POLICY
NAME:
EXECUTIVE COMPENSATION
PHILOSOPHY, STRATEGY AND POLICY
APPROVING BODY:
Board of Directors
NUMBER:
GOV-2-30
EFFECTIVE DATE:
December 9, 2010
MANUAL:
Governance
LAST REVIEW DATE: April 11, 2012
SECTION:
2.0 - Provide for Excellent Management
REVISION DATE:
PAGES:
1 of 13
April 11, 2012
NEXT REVIEW DATE: March 2015
COMMITTEE OVERSIGHT:
VERSION: 2.0
Executive
Table of Contents
Introduction ......................................................................................................................... 2
Background ......................................................................................................................... 2
Overview/Context ............................................................................................................... 3
Executive Compensation Philosophy ................................................................................. 4
Guiding Principles – Cash Compensation And Benefits .................................................... 5
Strategy ............................................................................................................................... 5
Policy .................................................................................................................................. 5
Base Compensation And Benefits: ..................................................................................... 5
Senior Leadership Team ..................................................................................................... 7
Variable Compensation....................................................................................................... 7
Target Competitive Positioning .......................................................................................... 8
Reviews And Timing .......................................................................................................... 8
Modification Of Philosophy/Strategy ................................................................................. 9
Appendix A – Illustration – Executive Incentive Plan ..................................................... 10
Appendix B – Excellent Care For All Act (ECFAA) ....................................................... 11
Appendix C – Guidelines and Principles for Hospital Executive Compensation............. 12
Appendix D – Guidelines for Senior Leadership Team Performance Based Pay ............ 12
File Location:
O:\ADMIN Mgmt\Board\Policy & Procedure\Manual\2.0 - Provide for Excellent Management\Executive Cmpensation Philosophy GOV-2-30 v2.0.doc
MUSKOKA ALGONQUIN HEALTHCARE EXECUTIVE
COMPENSATION PHILOSOPHY, STRATEGY AND POLICY
INTRODUCTION
Muskoka Algonquin Healthcare (MAHC) is a multi-site healthcare organization created
in 2005 through the amalgamation of South Muskoka Memorial Hospital and Algonquin
Health Services. MAHC includes the Burk's Falls and District Health Centre, Huntsville
District Memorial Hospital and South Muskoka Memorial Hospital in Bracebridge.
MAHC’s Board of Directors recognizes the significant value of human resources in
fulfilling its mission and realizing its vision. One of the MAHC’s strategic enablers is
investing in people. The Board of Directors wants to ensure that the compensation
program for its executive management is current, competitive, in line with current
legislation and appropriate to attract and retain the senior talent necessary to lead the
organization.
BACKGROUND
In February 2006, the Ontario Hospital Association (OHA) published Guidelines and
Principles for Hospital Executive Compensation [Appendix C]. The document serves as
a guide in addressing executive compensation and contains practical advice in an
environment of increased accountability for performance and competition for leaders.
Historically, MAHC has undertaken reviews of its compensation practices. Past reviews
included relevant comparators in the Healthcare and the private sector relevant to the
talent MAHC needs to attract and retain. A performance based (PB) program was not a
part of MAHC’s executive compensation structure.
This document represents an agreed to philosophy and strategy that has been developed
to ensure good governance practice in offering competitive executive compensation. In
keeping with the OHA's Guidelines and Principles for Hospital Executive Compensation,
this overarching philosophy and strategy will assist the Executive Committee of the
Board in making recommendations to the Board that are based on sound strategy,
compensation principles and practice.
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OVERVIEW/CONTEXT
In order to maintain and ensure MAHC recruits and retains quality people, it is vital that
the organization maintain a competitive compensation program. It is also important that
MAHC continue to benchmark current levels of compensation against the competitive
marketplace and maintain awareness of emerging trends in attracting and retaining
employees.
Recently, the Ontario government passed the Excellent Care for All Act (ECFAA), and
Bill 16 which requires Hospital Boards to establish an “at risk” component of executive
compensation and achieve targets tied to a Quality Plan and freezes compensation plans
at their Mar 24 2010 level for a 24 month period respectively [Appendix B – selected
excerpts from the ECFAA].
