s proposed Executive Compensation Program, and the specific compensation range for designated executives, must be approved by the RVH Board of Directors. 4

5 Designated executive positions affected by the Executive Compensation Program This Executive Compensation Program applies to the following designated executives: Executive Level CEO EVP VP I VP II VP III Executive Level Medical Leadership Positions President and Chief Executive Officer Executive positions by level Executive Patient & Family Experience and Regional Cancer Care Ontario Corporate Services & Chief Financial Officer Patient Programs & Chief Nursing Executive Vice President & Chief Human Resources Officer Strategy, Communications & Stakeholder Relations Chief of Staff VP Academic & Medical Affairs Executive positions by level Comparator organizations Guided by the BPSECA, RVH benchmarked salaries to 10 comparable healthcare organizations in Ontario. There is a wide-range of hospitals in Ontario big and small so it was important to compare ourselves to organizations with a similar number of employees, patient visits, budget and complexity, and positions requiring similar core competencies and scope of leadership. The roles of designated executives are unique and complex, and in some instances, finding suitable comparators for vice presidents with comparable roles was challenging. In identifying comparable organizations for this analysis, the following factors were considered: Scope of responsibilities of the organization s executives All selected comparator organizations have relevant number of comparable positions to RVH executive positions and class of positions, that are similar with respect to essential competencies (knowledge, skills, abilities), and share similar levels of complexity and accountability Type of operations the organization engages in Hospitals with full or limited cancer centres, hospitals with full or limited cardiac centres, hospitals with Family Teaching Units affiliated with the University of Toronto and few teaching hospitals, large regional acute community health centres Industries within which the organization competes for executives Healthcare industry Size of the organization Represents a balanced sample of hospitals that are smaller and larger than RVH with respect to annual revenues, headcounts, including inpatient and outpatient populations and diagnostic procedures Location of the organization Primarily located in Ontario/Toronto corridor where RVH geographically competes for talent 5

6 Given RVH s location and its position as the largest health centre in the region, RVH must often recruit outside its geography. Therefore, the comparator list includes: Halton Healthcare North York General Hospital Humber River Hospital Southlake Regional Health Centre Kingston General Hospital St. Joseph s Health Centre (Toronto) MacKenzie Health Thunder Bay Regional Health Sciences Centre Markham Stouffville Hospital Windsor Regional Hospital Overall, this group represents a balanced sample of hospitals that are similar to RVH and share similar factors, such as: 4 hospitals with full or limited cancer centres 4 hospitals with full or limited cardiac centres 4 hospitals with Family Medicine Teaching Units affiliated with the University of Toronto 3 designated teaching hospitals Whereas the comparator hospitals may have one or more of these complexity factors, RVH operates in an environment with all of the complexity factors listed below: Hospitals with operating budgets (as per 2015/16 financial statements) between approximately $215 million and $480 million, which is between 0.6x and 1.5x RVH s operating budget Number of employees, inpatient and outpatient volume, and diagnostic procedures which range from 0.6x to 1.9x RVH s numbers Relevant comparable positions to each RVH designated executive position. According to the framework, comparable positions are those that are similar with respect to essential competencies (knowledge, skills, abilities), relative complexity and the level of accountability associated with the position Comparator positions This table provides a description of the comparator positions for each RVH executive level identified above. Executive Level CEO EVP Description of Comparator Positions CEO is compared to President & CEO roles. Has primary responsibility for successful management of business and affairs of health centre. CEO is a strategic co-leader and shall be principally responsible for all hospital activities, operations, services and financial affairs and results, consistent with reasonable interpretation of Board policies. Shall ensure administrative systems and safeguards are in place to best serve interests of health centre, while at the same time safeguarding its assets for the benefit of the hospital and its stakeholders. Shall lead, direct and manage the management team, foster the values of the organization, lead in rating the culture and interface with and represent the hospital to its patients, medical staff, LHIN, MOHLTC, and others that it serves and to its other stakeholders and the wider community. EVP is compared to EVP, Chief Operating Officer positions. Top Clinical Executive VP (non-md), patient and family experience & VP, Cancer Care Ontario. Responsible for overall patient and family experience at the hospital, spiritual care, quality, privacy, as well as regional programs including cancer, mental health (including child & youth), cardiovascular (including advanced cardiac) and renal. The CNE reports to this EVP. 6

