CEO/President Executive Compensation Committee Thursday ......Executive compensation in excess of...

CEO/President Executive Compensation Committee

Thursday, August 6, 2020

9:30 a.m.

AGENDA

PRESIDENT/CEO EXECUTIVE COMPENSATION COMMITTEE MEETING AUGUST 6, 2020 AT 9:30 A.M. Location: Med Plaza One, Suite 405, 9800 S. HealthPark Dr. Ft. Myers FL 33908 Teleconference Dial-In # 1 415 655 0002 Access Code 479 493 525

1) Call to Order – (David Collins, Board Chair, Committee Chair)

2) Public Input Statement

3) Minutes of President/CEO Executive Compensation Committee Meeting 6/22/20

(Approve)

4) Attorney Items (George Knott, Deputy Board Counsel)

5) Tax Issues (Tracy Pyles, Senior Managing Attorney – Employment)

6) Follow up of Additional Information needed for Board consideration of extension to

President/CEO Contract (Mike Wukitsch, Chief Human Resources Officer)

a. Benefit package survey

b. Average length of CEO contract term

c. Percentage of CEO contracts that have annual adjustments to base pay not tied to

performance

7) Next Steps – Recommendations to Full Board (David Collins, Board Chair, Committee Chair)

8) Adjourn

Date of Next Meeting TBD

Statement regarding PUBLIC INPUT

All public input will take place at the Board of Directors Meetings, (not Committee Meetings). At that time input is limited to three minutes and a “Request to Address the Board of Directors” card should be completed and submitted to the Board Staff prior to meeting. Non-Committee members are present to observe only and not to participate. Please contact the Board Office with any questions. (239) 343-1500

UNAPPROVED PRESIDENT/CEO EXECUTIVE COMPENSATION COMMITTEE MEETING MINUTES

Monday, June 22, 2020 Gulf Coast Medical Center, Medical Office Building Boardroom, 13685 Doctor’s Way, Fort Myers, FL 33912 Teleconference 1-415-655-0002 Access Code 479 493 525

MEMBERS PRESENT: David Collins, Board Chair Therese Everly, Board Vice Chair Donna Clarke, Board Treasurer Diane Champion, Board Secretary OTHERS PRESENT: Sanford Cohen, M.D., Board Member Stephen Brown, M.D., Board Member George Knott, Board Counsel Mike Wukitsch, Chief Human Resources Officer Larry Antonucci, M.D., President/CEO Mary McGillicuddy, Chief Legal Counsel Tracy Pyles, Senior Attorney

The President/CEO Executive Compensation Committee Meeting was called to order at 1:01 p.m. by David Collins, Board Chair.

PUBLIC INPUT Chair David Collins read the Public Input Statement.

David Collins Board and Committee Chair shared his initial thoughts to aid discussion. He stated, the Board owe our CEO Dr. Larry Antonucci thanks for his excellent leadership before and during this global pandemic. In the last year Larry’s leadership has resulted in many positive outcomes. To name a few: Standard and Poor’s bond rating increased from A to A+, Lee Health has received many quality awards including A grades from Leapfrog for Acute Care Hospitals, transformed the organization culture through ExceptionaLee, and Baldrige Quality framework for operational and performance excellence.

During the COVID pandemic Dr. Antonucci modeled excellent communications; used in house labs to speed up testing results; applied for and received additional funding. On behalf of the Board, David Collins thanked Dr. Antonucci and stated the Board continues to support him as our CEO/President, but the Board want to be sure his work on Lee Health’s behalf is recognized and appropriately rewarded.

Dr. Antonucci’s employment contract ends on 9/30/21 and the Board is obligated to begin discussions and negotiations about that contract within 60 days of October 1,

UNAPPROVED PRESIDENT/CEO EXECUTIVE COMPENSATION COMMITTEE MEETING MINUTES – 6/22/20

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2020. This is being done a little early, because in January 2020 Dr. Antonucci offered to keep the employment contract terms as they are for the next 4-year period.

David Collins suggested this committee be formed to continue ensuring governance best practices, to be sure the Board is looking at national best practices for our CEO’s compensation in a changing world. This committee will help the board to do one of the most important parts of its job, CEO oversight. This work is an essential, central duty of the Board. The Board need to do their due diligence.