Compensation programs and practices represent one component of the employment
relationship that MAHC maintains with its employees. MAHC’s compensation program
and practices need to be considered in concert with other elements of the employment
offering in establishing and measuring its competitiveness in the market.
The compensation philosophy must support the Mission and Vision of the organization.
Mission Statement: Proudly serving our communities through quality healthcare
Vision Statement: People are the centre of our healthcare network, participating as
informed partners
A PB package connects with the following values of MAHC:
• Being socially, environmentally and fiscally responsible
• Celebrating innovation, creativity and lifelong learning
• Leadership that inspires people to make a difference
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The Executive Compensation Philosophy is supported by the following six
considerations:
Strategic Element
Typical Questions
•
1
Overall Corporate Strategy and its
relationship to executive
compensation
2
Recruitment
3
Retention
•
•
•
•
4
Succession Planning
•
•
5
Compensation Elements
6
Market Position
•
•
What is the organization's short term
and long term plan?
What leadership traits does the
organization seek to
attract/develop/retain?
Is the organization having difficulty
attracting talent?
Is the organization losing talent to
competitors?
Is the organization
supporting/developing its current
leadership?
Is there a commitment to developing
succession plans?
What elements of executive
compensation should be emphasized?
What performance measures are
relevant?
Where does the Board see MAHC’s
compensation policy relative to the
market?
EXECUTIVE COMPENSATION PHILOSOPHY
To provide competitive compensation based on market practices and organizational
performance which drives the desired behaviours and promotes the desired results within
MAHC and the community, while recognizing individual performance against defined
objectives.
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GUIDING PRINCIPLES – CASH COMPENSATION AND BENEFITS
Cash compensation and practices at MAHC will:
1. Be aligned with and reinforce the short and long term strategies and objectives of
the organization
2. Serve to align executive performance with the business goals of MAHC, and to
motivate executives to meet and exceed strategic and operational objectives
3. Enable the organization to attract, motivate and retain high calibre leadership
4. Be developed in accordance with all applicable legislative requirements,
particularly the ECFAA
5. The PB program should be simple in design and efficient to administer
6. Be communicated clearly and applied consistently
Benefits
The benefits offered will be the same as those offered to all MAHC management
employees.
STRATEGY
MAHC will provide Total Cash Compensation (salary plus performance based
compensation) opportunities that:
1. Support the ability to attract, motivate and retain qualified executive level talent
2. Are fully competitive in the market based on the organization’s target competitive
position
3. Recognize and reward individual contribution to the success of MAHC through
periodic reviews of base compensation, PB and provision of increases as
appropriate.
The following are the key components of MAHC’s cash compensation program for
executive positions:
POLICY
Base Compensation and Benefits:
MAHC is committed to managing base salaries under a program that is competitive, is
supported by credible market data, and recognizes and rewards performance.
Competitive: MAHC’s cash compensation (base salary and PB) and benefits will be
competitive with those offered for positions of equivalent accountabilities and
responsibilities in relevant industry sectors and organizations (e.g. with whom MAHC
competes for talent). In general, the appropriate comparator groups are relevant
healthcare organizations within our region and surrounding area of some comparability to
MAHC in terms of size and complexity which are in direct competition with MAHC, in
addition to other relevant comparators as deemed appropriate by the Executive
Committee of the Board. This comparator group will be reviewed regularly and may be
modified based on the availability of relevant market sources. MAHC will target total
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cash compensation generally in line with the 50th percentile in the desired market for
demonstrated leadership.
Credible: Base compensation will be reviewed on a regular basis (at least annually),
based on an examination of market data from credible, reliable sources such as published
salary surveys (e.g. OHA) and Ontario public disclosures in addition to organizational
and individual performance.
