By Molly Tanenbaum
Figuring out how to determine a CEO’s pay has turned out to be a tricky and heated process for the El Camino Hospital board of directors.
For three monthly meetings in a row, the board has debated how to structure its “compensation committee,” which is assigned the task of choosing the salary of whoever replaces former CEO Lee Domanico. In particular, members of the board have argued, sometimes bitterly, over whether it is a conflict of interest to let a hospital physician sit on the committee — and take part in determining the CEO’s salary.
Currently, the compensation committee consists of vice chair David Reeder, a program manager at Sun Microsystems, and Dominick Curatola, a cardiologist at El Camino who was absent from the last meeting Feb. 1. The committee works with a consultant to devise a compensation package for the CEO.
Discussions on the issue began in December, when Clark Consulting representative Jim Nelson — hired to educate the board and the public about El Camino’s executive compensation — told the board that hospital physicians should not serve on the compensation committee because they do not qualify as “independent” parties and have a potential financial incentive in setting the CEO’s salary.
Nelson’s advice was echoed at the Feb. 1 meeting by guest speaker Leo Henikoff, a physician who serves on two hospital boards in Illinois and Pennsylvania. Henikoff said that, as a member of the medical staff, he recuses himself from all matters relating to hiring CEOs and recommending their salaries. He added that more nonprofits, such as El Camino, are modeling themselves after for-profit companies in how they deal with these types of decisions.
However, hospital attorney Mitch Olejko informed the board that, though IRS laws have recently changed and become more specific about who should not be allowed to determine executive compensation, the rules are still vague and “not a black-and-white issue,” so it is up to the board to do what it thinks is right.
In light of all this input, the board has remained polarized on what to do, with visible tension between the chair, El Camino cardiologist Edward Bough, and vice chair Reeder.
Bough saw no reason to make any immediate changes to the compensation committee, declaring that “If it ain’t broke, don’t fix it.” But Reeder made clear the sense of urgency he feels on the matter.
“I don’t think we have the luxury to wait to do this,” Reeder said. “My recommendation is that we start on the safe side and not have physicians on the compensation committee.”
Board member Mark O’Connor said he shared Reeder’s sentiments about altering the committee’s make-up, noting how laws — specifically the Sarbanes-Oxley Act of 2002, which deals with how public companies disclose financial information — have changed since the Enron scandal.
“Now we’re under a different microscope,” O’Connor said.
To that, Bough responded, “El Camino Hospital is no Enron, and never has been.”
The board made one clear change last month, though, which was to make the compensation panel a formal committee appointed by the board, instead of a hospital committee which is appointed by and reports to El Camino’s management.
Though the change is largely symbolic, board committees must meet regularly and are subject to the Brown Act, a state law which sets rules on posting public meetings. Now, the hospital must give advance notice of compensation committee meetings, though the meetings will continue to take place in closed session, according to hospital spokesman Jon Friedenberg.
Jane Turnbull, representing the local chapter of the League of Women Voters, commended the board for discussing these matters publicly. The League has been critical of the hospital in the past for a lack of transparency on issues related to executive pay, and Turnbull views public conversations as a sign of increased openness.
But she requested that the board define what is meant by “independent party” before deciding whether physicians can or cannot serve on compensation committees.
This topic will likely reappear in March, when the board will discuss in greater detail the process of searching for a new CEO to replace Domanico, who departed in early January. Chief Financial Officer Marla Gularte is serving as interim CEO for the hospital.
E-mail Molly Tanenbaum at mtanenbaum
