That's Real Money

One of the things we seem never to hear about in this age of strained budgets is executive compensation. But it's worth discussing. According to the Economic Policy Institute, as of 2010, the ratio of executive pay to that of an entry-level worker is 243-to-1 (click through for an easy-to-read graph). In other words, if an entry-level worker is hired at $40k per year, the CEO's average wage is $9.7 million. This is historically unprecedented territory. During the 60s and 70s, for example, it was about 30-to-1 on average, or about $1.2 million compared to the entry level wage of $40k.

The reason I bring this up is that we have some of this going on in our own back yard:

Seventeen executives of HealthAlliance of the Hudson Valley received a total of $4.6 million in base pay, benefits, bonuses and other compensation in 2010, the same year the companies’ Kingston and Benedictine hospitals lost a combined $2.75 million, according to tax records.

The company’s president and chief executive officer pulled down more than $630,000 of that total. Another $590,000-plus went to a former Benedictine CEO.

The 2010 records — which are the most recent available and which are posted at www.guidestar.org, a website regarding not-for-profit organizations in the United States — were reviewed by the Freeman after HealthAlliance announced on May 4 that it might close one of the two hospitals to cut costs.

In case math isn't your strong suit, the losses incurred by Kingston and Benedictine hospitals amount to approximately 60 percent of the salaries paid to just 17 of Health Alliance's top officials.

So, if the hospitals are losing money year-over-year, why shouldn't these officials have their compensation cut back to sustainable levels? Instead, we talk about eliminating the jobs of janitors and other low-pay workers. A 60-percent pay cut for Health Alliance CEO David Lundquist, on the other hand, would reduced his salary from $630k down to $252k. How's he supposed to live on such a paltry sum?

Closing one of the hospitals could put several hundred people out of work and take hundreds-of-million dollars out of the local economy. But we're not hearing from any of these executives regarding their bloated salaries, are we? Are their salaries more important than our jobs? Are they more important than the local economy? If you got rid of these ridiculous compensation packages, these two hospitals would be able to make ends meet. What ever happened to the CEO stepping up and taking responsibility for the poor performance of the company? Didn't Lee Iaccoca refuse to take a salary when Chrysler was floundering?

Granted, Health Alliance's salaries aren't completely insane, unlike many other companies. But cutting executive compensation could end up saving one of Kingston's hospitals, along with all of the jobs and other economic activity it creates.

I think the company's board of directors should fire the entire leadership team of Health Alliance, and then replace them with executives who are willing to work for much lower salaries.

Update: Fixed the link to the Freeman story.