Rewards Performance – MAHC’s salary program (base and PB) will recognize
individual performance as an important consideration in establishing and, when necessary
and permitted, increasing total cash levels. Total cash compensation (base and PB) will
be payable at or in close proximity to the 50th percentile upon demonstration of seasoned
leadership behaviours through the achievement of performance objectives as outlined and
agreed to between the Board and the CEO, for the CEO position, and between the CEO
and the Senior Leadership Team. Salary increases will be linked directly to individual
performance in order to:
•
•
•
•
Reinforce individual accountability
Encourage and reward individual excellence; and
Reinforce the linkage between performance and compensation
Encourage individuals to participate in team goals
Benefits Program - Non-Union Management Employees includes:
Basic Life Insurance - after 3 months employment (2 X’s annual salary) - paid 100%
by Hospital
Optional Life Insurance up to $150,000 available for self with no health questionnaire
if applied for within 31 days of becoming eligible. At any time for self, or self and
spouse paid by yourself requiring medical evidence.
Health Insurance
• OHIP funded by Employers’ Health Tax on payroll
• The following benefits are available the first of the month following three
months of employment:
•
•
•
Semi-private Hospitalization paid 100% by Hospital
Extended Health Care (Prescription drugs, vision care, etc.) - paid 100% by
Hospital (reimburses 100% of eligible expenses, maximums outlined in
Summary of Benefits, annual deductible - $10.00/single, $20/family)
Dental (Preventive, Major Restorative and Orthodontia) – paid 83% by Hospital
(reimburses 100% of eligible expenses based on current ODA fee schedule for
Preventative and Major Restorative; and 50% reimbursement of Orthodontia to
a maximum of $1500 per lifetime)
Income Protection
• Short Term Disability Hospital continues to pay salary up to 15 weeks (75 days)
as follows: at least 3 months service-100% of earnings
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•
•
•
Employment Insurance Sick Pay provided through E.I. from 16th to 30th weeks
of longer illness
Long Term Disability After 30 weeks continuous total disability a percentage
of salary will be paid by the insurance underwriter (65% to 20 years of service,
70% to 30 years, 75% over 30 years). Two year own occupation clause - paid
75% by Hospital
Hospitals of Ontario Pension Plan (HOOPP) Defined Benefit plan. Immediate,
mandatory enrolment for full time employees. Part time employees can join the
plan at any time. Your contributions in 2010 are 6.9% of your annualized
earnings up to the government mandated Yearly Maximum Pensionable
Earnings (YMPE) and 9.2% on earnings over the YMPE.
Rest & Relaxation
• Vacation: Vacation accrual commences at the rate of three (3) weeks per year
from date of hire.
4 Weeks after 1 Year
5 Weeks after 3 Years
6 Weeks after 15 Years
7 Weeks after 28 Years
• Public Holidays 11 fixed holidays and 1 float day annually (after 20 weeks of
continuous service)
Miscellaneous
• Travel 0.42 cents per km
• Education/Conferences Expenses paid for approved Education and Conferences
Senior Leadership Team
• Chief Executive Officer
• Senior Director Corporate Services & CFO
• Senior Director Non-Acute, Clinical Support & Planning Services
• Senior Director Patient Care/Clinical Services & Chief Nursing Officer
• Chief of Staff
Performance Based Compensation
MAHC is committed to rewarding the strategic accountabilities of the CEO and the
Senior Leadership Team by providing an incentive plan that:
1. Engages the CEO and Senior Leadership Team in the business of the organization
2. Encourages long term and short term “results orientation”; and
3. Maximizes the commitment to achieve key strategic objectives; and
4. Ensures individual performance is quality focused;and
5. Creates a team focused approach to corporate goals
The PB program will provide for compensation opportunities that are appropriate to the
CEO role and the Senior Leadership Team, in terms of its potential/ability to contribute
to the success of the organization. PB programs will be based on the principle of “pay for
performance”– award levels will be differentiated in order to recognize and reward
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varying levels of performance. Performance targets may vary between strategic and nonstrategic goals based on the long term and short term plans, objectives and activities of
MAHC.