PRELIMINARY COMMENTS George Knott, Deputy Board Counsel reviewed current Sunshine Law and this Committee’s limited mandate. REVIEW BY COUNSEL OF CONTRACT PROVISIONS IN PRESIDENT/CEO EMPLOYMENT AGREEMENT George Knott reviewed the 16 provisions in the current President/CEO contract. He referred to Board Policy 40.02J President/CEO Compensation & Performance Review. Discussion ensued. Board members asked questions about the employment agreement and the short and long term incentives.

DISCUSSION OF GALLAGHER REPORT Mike Wukitsch, Chief Human Resources Officer presented the Gallagher President / Chief Executive Officer Total Cash Compensation Review prepared in May 2020 to the Committee. Key points of report include;

• Compensation positioned at the median of the peer group • President/Chief Executive Officer’s compensation compared with a

combination of National, Southeast Regional, and Florida peer groups of systems and hospitals similar to LH in terms of size and organizational complexity

In addition, Mike shared with the committee the supplemental information requested from Gallagher dated June 19, 2020 addressing the impact of COVID-19 on the reasonableness of the CEO’s total compensation. Discussion ensued.

REVIEW BY CHIEF HUMAN RESOURCES OFFICER OF CURRENT PRESIDENT/CEO SHORT TERM AND LONG TERM INCENTIVE PLAN(S) Topics discussed included the System Strategic Scorecard and the timeline for its approval. Therese Everly asked when the new information would be available and Larry Antonucci said in August or September. Therese asked the committee if the Scorecard is what they should use to drive what is included in the short and long-term incentives. Donna Clarke stated she thinks Larry’s Incentive Goals should be composed of Margin for a financially sustainable organization, Growth and Quality, and


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that the system scorecard could be used by Larry to incentivize his executives. The committee will discuss this in more depth at their next committee meeting.

ADDITIONAL INFORMATION NEEDED FOR COMMITTEE CONSIDERATION OF SHORT TERM AND LONG TERM INCENTIVE PLAN

Benefit package survey Average length of CEO contract term Percentage of CEO contracts that have annual adjustments to base pay not tied to performance Tax implication(s) if any Force Majeure clause

The committee feels comfortable with the information already submitted from Gallagher and decided that with the additional information they have requested that it is not necessary to consult with another outside agency. NEXT STEPS RECOMMENDATIONS TO FULL BOARD The committee discussed various recommendations regarding contract renewal. Mary McGillicuddy system counsel asked for clarification. Mary said the Board has been presented with the request to renew the contract under the current terms. She stated she was unclear if the motion is accepting that offer subject to the force majeure and tax implications, and with the understanding that the short and long term incentives be formed after the contract is entered into, as was done with the first contract.

Therese Everly believes it is the intent of the Board to renew the employment contract. With the formation of this committee, she does not want to mislead the organization that there is any lack of confidence in the CEO. Therese further stated the idea of this motion is to state that it is the Board’s intent to absolutely renew the contract of employment with the CEO. However, we have to negotiate the terms, so to your point, no, it’s not saying we are accepting the exact contract. That is still to be determined. Therese Everly made a motion to recommend to the Board the renewal of the employment contract subject to the negotiation of appropriate terms. The motion was seconded by Donna Clarke. The motion was carried with no opposition. NEXT REGULAR MEETING The next Presidents/CEO Executive Compensation Committee Meeting will be held on August 6, 2020, at 9:30 a.m. at Gulf Coast Medical Center, Medical Office Building Boardroom, 13685 Doctor’s Way, Fort Myers, FL 33912


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ADJOURNMENT The Presidents/CEO Executive Compensation Committee Meeting adjourned at 12:10 p.m. by David Collins, Board Chair.

