alameda health

AHS Compensation Strategy Critical Issues

AHS Board Education Session September 14, 2016

Jeanette Louden Corbett Tony Redmond

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Agenda

• Background • Compensation Philosophy • The Market Place (Bay Area Healthcare) • Total Compensation • Impact of AHS Acquisitions • Recommendation to align compensation

structure throughout AHS

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AHS Compensation History

• When Hospital Authority started in late 1990’s, Alameda County compensation levels were carried forward to ACMC

• Over time, need to compete for talent caused compensation levels to gradually increase

• ACMC/AHS established compensation program for employees and adjusted labor negotiations strategy

• Current compensation levels more closely approach healthcare competitors

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Compensation Philosophy

• A compensation philosophy is simply a formal statement documenting the company's position about employee compensation. It essentially explains the “why” behind employee pay and creates a framework for consistency.

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• Achieving the Alameda Health System mission depends on our ability to provide exceptional quality, accessible care for our community. Our Total Compensation Program is designed to support our efforts to become an Employer-of-Choice within the Bay Area healthcare community.

• Our compensation program reinforces a productive work climate and a culture of accountability while fostering career progression at AHS.

• The benefits program demonstrates AHS’s commitment to the long-term physical, emotional and financial health of our most valuable assets: our employees.

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• We believe a candid, merit-based approach to compensation is one way to help make us an Employer-of-Choice by building upon AHS’s culture of excellence, rewarding employee achievements and developing employee talents.

• We recognize that this approach is not congruent with the typical union approach of increasing compensation with across the board cost of living increases and automatic step increases based on time in position

• We continue to push for merit based compensation in labor negotiations

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Compensation Practices • Compensation Positioning

– Compensation targets positioned at 50th percentile of the market.

• Factors Influencing our Compensation Program – Alignment with AHS objectives, AHS interests – Affordability and reflective of company performance (budget,

results) – Market rates for hard-to-fill positions – Locally compliant & other administrative considerations

• Ideally, AHS targets: – New hires, newly promoted or developing employees should be

positioned in the lower third of the range – Fully proficient, solid performers around the midpoint over time

(in 5th year or so) – Exceptional performers with long-term sustained performance in

the top third of the range over time

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Salary Ranges

Min 80% of midpoint

Midpoint approximates market

50th percentile

Max 120% of midpoint

Salary Ranges: – Are built with an appropriate Market Pricing,

representing the range of competitive pay for a particular job or group of jobs

– Are built upon data from competent industry compensation surveys / vendors

– Utilize industry and geography-specific data points – Are specific to each group of jobs and levels – Are developed for each category of EE’s (Represented

and Non-represented, FLSA status)

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Total Compensation Strategy

• We compete for talent in the external market with a focus primarily on healthcare in the San Francisco East Bay.

• We position ourselves to target remuneration at the median level in relation to other major health systems in the San Francisco Bay Area. Given total cost of compensation including benefits, we may not always achieve actual base salaries at median levels.

• AHS annually reviews our practices relative to the external market and as a result periodically adjusts our compensation and benefit offerings.

• Any changes to our Total Compensation Program must be reasonable and take into consideration both the needs of AHS as an employer and those of the community receiving our services as well as our employees.

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Total Compensation Strategy The AHS Total Compensation Program is composed of: • Market-driven base salary • Periodic increases for employees; Merit increases based on

performance where possible • Generously funded pension and retirement plans • Highly competitive, comprehensive health and welfare benefits • This is the compensation strategy for our unrepresented positions

and influences the way in which we negotiate salary increases with our unions. We follow the same guiding principles in evaluating market compensation practices for our union and non-union positions.

• Only about 50 represented employees in ACMEA receive merit based annual changes to compensation.

• In the future, variable pay for leadership positions (we will discuss this at a later meeting)

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The Compensation Market Place

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Bay Area Healthcare Market

• Recent Nursing Settlements: • SHC/LPCH 4% a year for 3 years MAY

2016 • Include other recent settlements

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Retirement Plans

• AHS provides opportunities for significant retirement savings through two generous plans which enable eligible employees to contribute up to the fully allowed IRS maximum in each plan. This is a uniquely valuable retirement benefit that makes our Total Compensation Program highly competitive.

• Defined Benefit Pension Plan: The ACERA retirement plan provides

lifetime benefits to members of the retirement system who meet the minimum age and length-of-service requirements or are eligible for disability retirement. Eligible members receive a guaranteed, lifetime benefit at retirement, calculated by a set formula, which includes, but is not limited to, the member’s age, years of service, member type and salary. Employer and employee contributions make up the funding source for the plan.

• Defined Contribution Plan: Under the defined contribution plan, both AHS

and the employee contribute 5% of pensionable salary. Employees can also choose to contribute up to an additional 5% toward retirement savings with AHS matching the employee contribution. Employee contributions are deducted from payroll on a pre-tax basis. The amount of money available upon retirement is based on the actual account balance.

