When Commonwealth Care Alliance was teetering on the verge of collapse in October and looking to be acquired, the chief executive officer of the nonprofit health insurer was also seeking assurances he would get a big payout.
CEO Chris Palmieri approached Commonwealth Care board members with a demand, according to multiple people with knowledge of the negotiations who spoke on condition of anonymity to discuss sensitive conversations: He wanted a payment guarantee if the insurer was acquired, raising concerns he could walk away and jeopardize a potential deal. The board agreed to provide Palmieri a “success fee” of more than $2 million for an acquisition, according to those people with knowledge of the negotiations.
Facing huge debts and low on cash, Commonwealth Care has eliminated more than 100 positions over the last year and is still desperately seeking a savior. But, should Palmieri receive the success fee, along with a separate multimillion dollar severance package, his total compensation could grow to more than $6 million, more than three times the $2 million he most recently reported receiving in 2022.
Commonwealth Care Alliance declined to comment.
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The insurer is one of several health care organizations that have funneled additional pay to leaders and key employees at a time of financial distress. The chief executive of Lawrence General Hospital received a salary increase, though she has since resigned. And, Mass General Brigham continues to mete out incentive pay to workers at many levels while undertaking the largest-ever layoffs in the giant system’s history.
Compensation consultants say these practices are not unusual, even at organizations in financial distress. To recruit and retain valued employees, institutions often provide their executives and managers with pay packages that can seem divorced from financial problems on the ground.
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“If they are able to accomplish the board’s goals, then they will get compensation that may, to the public, seem to be egregious or outrageous,” said Dr. Howard P. Forman, a Yale management professor and a practicing physician. “If you are looking to compete and recruit from the best possible candidates to do the job in the way you need it to be done, you need to be competitive in the marketplace.”
But, the often multimillion dollar pay packages of top executives are increasingly a hot topic, with the cost of health care spiraling ever upward while the industry struggles with a shortage of beds and mounting stress on doctors. Unions for health care workers have even proposed legislation in Massachusetts this year that would seek to cap CEO compensation at 50 times the organization’s lowest-paid salary.
To many front-line employees who feel increasingly squeezed, underappreciated, and undercompensated, the argument that high pay is needed to hold on to top executives falls flat.
“It’s infuriating,” said Dr. Lee Richman, a Brigham and Women’s Hospital resident who sits on the union bargaining committee for residents and interns. He said MGB has told the union, which is currently negotiating for higher pay, that their work shouldn’t be seen as a job, but as a calling.
“I would love it if our executives also saw it as a calling,” Richman said. “Having a lower CEO pay would attract people with the right priorities.”
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Paula Ward, an ICU nurse at MGB’s Newton-Wellesley Hospital, is also unconvinced such high executive salaries are necessary.
“It feels like an excuse,” said Ward, also a nurses’ union leader at the hospital. “We had the same problem at the front line, being able to retain people. ... We are not a business. We are health care. We are not selling trinkets. These are people’s lives and their families. We need to invest at the bedside.”
Institutions large and small are all confronting pay issues.
Lawrence General, for example, was coming off a large loss when it acquired the Holy Family hospitals in Methuen and Haverhill in October from the bankrupt Steward Health Care system. Its CEO at the time, Dr. Abha Agrawal, sought a sizable increase in compensation, according to multiple people with knowledge of the talks, who asked not to be named given the sensitivity of the subject.
Though Agrawal had been on the job at that point for 10 months, Lawrence General’s finances had not much improved during her tenure, reporting a $15.9 million operating loss for the year ending in September. The Holy Family acquisition was underwritten with more than $100 million from the state.
The board hired a compensation consultant to review the request. Ultimately, Agrawal was provided an increase, sources said, though it’s not clear how much or what her salary was. (Agrawal’s predecessor, Deborah Wilson, earned $1.05 million in 2022, the most recent year the nonprofit hospital’s tax returns are publicly available.)
Agrawal ultimately left Lawrence General in February amid high turnover and allegations of a hostile work environment. Reached in mid-March, she declined to comment on the increase through an attorney, citing her “fiduciary duties to the Hospital.”
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A Lawrence General spokesperson said the board of trustees considered both its own needs and comparable organizations’ compensation when setting CEO pay.
“Massachusetts is renowned for providing top-tier healthcare to its communities, with CEOs of … hospitals committed to delivering high-quality, safe care despite the ongoing market challenges that continuously impact operations,” the spokesperson said.
Mass General Brigham also defended the compensation of its top executives amid wide-scale layoffs that the system announced in February. The Globe has reported the reductions could number as many as 1,500 positions. MGB executives have said they are in part to help offset $250 million in projected operating losses over the next two years.
Nonetheless, MGB still provided incentive pay to employees at multiple levels as part of their compensation packages, if they achieved their performance goals, executives said. It is unclear how much these payouts totaled, or who and how many received them.
In the past, such pay has tallied in the millions of dollars for some. Of the $6 million in total compensation Chief Executive Anne Klibanski received in 2022, more than half — $3.37 million — was categorized in tax filings as “bonus and incentive compensation.”
“Mass General Brigham Board of Directors works with a third party to benchmark compensation for senior executive positions to ensure unbiased oversight that includes a review of similar not-for-profit health systems and academic health systems,” a spokesperson said in a statement.
The MGB spokesperson provided a list of pay for CEOs of other health care organizations with more than $10 billion in revenue, which she said was comparable to MGB. By those metrics, Mass General Brigham’s CEO compensation for 2022 was in line with others. The CEO of New York-based Northwell Health earned $5.3 million in 2022, while Mayo Clinic’s CEO earned $3.7 million that same year. At Banner Health, the CEO earned $14.6 million.
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Compensation experts acknowledge such numbers can seem large, but they view compensation in a broader context of high turnover among executives and relatively little job security.
And raises aren’t necessarily tied to an organization’s bottom line, said Susan Malanowski, a compensation consultant with the Wilson Group. Paying a retention bonus could well be worth it if it helps ensure the organization survives. If a CEO’s job responsibilities increase dramatically, organizations will often increase pay as soon as the executive takes on more work, though some may wait.
Forman, the Yale professor, said hospitals must pay leaders market rates, but there are limits to what’s reasonable.
“There are lots of examples in the for-profit and nonprofit world where it’s ‘Heads I win, and tails you lose’ — where a CEO is paid handsomely during the good years, and when bad things happen, they suffer not,” Forman said. “I do think there needs to be some better form of long-term accountability.”
Jessica Bartlett can be reached at jessica.bartlett@globe.com. Follow her @ByJessBartlett.