Minutes were recorded by Kathy J. Hagen/Assistant to the Board

Signed by:

, Committee Chair

Date:

Lee Memorial Health System Board of Directors

PRESIDENT/CEO EXECUTIVE COMPENSATION COMMITTEE

BOARD COUNSEL ITEMS

George Knott, Deputy Board Counsel



TAX ISSUES

Tracy Pyles, Senior Managing Attorney- Employment



ADDITIONAL INFORMATION FOR

BOARD CONSIDERATION

Mike Wukitsch, Chief Human Resources Officer

©2020 ARTHUR J. GALLAGHER & CO. | GallagherHRCC.com

PRESIDENT / CEO COMPENSATION REVIEW SUPPLEMENTCEO Benefits and Contract Provisions

LEE HEALTHFort Myers, Florida

Kevin Talbot | Managing Director and Practice LeaderNica Syers | Senior ConsultantJohn Allison | Senior ConsultantJuly 2020

©2020 ARTHUR J. GALLAGHER & CO. | GallagherHRCC.com 1

President/CEO Benefits

2©2020 ARTHUR J. GALLAGHER & CO. | GallagherHRCC.com

Information Presented

This section includes• Overview of the executive benefit program• Benefit expenditure analysis in comparison to a peer group of healthcare organizations

‒ Quantify benefit expenditures and compare to competitive standards in the healthcare industry‒ Individual expenditures for President/CEO

• Benefit provision analysis in comparison to competitive standards for the healthcare marketplace‒ Review specific benefit provisions for competitiveness, efficiency, and legal impact

• Findings


Lee Health Executive Benefit Program

Lee Health provides executives with the following benefits at employer cost• Medical coverage • Disability salary continuation (short-term disability)• Group term life and AD&D insurance• Individual supplemental life insurance• Group long-term disability insurance• Qualified retirement benefit [403(b) employer matching contribution]• Non-Qualified supplemental retirement plan• Paid Time Off (vacation, holidays, personal time, and sick time)• Business expenses (phone, laptop, and professional memberships/dues)

Dental and Vision coverage

Section 125 Spending Accounts

(healthcare reimbursement or dependent care)

Additional long-term disability insurance

Additional supplemental life insurance

403(b) Deferral Plan

457(b) Elective Deferral Plan

Lee Health allows executives to elect additional benefits at their own cost


Benefit Expenditure Comparison

0%

5%

10%

15%

20%

25%

30%

35%

40%

President/CEO (Antonucci, M.D.) National Healthcare Market Data

15.4%

Per

cen

t o

f S

alar

y

25th Percentile Median 65th Percentile 75th Percentile 90th Percentile

30.0%28.0%

35.0%

25.0%

32.0%

Expenditure for the CEO is below the 25th percentile


Benefit Expenditures as a Percentage of Salary

1 Employer premium contribution based on elected level of coverage 2 At employee cost3 Coverage of 1x to 3x salary to a maximum of $600,000 – maximum allow ance is $1,126 annually4 Coverage of 66.67% up to a maximum of $20,000 monthly – actual cost5 100% match on f irst 5% of compensation contributed by executive up to the legislative limit of $285,000 in 2020 6 Annual premium for individual coverage7 Employer contributions vary by level - $75,000 for President/CEO8 FICA calculated at 6.2% of salary to 2020 legislative limit of $137,700. Medicare calculated at 1.45% of total compensation

Antonucci, MD

Salary $1,054,019

Actual Incentive Award $0

Total Cash Compensation $1,054,019

Medical Plan1$13,763

Dental Coverage2$0

Group Term Life and AD&D3$1,126

Executive Long-Term Disability4$3,359

403(b) Plan Employer Match5$14,250

Supplemental Life Insurance6$31,361

Supplemental Retirement Plan7$75,000

Social Security/Medicare8$23,821

Total Benefits $162,680

Benefits as a Percentage of Salary 15.4%

Note: The value of Paid Time Off is reflected in an employee’s salary; therefore, it

is not included in the analysis of benefit expenditures as a percentage of salary


Benefit Analysis – Health Care

COMPETITIVE STANDARD Lee HealthMedical: A majority of employers provide between 70% and 84% of the total premium cost for family medical coverage, a median employer contribution of approximately $17,000 per year for family coverage level• Over 80% of employers offer a wellness program Roughly 80% of employers with wellness

programs offer a premium reduction for participation (median discount of approximately $500)

Medical coverage• One comprehensive self-insured medical plan with cost sharing of plan

premiums Lee Health pays between 71% and 84% of the total premium, depending on

level elected Higher premiums are applied if an employee does not participate in the

wellness program Employees may opt out of coverage and receive $100 per pay period

instead

Prescription Drug• Prescription drug benefits are included in the medical coverage