The CEO and Senior Leadership Team will participate in the program. The program
includes a target opportunity for achievement of expected levels of performance as well
as an opportunity to earn more for performance which exceeds the expected levels. The
setting of performance goals for the CEO and Senior Leadership Team positions will
occur as close to the start of the fiscal year as possible, to enable application and
measurement over the course of the fiscal year. CEO performance will be reviewed
(check-in) on a quarterly basis. The Senior Leadership Team performance will be
reviewed (check-in) on a six-month basis. While it is the intent to award PB on predetermined goals and performance relating to achieving these goals, discretion will be
retained by the Executive Committee of the Board for the CEO in determining the actual
PB amount to be recommended to the Board for any exceptional circumstances that may
arise during the fiscal period. For the CEO position, performance goals will be based on
key strategic goals/initiatives (e.g. quality) aligned to the business strategy of MAHC.
For the Senior Leadership Team, relevant goals will be determined by the CEO and the
individuals concerned. An illustrative sample of an incentive plan is found in [Appendix
A].
Target Competitive Positioning
In general, it is expected that total cash compensation (base + PB) will be targeted to
meet the average total cash compensation paid in the marketplace for similar positions.
The following chart summarizes the desired competitive positioning:
MEASURE
Total Cash
(base compensation + PB)
TARGET POSITION VS MARKET
Comparable to market average of equivalent jobs in other
relevant industry sectors and target organizations.
When organizational and individual performance targets are
met, the appropriate comparator group is generally based on
other healthcare, hospital, and public agency organizations
within our region and surrounding area of some comparability
to MAHC in terms of size, complexity, and financial scope.
This comparator group will be reviewed regularly by the
Executive Committee of the Board and may be modified based
on the availability of relevant market sources.
Reviews and Timing
The Executive Committee of the Board of Directors of MAHC shall review and
recommend the Compensation Philosophy / Strategy to the Board at least once every
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three years and will review the CEO and Senior Leadership Team compensation package
on an annual basis congruent with the fiscal year of MAHC, unless dictated otherwise by
legislation. Performance objectives will be established on an annual basis and shall be
aligned with MAHC’s fiscal year (April 1st to March 31st).
Completion of annual performance reviews and PB payments will occur by June 30th
each year. The CEO will share his/her intended PB payments to the Senior Leadership
Team members with the Executive Committee of the Board.
Administering the Plan
MAHC Human Resources Department will support the Executive Committee of the
Board to ensure that the plan is administered in a timely fashion.
Modification of Philosophy/Strategy
The Executive Committee of the Board recognizes that the Philosophy/Strategy will
serve as a guiding tool to help develop and review an appropriate executive compensation
program for MAHC. The Executive Committee of the Board also recognizes the need for
flexibility and change with regard to the Philosophy / Strategy as MAHC undergoes
transition in the future.
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Appendix A –– Executive Incentive Plan
•
•
•
•
•
•
•
•
15% maximum for CEO
A plan will be included to create a 12% maximum performance based
compensation graduated over a 4-year period in 3% increments for Senior
Leadership Team Members (Appendix D). A market evaluation will be
conducted to ensure this graduated approach up to a 12% maximum is consistent
with what is occurring in Ontario. Appropriate adjustments will be made as
indicated.
Establish 5 stretch goals based on strategic initiatives highly relevant to the long
term success of the hospital.
Establish a scale for the CEO where the award opportunity for solid performance
is 10% of base pay and for superior performance, up to 15% of base pay.
Establish a scale for the Senior Leadership positions where the award opportunity
for solid performance is 8% of base pay and for superior performance, up to 12%
of base pay.
Goal Setting should be a collaborative effort between the Executive Committee of
the Board and CEO prior to confirmation/approval by the Board.
Goal Setting should be a collaborative effort between the CEO and each Senior
Leadership Position individually prior to confirmation/approval by the CEO.
In order to ensure that expected levels of performance are clearly articulated and
understood, we recommend that measures be identified and calibrated to the
varying levels of performance. This calibration should be meaningful yet simple,
such as the following illustration:
Performance Assessment
Category
Payment as a % of Base
Goal #1
Quality (50% weighting)
Goal #2
Financial (30% weighting)
Goal #3
Strategic/Significant
Initiative (20% weighting)
Does Not
Meet
0
Almost Fully
Achieved
10%
0
Fully Achieved
Exceeded
12%
15%
4%
4.8%
6%
0
4%
4.8%
6%
0
2%
2.4%
3%
EXAMPLE:
If Goal 1 is Fully Achieved, Goal 2 is Almost Fully Achieved, and Goal 3 is Exceeded,
the calculation of incentive would be (4.8% + 4% + 3%) = 11.8% of base salary OR
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$210,000 x 11.8% = $24,780.00.