7 VP I VP II VP III Medical Leaderships Positions VP I is compared to VP, Corporate Services, Financial Services and CFO roles. Top Finance Executive or the organization. Responsible for facility and food support services, IT, health information management/decision support, financial planning & analysis, business development/supply chain, capital planning & development. VP II is compared to Chief Nursing Executive (CNE) and other Patient Care, Patient Programs-type roles. Top Clinical Executive (non-md) of the organization & CNE. Responsible for imaging services, lab services, emergency, ICU, medicine program & patient flow, central staffing & bed allocation, surgery, maternal/newborn/child & youth, and interprofessional practice. VP III is compared to VP, Human Resources, Chief Human Resources Officer (CHRO) roles; HR & Organizational Development Executives; Communications, Public Affairs & Strategy Executives. Top Human Resources Executive Officer of the organization reporting to the President & CEO, responsible for all human resources services (employee & labour relations, compensation & benefits, occupational health & safety, payroll, talent acquisition, etc.), security, telecommunications and emergency preparedness. Top Communications/Strategy Executive reporting to the President & CEO responsible for strategy and transformation office, communications, stakeholder relations, governance and volunteer resources. Top Medical Positions are compared to Chief of Staff and VP Academic & Medical Affairs roles. Top Medical Executives include the Chief of Staff and the Vice President of Academic & Medical Affairs. Comparative analysis RVH s executive positions were classified in levels (classes of positions) considering the required skills, knowledge and responsibility. RVH performed a comparative analysis and all classes of positions were benchmarked against jobs with similar job titles and a similar nature of responsibilities and scope of portfolios. The results of the comparative analysis were used to determine the maximum compensation that RVH executives may earn. Pursuant to the Regulations, the maximum salary and performance-related pay caps for all designated executive was established at the 50 th percentile (P50) of the comparator market maximum total cash compensation (maximum base salary plus maximum performance-related pay). The minimum base salary for each level was established at 90% of the maximum base salary. Table 1.0 (on page 8) shows the actual maximum salary and performance-related pay for comparable positions found in the comparator organizations (hospitals A, B, C, ) used to perform the comparative analysis for each RVH executive position or level of positions. In all cases the P50 value (50 th ) has been calculated by taking the average of the two comparator hospitals given there were an even number of hospitals and/or positions used for each RVH executive or level of executives. 7

8 Table 1.0 CEO EVP Level I Level II Level III President and CEO Executive Vice President, Patient & Family Experience and Regional Cancer Care Ontario Patient Programs & Chief Nursing Executive Corporate Services & Chief Financial Officer Vice President & Chief Human Resources Officer Strategy, Communications & Stakeholder Relations F $ B $ G $ B $ A $ C Medical Leadership Chief of Staff Academic and Medical Affairs $81400 H $ G $ A $ F $ H $ I 50 TH $ TH $ TH $ TH $ TH $ TH RVH $ RVH $ RVH $ RVH $ RVH $ RVH $80000 $80700 $ The following sources were used to obtain compensation data for the positions outlined above: Ontario Hospital Association (OHA) Executive Compensation survey Executive contracts posted on the hospitals websites (where available) providing base salary and performance-related pay Public Sector Salary Disclosure Ontario (PSSD) as of March 2017 (2016 salaries) providing total salary paid (T4). Previous years may have been used to provide additional compensation references and verification. Consultant proprietary data base. Salary range and performance-related pay The BPSECA requires compensation calculation be determined by capping executive compensation at the 50 th percentile of a minimum of eight comparator organizations for each class of executives. Executive compensation includes the maximum salary and performance-related pay available to each designated class of executives that could be achieved over time. Table 2.0 (on page 9) shows the compensation currently paid to executives at RVH, as well as the maximum compensation as determined by the comparative analysis. Variable compensation will be harmonized at 4 per cent for all executive levels, which comprises Quality Improvement Plan results plus performance pay. 8

9 Table 2.0 Level CEO EVP VP I VP II VP III Position President and Chief Executive Officer Executive Vice President, Patient & Family Experience and Regional Vice President, Cancer Care Ontario Corporate Services & Chief Financial Officer Patient Programs & Chief Nursing Executive Vice President & Chief Human Resources Officer Strategy, Communications & Stakeholder Rel. RVH current total compensation Proposed compensation structure based on market 50th percentile Minimum base salary (90% of max base) Maximum base salary Maximum variable pay Market 50th percentile total compensation 409, , ,500 4% 467, , , ,600 4% 301, , , ,500 4% 263, , , ,700 4% 247, , , , ,800 4% 212,000 Level Medical Leadership Positions Position Chief of Staff Vice President Academic & Medical Affairs RVH current total compensation 1 100, ,000 1 Normalized to 1 day/week () Proposed compensation structure based on market 50th percentile Minimum base salary Maximum Maximum (90% of max base pay variable pay base) 69,800 69,800 77,500 4% Market 50th percentile total compensation 2 80,700 9