Dental: Approximately one-third of employers pay up to half of the total premium for dental benefits; about 40% of employers pay for 50% to 70% of the total dental premium• Median employer contribution is $630 annually for

family coverage

Dental coverage• Dental coverage is available at employee cost

Vision: Approximately one-fifth of employers pay a portion of the premium for vision benefits when a separate vision plan is offered

Vision coverage• Vision coverage is available at employee expense

$13,900

$17,000 $19,070

P25 P50 P75

COMMENTSMedical / Dental / Vision

• Competitive levels of coverage and premium sharing for medical benefits– Lee Health’s portion of the medical premium is competitive

• Employer premium contribution for family medical coverage ($19,983) is slightly above the 75 th percentile

• Employees pay for the entire cost of dental and vision coverage, only about 13% of employers do not contribute to the cost of dental benefits

$630$880

P50 P75

No, 80%

Yes, 20%

Employer Contribution to

Vision Plan Premiums


Family Dental Premiums


Family Medical Premiums


COMPETITIVE STANDARD Lee HealthSection 125: Almost all organizations make pre-tax spending accounts available to allow employees to defer salary to pay for medical and dependent care expenses

HSA and HRA: With the move to high deductible health plans, the prevalence of HRAs and HSAs has grown, with 80% of employers now offering one and contributing to the account

• Median employer contribution of $600 for employee only coverage and $1,200 for family coverage

Section 125• Medical Reimbursement - up to $2,500 annually• Dependent Day Care - up to $5,000 annually

Post-Retirement: Seldomoffered to the general workforce but sometimes offered to CEOs retiring with career service

• Contribution toward pre-Medicare coverage provided to approximately 10% of CEOs and 8% of executives

• Contribution toward post-Medicare coverage provided to approximately 6% of CEOs and 4% of executives

• Overall prevalence of this benefit is decreasing

• None provided

COMMENTS

Section 125 Accounts• Competitive opportunity to pay medical expenses and dependent care costs on a pre-tax basis

Post-Retirement Medical Coverage

• Lack of a post-retirement benefit is consistent with market practice

$600

$1,200

Employee Only FamilyP50 P75

$715

$1,238

No, 90%

Yes, 10%

Employer-paid CEO Post-Retirement

Medical - Pre-Medicare

HRA/HSA Employer Contribution

Benefit Analysis – Health Care


Benefit Analysis – Short-Term Disability

COMPETITIVE STANDARD Lee HealthShort-Term Disability: Salary continuation through long-term disability waiting period provided via one or more plans, most commonly self-insured disability salary continuation, insured short-term disability, and/or sick leave

• About 70% of organizations, dependent on position, provide 100% of salary for up to 6 months

• The remaining organizations use a combination of sick leave days and short-term disability benefits to provide coverage (median replacement of 60% of salary)

About 40% offer a sick day accrual program (median of 8 days with a median maximum accrual of 56 days)

o About 15% of organizations cash out sick time at termination

A majority provide/offer short-term disability plans to replace salaries at 60% but the maximum weekly benefit ($2,500 at median) typically falls well short of replacing the targeted percentage of salary for executives

Disability Salary Continuation

• 100% salary continuation for up to 3 months if unable to work due to a health-related problem

• No elimination period

COMMENTS

Short-Term Disability

• Disability salary continuation benefits are competitive

Offer 2 of 3 STD Options, 38%

Offer all 3 STD Options, 6%Offer 1 of 3 STD

Options, 56%

Types of Short-term Disability (STD)

Coverage Offered


Benefit Analysis – Long-Term Disability

COMPETITIVE STANDARD Lee HealthLong-Term Disability: Nearly all organizations provide employer-paid group long-term disability coverage

• 60% of salary is typically provided

• Median monthly maximum is $16,000

Between 40% and 50% of organizations offer individual disability coverage to executives to supplement or replace group long-term disability coverage (depending on position)

• Typically targets replacement of 60% of salary subject to carrier limits and often with the following provisions:

− Coverage in executive’s “own occupation” to age 65

− Full mental/nervous disorder coverage to age 65

− Portability at termination of employment

Executive Long-Term Disability• 66.67% of salary up to a monthly maximum benefit of $20,000

