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ProvidenceWatch Exclusive:
September 28, 2006

Executive pay hikes create growing wage gap at Providence Health & Services

In recent years, compensation for non-profit, tax-exempt health systems is under growing scrutiny. Alarmed at rising costs of health care and the lack of accountability in the tax exemption system, federal and state regulators — including Senator Chuck Grassley (R-Iowa), the IRS, the Ohio Attorney General, and others — have initiated a recent flurry of investigations into the financial behavior of non-profit hospital systems, including how executives' salaries are determined. In a memorandum released by Sen. Grassley on September 12, the Senator vowed to pursue legislative reform to ensure that boards are "more focused on ensuring fair, just executive compensation at all non-profits, including hospitals."

Executive pay soars while employee pay crawls

Four Providence officers and executives were paid more than $1 million in 2004, and that group made a total of $10.3 million.

However, Providence's financial filings show a tremendous gap between executive and employee compensation. Between 2002 and 2004, when total compensation for the 20 highest paid Providence executives rose 93%, total spending on all employee compensation (listed as "salaries and wages" and "employee benefits" on Providence audited financial statements) rose just 12%.

Providence CEO paid more than any non-profit or for-profit CEO

Pablo Eisenberg, a senior fellow at Georgetown University Public Policy Institute and columnist for the Chronicle of Philanthropy, referred to Walker's retirement payout and stated, "These days it is not that unusual for the head of a large health system to make more than $1 million a year, but this payout grants nearly an additional $800,000 in retirement for each year worked. It seems excessive."

In November 2005, Providence Health System issued a statement to employees defending its executive compensation practices and asserting that "Providence Health System has a consistent philosophy for all employee compensation. We assess our markets carefully and base salary at the middle of the market. We follow that same philosophy with our senior executives." Later in the memo, Providence asserted that its CEO pay is "consistent with compensation for CEOs of similar not-for-profit health systems."

But a review of the nation's largest 25 for-profit and non-profit health systems, ranked by 2004 net patient revenue by Modern Healthcare, shows that Providence's CEO received far more than its next closest competitor, and double the amount of the highest paid for-profit health system CEO. Providence is ranked as the 16th largest health system, but its CEO was the highest paid among the top 25 non-profits and for-profits.

• See the list of the top 20 highest paid executives at Providence
• Read Providence' explanation for Hank Walker and other executives' compensation
• See the list of the executive compensation at largest 25 U.S. health systems