Discretion will be maintained by Executive Committee of the Board in recommending to
the Board the CEO’s actual incentive amount to allow for exceptional circumstances.
Special thanks to West Park Healthcare Centre for sharing their Executive Compensation
Philosophy, Strategy and Policy with MAHC.
Appendix B – Excellent Care for All Act (ECFAA)
Recently, the Ontario government passed the Excellent Care for All Act (ECFAA), and
Bill 16 which requires Hospital Boards to establish an “at risk” component of executive
compensation and achieve targets tied to a Quality Plan and freezes compensation plans
at their Mar 24 2010 level for a 24 month period respectively. The following are selected
excerpt from ECFAA.
Performance Based Compensation:
a. ensure that payment of compensation for any executive of the organization under
a compensation plan is linked to the achievement of the performance
improvement targets set out in the annual quality improvement plan.
b. give the Minister such reports as may be provided for in the regulations
concerning its compliance with this section.
c. the health care organization shall ensure that the assessment of performance also
includes an assessment of achievement of the performance improvement targets
set out in the annual quality improvement plan.
Quality Improvement Plans:
(3) The annual quality improvement plans must contain, at a minimum,
a. annual performance improvement targets and the justification for those targets;
b. information concerning the manner in and extent to which health care
organization executive compensation is linked to achievement of those targets;
and
c. anything else provided for in the regulations
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Appendix C – Guidelines and Principles for Hospital Executive Compensation
Ontario Hospital Association, February 2006
The purpose of these guidelines is to assist hospital boards and CEOs in making decisions
that are based on sound compensation principles and procedures on the various elements
of executive compensation, and to assist them in the communication to the public of how
executive salaries are established.
The manual addresses the following subject areas:
• Establishing the overall framework of executive compensation
• Processes and procedures for establishing compensation
• Strategies for linking pay to performance
• Information relating to executive benefits and pre-requisites
• Development of a communication plan
Appendix D – Guidelines for Senior Leadership Team Performance Based Pay
Muskoka Algonquin Healthcare (MAHC) has constructed a performance pay system for
all senior executive leaders that will begin to create a robust performance pay system for
current incumbents of senior leadership positions. These positions include:
•
•
•
Senior Director Corporate Services and Chief Financial Officer
Senior Director Patient Care, Clinical Services and Chief Nursing Officer
Senior Director Non-Acute, Clinical Support and Planning
All current incumbents in senior executive positions that are not part of a performance
pay system will have their annual base pay decreased by 3%. Subject to the achievement
of identified goals and objectives they will have a chance to earn that portion of the
performance based pay by exceeding the goals and objectives set out on an annual basis
as described in this variable pay plan.
Year
Action
1
Decrease base pay by 3%
2
Increase Performance pay by 3%
3
Increase Performance pay by 3%
4
Increase Performance pay by 3%
Effect on Performance Pay
3% of base pay achievable based on exceeding
performance
6% of base pay achievable based on exceeding
performance
9% of base pay achievable based on exceeding
performance
12% of base pay achievable based on exceeding
performance
Below is a listing of each year’s performance plan over 4 years to obtain a 12%
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performance pay system:
Performance Assessment
Category
Payment as a % of Base
Quality (50%)
Goal #1
Goal #2
Goal #3
Financial (30%)
Goal #4
Strategic (20%)
Goal #5
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Does Not
Meet
0
Almost Fully
Achieved
1.40
Fully Achieved Exceeded
2.80
3.00
0
0
0
0.35
0.35
0.35
0.70
0.70
0.70
0.75
0.75
0.75
0
0.21
0.42
0.45
0
0.28
0.56
0.60
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