(maximum earnings covered of $360,000)• 90-day elimination period

Executives may purchase additional disability coverage at their own cost

COMMENTSLong-Term Disability

• Group coverage provides a level of benefit that is consistent with the median level in the market

– Due to the benefit cap, the President/CEO would be impacted by the group long-term disability benefit limit and not be eligible for the full 66.67% replacement in the event of a disability (benefit is approximately 23% of salary)

– The impact of the benefit cap could be lessened if the President/CEO purchased the additional coverage at his own cost

$16,000

Median LTD Max Monthly Benefit:N=685

Group Supplemental

$20,000

Maximum Monthly Benefit


Benefit Analysis – Long-Term Care

COMPETITIVE STANDARD Lee HealthLong-Term Care: Approximately 10% of organizations offer all employees the ability to purchase long-term care coverage, with about one-third of those contributing to the cost

About 20% of organizations provide executives with fully paid coverage

Long-termcare coverage is more difficult to secure now than a few years ago resulting in stable rather than increasing prevalence

• Coverage available at employee expense

– Group coverage

– Portable at termination

– Covers facility care or home care by professionals

– Cost of living rider available

COMMENTS

Long-Term Care

• Consistent with market practice

No, 65%

Yes, 35%

Employer Contribution to Employee Long-Term Car e Benefit


Benefit Analysis – Life Insurance

COMPETITIVE STANDARD Lee HealthGroup Term Life Insurance: Almost all organizations provide some amount of employer-paid life insurance coverage

• Median benefit provided to employees under group term life insurance is 2x salary up to a maximum of $1,000,000

Supplemental Life Insurance

• More than half of executives are provided with supplemental life insurance (median total benefits are equal to 3x salary)

Group Term Life and AD&D Insurance• Group term life and AD&D insurance coverage ranges from 1x to 3x salary to a

maximum of $600,000

• Maximum allowance paid by Lee Health for coverage is $1,126 annually

Voluntary Life Insurance

• Executives may choose to purchase additional coverage on self, spouse, or dependents at their own cost

Supplemental Life Insurance

• The majority of executives participate in Executive Life Insurance coverage with the following parameters:

– Coverage is through individual variable universal life insurance policies

– Executive is owner and insured

– Lee Health pays the annual premium to maintain the death benefit (no corporate recovery of premiums and cash values are modest)

– Death benefit is equal to 6x salary for the President/CEO

COMMENTS

Life Insurance• The amount of total life insurance coverage through the group term and the individual policies is very competitive

$1,000,000

Group Term Life Maximum Benefit:N=709

P50 P75

$1,250,000

3x

Supplemental Life Insuranceas a Multiple of Salary

P50 P75

4x

Gr oup Term Life Maximum Benefit

Supplemental Life Insurance as a Multiple of Salary


Benefit Analysis – Retirement

COMPETITIVE STANDARD Lee HealthRetirement (Structure): Executives may voluntarily defer their compensation, on a pre-tax basis, into a qualified plan - 401(k)or 403(b) Plan

Qualified retirement plan structures are trending away from a defined benefit approach toward a defined contribution approach

The median employer contribution to a qualified defined contribution plan is 5% of compensation

A majority of organizations provide a 457(b) plan

• Majority allow only for employee pre-tax deferrals for retirement savings

• Approximately one-third of employers contribute to the plan; median contribution is 5.5% of pay

Qualified Defined Contribution Pension Plan (403(b)):

• Lee Health matches the employee deferral as follows:

0% match if less than 1% of base salary is deferred

20% match if at least 1% (but less than 2% ) of base salary is deferred




100% match if at least 5% of base salary is deferred (Maximum ER match is 5% )

• Employee contributions up to $19,500 (plus $6,500 catch-up for eligible employees)

• Compensation is limited by the IRS each year - $285,000 in 2020

• 100% vesting after 3 years of service employer contributions

• Normal retirement at age 65

Non-Qualified 457(b) Deferral Plan

• Employees may electively defer compensation into the 457(b) Plan

• Distribution occurs at termination of employment

COMMENTS

Qualified Retirement

• Total qualified plan contributions are consistent with median level

• Qualified (403(b) Plan) and non-qualified (457(b) Plan) elective salary deferral opportunities are competitive

No, 15%

Yes, 85%

457(b) Plan Pr ovided

No, 80%Yes, 20%

457(b) PlanEmployer Contributions

4.0%

5.5%6.0%

P25 P50 P75

Total Employer ContributionDefined Contr ibution Plan


Benefit Analysis – Retirement

COMPETITIVE STANDARD Lee HealthNon-Qualified Retirement (Structure): Executive compensation in excess of qualified plan limits ($285,000 in 2020) is likely to require non-qualified retirement benefits to provide a competitive benefit.