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Retirement Plan as a part of Total Compensation at AHS

• Retirement Plans – Cost of Retirement Plans

• ACERA – EE 9% ER 23.75%

• Steel Workers (Alameda/San Leandro) – EE 0% ER 10%

• SEIU (Alameda/San Leandro) – EE 0% ER 7.25%

• Stationary Engineers (Alameda/San Leandro) – -EE 0% ER 15.5%

• AHS Plans – EE 5% ER 5%; optional additional 5%

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Health and Welfare Benefits

• Our broad range of health and welfare benefits are described in detail in the Benefits Enrollment Guide. In general, our philosophy is to provide a highly competitive, cost effective and innovative benefit program that is tailored to each employee’s needs. Our comprehensive offerings go well beyond affordable health, dental and vision care to include the following:

• Exceptional Healthcare coverage with low employee contribution to costs • Self Insured Plan available to employees at no cost • Long-term disability coverage • Above-market paid time off allowances with purchase and/or sell options • Employee Assistance Program counseling for emotional, legal or financial

issues • Financial benefits that include discounts for car, home and pet insurance • Education allowances and professional development opportunities

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AHS Core Engagement Score on Benefits and Compensation

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Alameda Hospital Engagement Score on Benefits and Compensation

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San Leandro Hospital Engagement Score on Benefits and Compensation

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Acquisitions • The acquisition of San Leandro and Alameda Hospitals during the 2013/14

fiscal year increased the total AHS workforce by nearly 50% in a very short period of time.

• San Leandro Hospital had been a part of Sutter Health; labor represented employee salaries were generally close to market; non represented employee salaries varied

• Alameda Hospital had not increased salaries in 7 years and had reduced unrepresented employees by 5% in an attempt to remain solvent and viable.

• There are significant gaps in both hospitals from the salaries in the AHS core.

San Leandro Hospital Alameda Hospital Core Consolidated

Paid full time equivalents (FTE) 354 541 3,057 3,952

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Current Compensation Challenges for Alameda Hospital and San Leandro Hospital

• The following data points contrast pay disparities for like titled represented and unrepresented roles analyzed across the system. On an overall basis, amongst like titled roles system-wide, the total cost to

achieve pay-parity to represented roles is approximately $5.7million, with 60% of the gap encompassed by Alameda Hospital employees

• Alameda Hospital – Alameda Hospital currently has 273 employees paid below the average salary of

their represented counterparts at AHS Core, with a total pay parity gap of approximately $4.9 million

– Relative to unrepresented roles at AHS Core, Alameda Hospital lags average salaries in the Core by a total of approximately $248,000

• San Leandro Hospital – San Leandro Hospital has 134 employees earning less than the average of

represented employees at AHS Core, with a total gap of $1.31 million – For unrepresented employees, the total sum to achieve parity is approximately

$282,000

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Results Experienced Because of Pay Disparities

• We are experiencing difficulty in recruiting and

retaining highly qualified staff at both hospitals • Our value is to assure that our patients and their

families come first in determining how we provide care. We believe that our higher levels of registry and traveler utilization could affect the consistency of high quality patient care

• As employee turnover increases, stress increases for remaining staff leading to increased overtime and sick leave

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Current Salaries and Wages by Entity

San Leandro

Hospital Alameda Hospital Core Consolidated

Salaries and wages $ 39,205,438 $ 43,739,403 $ 319,283,098 $ 402,227,939

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Salaries and Wages with Pay Adjusted to meet parity with Core

San Leandro

Hospital Net New

SLH Alameda Hospital Net New AH Core Consolidated

Salaries and wages

$39,205,438

$1,310,000

$43,739,403

$4,900,000 $319,283,098

$408,437,939

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5 Year trend with and without adjustment

Consolidated 3% 3% 3% 3% 3% $ 408,437,939 $ 420,691,077.62 $ 433,311,809.95 $ 446,311,164.25 $ 459,700,499.18 $ 473,491,514.15

Consolidated 3% 3% 3% 3% 3% $ 402,227,939 $ 414,294,777.62 $ 426,723,620.95 $ 439,525,329.58 $ 452,711,089.47 $ 466,292,422.15

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Recommendations and Next Steps

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On an overall basis, AHS currently has a considerable pay gap between similar represented and unrepresented roles across the system, when compared to average pay at AHS Core

We believe that AHS should achieve pay parity in as short a period as possible.

At the time of the acquisitions, we had anticipated reaching pay parity in five years

We believe that our commitment to quality patient care requires that we move faster than originally anticipated

We will be able to fund the increases through increased productivity This action will increase cohesion and collaboration across the

system and move us closer to our goal to be The Employer of Choice in the Bay Area