McEvoy’s $1.15 million severance below industry average

Despite outrage about Memorial Health System CEO Larry McEvoy’s $1.15 million severance and calls to dissolve the board of trustees that approved it, analysts say it is not out of line with industry standards.

In fact, the 18-month salary is below the average of nonprofit health care systems pay for outgoing executives, said Craig Strom, compensation consultant for Integrated Health Strategies in Minneapolis, Minn.

McEvoy will receive a little more than $1 million for 18 months severance of his salary, which is $620,000 a year.

The fairness of the compensation package is a topic that’s likely to come up during a special Memorial board meeting at 4 p.m. today at the Memorial Administrative Center, 2420 E. Pikes Peak Ave.

The meeting was called to discuss options in response to widespread complaint about the pay  package.

City Council also will also have a special meeting at 4 p.m. tomorrow to discuss whether McEvoy should receve 18 months of severance pay.

“Twenty-four months is the standard,” Strom said. “It’s the median for the industry, and the 18 months offered here would be short of that.”

Larry McEvoy

McEvoy will leave his post Friday, making way for the new lease with the University of Colorado Health. He said his position – one of providing strategy and vision – had changed as the new lease agreement is being negotiated. Instead, the focus is on operations. CFO Mike Scialdone will take over the reins on an interim basis.

Severance packages for health care executives are driven by industry trends, Strom said.

“It’s what other nonprofit profit hospital health care systems across the country are paying,” he said. “It’s what other boards see as an adequate severance.”

In fact, an 18-months package is at the 25th percentile of the market, he said.

Steve Berkshire, head of the University of Michigan’s doctoral program for health care administration, said it seemed to be the right number.

“It’s seems like a lot, because it’s a $1 million, and most people won’t get that as a severance package,” he said. “But most people don’t have the responsibility of hospital CEOs.”

Even McEvoy’s $620,000 annual salary doesn’t appear to be comparitively exorbitant.

Rulon Stacey, CEO at Poudre Valley Health System, part of the group that will be leasing Memorial, earned $1.6 million in 2010, according to PVHS’s 990 filing. He also earns $834,648 in “other compensation from the organization and related organizations.”

The other reason for McEvoy’s compensation is one of job scarcity. Hospital CEO positions are “few and far between,” said Strom, who advised the Memorial board on McEvoy’s severance package.

“The likelihood of finding another CEO position in a short time is doubtful,” Strom said. “It takes longer than say, a doctor or another staff member. It’s not unusual that they can walk across the street to another hospital and find a job. On the other hand, there are a very limited number of CEO positions available at any one time – and usually they have to relocate.”

Jim Moore, president of the Memorial Health System Board of Trustees, said that the board had consulted with several industry leaders before they made the offer.

“Hours of work and discussion went into this decision,” he said.

“I’d prefer waiting until we have a larger discussion with the board, and discuss our options before I make a statement,” he said.

The board will discuss lowering McEvoy’s severance package or keeping it the same. Moore wouldn’t commit to which option he preferred.

The meetings follow a weekend of outcry from the general public and from at least two city council members. Both Tim Leigh and Angela Dougan are requesting that the package be re-negotiated. City Mayor Steve Bach has even requested that council consider dissolving the board.

In a letter to City Council President Scott Hente, the mayor asked for the meeting and for McEvoy’s severance to be dropped to six months salary, which is typical for city employees.

“ The planned 18-months … severance for Dr. McEvoy is not consistent with the six months specified in his employment agreement nor is it consistent with Council’s longstanding policy limiting severance for senior managers for the general municipal government to not more than six months,” he said in the letter. “In the event the MHS Board does not promptly comply with Council’s directive after your vote, then I respectfully suggest that Council terminate the entire Board, substitute Council as the Board and reduce the severance to no more than six months.

The outcry isn’t surprising to Strom.

“It’s a fairly typical reaction,” he said. “Most people are shocked by executive level pay. And even though the package includes more than salary, the $1.15 million is a headline grabber.”

It is surprising, however, that the mayor wants to dissolve the board, he said.

“In my experience, they’re a well-grounded, well-meaning board,” he said, “by any measure. They’ve done they’re due diligence over the past few years on compensation issues to make sure that staff pay is in line with industry standards.”