• Approximately 85% of senior executives and 70% of executives receive non-qualified employer-provided retirement benefits

• Median annual employer contributions to non-qualified retirement plans are approximately:

CEOs – 15% of salary

Nonqualified Retirement (Prevalence): Non-qualified retirement plans include employer contributions to 457(b) plans; pension restoration plans; and defined contribution, target benefit, and defined benefit supplemental executive retirement plans

Retirement Income:

• Qualified and non-qualified plans provide total employer-sponsored benefits of:

− CEOs: 50% to 75% of Final (five-year) Average Salary (FAS) for 20 to 25 years of service (or 2.0% to 3.75% per year of service)

− Other executives: 40% to 60% of Final (five-year) Average Salary for 20 to 25 years of service (or 1.6% to 3.0% per year of service)

457(f) Supplemental Retirement Plan

• Lee Health credits annual contributions, subject to a financial trigger, on participants’ behalf, as follows:

– The President/CEO is eligible for a $75,000 credit

• The President/CEO is currently in a 4-year cycle of credits:

– Credit on 1/1/2019 for the plan year ending 9/30/2018




• Credits vest immediately (participant must be employed on the vesting date or the credit is forfeited)

– After taxation, account balances are held by Lee Health until termination of employment

• Lee Health credits interest based on a Treasury rate plus 1%

• In the event of an involuntary termination without cause, the account balances vest immediately

COMMENTSNon-Qualified Retirement

• Lee Health does provide supplemental retirement contributions on a non-qualified basis, which is competitive with the marketplace

– However, the $75,000 credit for the President/CEO is equal to about 7% of salary, which is significantly below the market median contribution level of 15% of salary

≈ It is not expected that the income replacement will reach a competitive level


Benefit Analysis – Paid Time Off / Vacation

COMPETITIVE STANDARD Lee HealthPaid Time Off / Vacation

• Approximately 80% of organizations utilize a paid time off system and the remaining 20% utilize vacation and holidays

• Typical time away includes 4 to 5 weeks of vacation, often based on years of service

• 6 to 8 holidays are also provided

• The majority of organizations allow a carry -over from year to year and about 75% of organizations allow a cash-out of days

• Maximum PTO carryover of 40 days (median)

• Less than 10% of organizations have adopted an “honor system” for vacation days

Paid Time Off• Executives earn paid time off based on years of service

– Lee Health recently changed their PTO plan from one with annual accruals to an unlimited plan≈ The prior plan was frozen

COMMENTSPaid Time Off

• Level of paid time off is competitive

PTO Plan (including Holidays)

Years of Service P50 P75

One 25 37

Five 29 40

Ten 32 41

Fifteen 33 43

Twenty 34 43

Twenty-Five or More 34 43


Benefit Analysis – Perquisites

COMPETITIVE STANDARD Lee HealthPerquisites: Provided based on organizational culture and business need. Following are examples of perquisites in the health care industry:• Automobile/Auto allowance

− About 50% of CEOs and 40% of other executives receive an auto allowance

• Country Club memberships− Approximately 10% of CEOs receive

• Health club memberships− About 7% of executives receive

• Financial planning− Around 15% of executives receive

• Spouse travel costs (typically CEO only)• Perquisite allowance

− About 30% of executives receive; median annual allowance of $10,000

Typical business expenses might include:• Cell phone/PDA• Laptop or home computer• Professional membership & dues• Tuition reimbursement

Average annual expenditures range from $8,000 to $15,000 for executives, depending on level

The President/CEO is eligible for the following business expenses:

• Auto allowance of $1,000 per month (total annual allowance of $12,000)

• Club membership – annual cost of $7,500

• Cell phone

• Laptop/computer

• Professional memberships and dues

• Tuition reimbursement

COMMENTSPerquisites

• Perquisites and business expenses are consistent with market practice

$700$1,000

P50 P75

Monthly Auto Allowance


Conclusion

Findings• Benefit expenditures for the President/CEO are below the median of the market• Parameters of the executive benefit program are competitive for many benefits