10 Adjustments to the salary and performance-related pay cap Once per year, pursuant to Regulations, RVH may increase the salary and performance-related pay cap for a designated executive by a rate that does not exceed the lesser of the following: The average rate of increase in salary and performance-related pay of the designated employer s nonexecutive managers, for the most recent one-year period in respect of which RVH determined the salary and performance-related pay to be paid to the non-executive managers; The public sector wage settlement trend in Ontario Designated executive salary and performance-related envelope The health centre s total pay envelope for designated executives for the period October 1, 2106 to September 30, 2017 was $2,194,833. The Board of Directors proposes that the maximum rate by which this envelope could be increased in each year be set at 5%. In proposing the amount of 5%, the Board considered the five factors articulated in the Directive, what are summarized below. Significant restructuring of the organization In the month of December 2017 RVH officially opened a new 36 bed Transitional Care Unit and the Simcoe Muskoka Regional Child and Youth Mental Health program, including an eight-bed inpatient unit and day program. In January 2018 the health centre will begin operating the Simcoe Muskoka Regional Heart program, providing advanced cardiac services. In the future, RVH s direction includes managing expansion (eg. Maternal Child Newborn, selection of south campus site and north campus expansion, teaching facilities and research unit), competitive environment (navigating the legislative changes as well as service expansion opportunities within the catchment area), increasing integration of current services, maintaining a favourable financial position, and addressing technology needs. Considering the significant redevelopment, expansion and growth, the proposed 5% maximum rate of increase will be essential to attracting, retaining and motivating top executives to support RVH s future operating complexities. The financial priorities and the compensation priorities of the Ontario Government as indicated in the most recently published 2017 Ontario Budget Based on the 2016 Ontario Economic Outlook and Fiscal Review, transforming healthcare is one of the primary priorities for Ontario. RVH s role in the healthy system is crucial to its operating region as the primary healthcare provider in a fast-growing community that is also affected by summer and winter inflow. RVH has maintained a balanced operating budget for eight consecutive years. The 2012 capital expansion doubled the size of the building to one million square feet, was completed on time, on budget and debt free. The new facility attracted an additional $60 million in additional operating funding to support new programs and services, and become home to over 600 new staff members. The proposed 5% maximum rate of increase would allow RVH to attract, retain, and motivate executives that are critical to leading the delivery and execution of RVH s mandate in the NSM LHIN. Recent executive compensation trends in the part of the Canadian public sector and BPS that is in the industry within which the designated employer competes for executives Korn Ferry Hay group s 2016 Executive Market Trends report indicates a cumulative increase in actual base salary from 2012 to 2016 of approximately 10%, or a compound annual growth rate of 1.9% for executives in the national broader public sector. RVH s proposed maximum rate of increase of 5% will allow for the initial and future annual compensation adjustments needed to attract, retain and motivate the executive team, or address any internal/external inequities that may arise. 10

11 The difference between the salary and performance-related pay range for executive positions and the salary and performance-related pay ranges for the employees or office holders who directly report to those positions The proposed maximum rate of increase would allow for the executives to receive a reasonable increase to maximum compensation, correct the impact of existing compression issues, and ensure reasonable pay gaps between executives and non-executives. Portion of operating budget used for executive compensation as compared to the comparator organizations The proposed maximum rate of 5% would allow RVH to make adjustments to its existing executive compensation and lessen the gap to market. In doing so, RVH can provide motivation and further retain its existing executive team, all of whom are highly trained with valuable experiences and skillsets to offer the organization. Other elements of compensation RVH does not offer any of the following compensation elements to its executives: signing bonuses, retention bonuses, cash housing allowances, paid administrative leave, or payments or other benefits provided in lieu of perquisites, except for car allowances (monthly amounts of $1,200 for CEO, and $650 for COS, EVP and VPs). Non-executive managers are reimbursed for travel-related expenses as per RVH s Expense Policy. RVH will make changes to be implemented within the next three years to ensure compliance with the framework. Similar benefit packages are provided to executives and non-executive managers at RVH, however premiums and coverage differs between the two groups for life insurance, short- and long-term disability, extended health care, dental and pension plan contributions. In addition, executives also receive a health and wellness allowance that is not offered to non-executive managers. RVH will make changes in its benefit packages to be implemented within the next three years to ensure compliance with the framework. The framework also requires that severance / termination pay, including pay in lieu of notice of termination and severance pay, may not exceed a maximum of 24 months base salary. Currently, RVH has established a 24 month base salary cap for the CEO termination pay and is reviewing the EVP and VPs contracts to include the same cap, as required by the regulation. 11