Ah, the joys of being a public figure…this week we learned that Dr Chris Eagle, the president and CEO of Alberta Health Services (AHS), got a bonus of $90,000. That’s in addition to his base pay of $580,000. And significantly less than what he would have received had he met more than 63% of his “pay at risk” targets. Let me say that again in non-HR speak: Dr Eagle’s total compensation package is $725,000/year. It is made up of $580,000 in base pay and an additional $145,000 in “pay at risk”.
This news immediately brought to mind the Goldilocks test. Not because of any resemblance between Dr Eagle and Goldilocks but because figuring out how much Dr Eagle should be paid boils down to one question: is it too high, too low or just right.
As any HR comp specialist will tell you, setting executive compensation is like pirouetting through a mine field. Consultants like Mercer and Towers Perrin provide benchmark data but every organization is different and every executive thinks he’s uniquely gifted and deserves to be paid more than his peers. Introduce the added complexity of a CEO working in a quasi-public entity and you could have one heck of a mess.
Is Dr Eagle’s total compensation package of $725,000 too high, too low or just right?
Dr Eagle’s job is CEO of AHS. CEOs are compensated for strategic leadership, for understanding the marketplace and leading the organization so that it achieves its objectives. The CEO’s board of directors will be happy (they didn’t hire a dolt) and the shareholders will be delighted (share prices go through the roof). A CEO who achieves this result is paid “just right”. In fact he might argue he’s paid “too little” and demand a raise.
But there’s a snag in Dr Eagle’s case. Dr Eagle works for Alberta Health Services. AHS is a creation of government. The former Health Minister, Mr Zwozdesky, described the relationship between the government and AHS as follows: the government (through the Dept of Health) is responsible for policy, strategy, global budgets and doctors’ pay. This “…trickles down to our delivery arm, which is Alberta Health Services…[which] then puts it all into effect”.*
So unlike a corporate CEO, Dr Eagle is not a strategic leader and developer of policy but rather the delivery boy who delivers government strategy and policy through the vehicle of the AHS to the citizens of Alberta. For this he will get paid as much as $725,000. Applying the Goldilocks test I’d say Dr Eagle’s total compensation is too high.
Is Dr Eagle’s “pay at risk” too high, too low or just right?
Turning now to Dr Eagle’s bonus. There are 2 elements to the “pay at risk” equation: how much of Dr Eagle’s total compensation is “at risk” and just how risky is it. Only 20% of Dr Eagle’s pay ($145,000) is “pay at risk”. This is significantly lower than corporate CEOs whose “pay at risk” is in the 50% to 60% range. But to be fair, corporate CEOs are strategic leaders and we’ve already determined that Dr Eagle is not, so the 20% pay at risk target is probably “just right”.
The more important question is just how much “risk” is Dr Eagle really exposed to—how likely is it that Dr Eagle will achieve his performance targets? Consider this. Dr Eagle would have met his target for ER wait times if 60% of patients coming into ER were admitted within 8 hours. That’s not 100% of patients in ER, just 60%. Dr Eagle missed that target—only 45% of the patients coming to ER were admitted within 8 hours.
It’s unclear whether the AHS board gave Dr Eagle a partial bonus on this performance metric, however the AHS board says partial bonus payouts are “justified” because Dr Eagle’s targets are “stretch targets” (meaning they’re intentionally set high).**But this misses the point. If a target is “met” you get a small bonus, if the target is exceeded you get a better bonus, but you don’t get a partial bonus for failing to meet a target no matter how “stretched” it is—at least not in the corporate (real) world.
Applying the Goldilocks test, the degree of risk for this target is “too low”.
The Goldilocks Test
Mr Horne, our new Health Minister, says Albertans need to “look at the big picture”.** Okay, here’s the big picture—the delivery of healthcare in Alberta continues to stumble, Albertans are still stuck in ERs awaiting admission, wait times for surgical procedures continue to drag on, the elderly are still parked in hospitals awaiting continuing care, the culture of intimidation continues and we’ve heard absolutely nothing from the judicial inquiry into queue jumping.
Albertans are not living in a fairy tale. They expect their government to do more than set fairy tale targets for improvement and then pay out $450,000 to executives who fail to meet them. Notwithstanding what Mr Horne and the AHS board of directors believe these bonus payouts are nowhere near “just right”.
*Hansard Apr 13, 2011, p 645
**Calgary Herald, June 8, 2012, A6