‒ There are a few benefits that might need further discussion: Disability benefits are limited for the President/CEO Retirement contributions are low relative to market levels


Term / Period of Employment

Employment Agreement TermMARKET PRACTICE Agreement terms typically take one of three approaches

SPECIFIC Defines a specific agreement duration, typically three

to five years, and identifies a window during which a

new contract would be negotiated

“EVERGREEN” Spells out an initial term (e.g., three to five years),

after which the agreement is automatically extended

one year at the end of each year, unless one of the

parties requests non-extension of the agreement or

modification of the agreement

Annual automatic renewals may include a maximum

number of renewals

PERPETUAL The agreement continues until the contract is

terminated by either party or due to the employee’s

death or incapacity

CURRENT PROVISIONS The original 4-year contract is up for renewal and is currently in negotiations

The CEO is requesting a new 4-year contract term

OBSERVATIONS / CONSIDERATIONSThere is no single best approach to setting the term, as it is customized to fit the executive and the needs of the organization

Automatic renewals are the most prevalent approach • Reduce the need to renegotiate terms that are

currently acceptable

• Occasionally results in the agreement not reflecting market provisions, as a review of the terms is not required on a periodic basis

Fixed terms are less common• Require a fresh look at agreement provisions, which

may be beneficial to both parties

• Work well as the executive approaches retirement

The desired 4-year term falls within the range of typical market practice for fixed-term contracts


Salary Increase Terms

The contract for the Lee Health CEO has historically used a automatic increase to base salary• The CEO’s salary has been automatically updated each year to be set at the median of the

market‒ The market is defined as a blended combination of National, Southeast Regional, and Florida peer

groups of systems and hospitals similar to Lee Health in terms of size and organizational complexity

PROS CONS

Provides clear and transparent approach to

salary adjustments

Limits exposure to Board or Committee

members from stakeholder criticism and/or

conflicts of interest decisions

Salary may not align with performance

Position within the range may not align with

typical market practice (below range midpoint in

the early years, and possibly higher than range

midpoint for extensive service)

Automatic increases are atypical* for healthcare

executives, but may be prudent for certain organizations

* CEO contracts generally have either no specific provisions for annual increases or denote a process for annual increases

to be determined by the Board or authorized Committee in alignment with the organization’s compensation philosophy and based on factors such as performance and market positioning


Salary Increase Options

SEVERAL OPTIONS FOR CEO SALARY INCREASES

COMMITTEE / BOARD MARKET UPDATE The Committee and the Board agree on a salary increase for the CEO based on a

number of factors which include peer group market data, performance, experience, market conditions, current range positioning, and

retention considerations.

Salary range decisions are usually made within a salary range with the midpoint of that range set at the targeted level of the organization’s

compensation philosophy

This is the most typical process for determining CEO salary increases

CONTINUE WITH CONTRACTUAL INCREASE TO MARKET The Committee may decide to continue with the existing

approach to set the CEO’s base salary at the median of the peer group data

This is the approach currently utilized by the Committee and Board. This approach is the least likely to draw stakeholder

scrutiny, but does not follow typical market practice and may not allow for the CEO’s salary to align with performance,

experience, or other factors

PERFORMANCE-BASED APPROACH TO CONTRACTUAL INCREASES Instead of setting the new salary to market

median, the Committee could assign an indexed increase percentage based on performance.

For Example:

• Performance is at expectations: salary increase percentage is equal to median peer group data increase percentage

• Performance below expectations: no salary increase

• Performance exceeds expectations: salary increase percentage is equal to the median peer group market increase plus 2% or 3%

• Under this approach, it may be prudent to identify and set a ceiling to the CEO’s base salary such as 15% above median or P65 / P75

This approach is similar to the typical Committee/Board market increase in that it factors in the CEO’s performance.

This approach discounts other factors that generally impact salary decisions, but increases transparency

and limits Committee and Board members to community and stakeholder scrutiny



NEXT STEPS

David Collins Board and Committee Chair

ADJOURNMENT

DATE OF THE NEXT


To Be Determined

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