Millionaire hospital CEO offers 25 cent raises

By DON McINTOSH, Associate Editor

After working without a contract since July 31, several hundred of Legacy Emanuel hospital's lowest-paid workers put on the purple T-shirts of their union, the Service Employees International Union, and went on strike Aug. 31 for 24 hours.

SEIU Local 49 and Legacy Health System management have been bargaining for months without reaching agreement. About 400 workers are represented in the unit — janitors, cafeteria workers, nurse assistants and emergency room aides. The average pay is $22,000 a year, the union says. Legacy says it won’t give them more than 2.5 percent annual increases, though last year it gave its chief executive officer, Robert J. Pallari, a 58 percent raise.

Non-profit Legacy paid Pallari $2.2 million in salary in 2004, well above the $1.4 million he was paid in 2003. That one-year $822,000 increase would have been enough to give the 400 strikers an 11 percent raise, said Local 49 staff director Ron Ruggiero.

The Legacy Emanuel bargaining unit is a mostly minority workforce. Ruggiero said non-union wages for comparable jobs at Legacy’s newly-opened Vancouver hospital are 5 to 12 percent higher than union wages at Legacy Emanuel, located at 2801 N. Gantenbein. Legacy spokesperson Lise Harwin disputed that claim.

As for the CEO pay increase, Harwin said the $2.2 million figure includes future retirement income.

Pallari, 56, is scheduled to retire Oct. 1 after six years as CEO, and as of press time, there was no word on who will replace him or what salary the new CEO will receive.

High CEO salaries at non-profit organizations have begun to attract the attention of the Internal Revenue Service — and the U.S. Senate Finance Committee.

Tax-exempt organizations like Legacy Health System are subject to IRS rules that prohibit using tax-exempt funds for private benefit rather than public purposes. For that reason, non-profits aren’t allowed to pay executives more than “reasonable” salaries. Currently the IRS offers little guidance as to what constitutes reasonable executive compensation, other than defining it as “the amount that would ordinarily be paid for comparable services by comparable enterprises under comparable circumstances.”

That sounds a lot like the “market-competitive” compensation policy described by Harwin, the Legacy spokesperson. But critics of excessive executive salaries question whether “markets” apply when it comes to CEO pay.

“What market are they looking at?” Ruggiero asks. “It’s not Oregon.”

Though Legacy is not the state’s largest hospital system, Pallari made more than any other hospital CEO in Oregon, and was one of the highest paid non-profit hospital CEOs in the country even before his 2004 raise. In the most recent survey of non-profit executive compensation by the Chronicle of Philanthropy, only two other non-profit hospital CEOs reported a bigger salary than Pallari. The survey was based on salaries paid in 2003, the most recent year for which comprehensive information is available. That year Pallari made $1.4 million, while Harold Varmus, president of New York’s Memorial Sloan-Kettering Cancer Center, took home just under $1.7 million, and Floyd D. Loop, CEO of the Cleveland Clinic Foundation, was paid $1.68 million. Median base pay for health system presidents and CEOs, according to the industry publication Modern Healthcare, was $617,000 in 2005 and $542,500 in 2004.

For union workers, Pallari’s outsized salary raises questions. What is it about Pallari’s skills that makes him worth 100 times what union workers earn at Legacy Emanuel?

Last year the IRS announced plans to investigate executive compensation practices at non-profits, including non-profit health care institutions. In March, the IRS sent letters to tax-exempt hospitals where executives earn higher-than-usual salaries, asking 11 questions about their compensation, including how they determined what salary to pay their executives, how they reported salary and benefits, and details concerning the duties and responsibilities of these executives.

Harwin said she didn’t know if Legacy had received such a letter.

In April, IRS Commissioner Mark Everson testified at a Senate Finance Committee hearing on non-profit sector reforms. Everson told senators that non-profits that overcompensate their officers and directors risk revocation of their tax-exempt status. The committee, which includes both Oregon senators, is expected to discuss proposals for reform this fall.

The day of the strike, one of the two cafeterias at Legacy Emanuel was closed for lack of staff. But the hospital remained open, and elective surgeries continued as scheduled, thanks to replacement workers brought in from other Legacy units. The Legacy system has 7,800 employees in total; besides Emanuel, Legacy has three full-service hospitals — Good Samaritan in Northwest Portland, Meridian Park in Tualatin, and the new Salmon Creek in Vancouver — and a network of clinics and other facilities. Local 49 has a similar unit under a different contract at Legacy Good Samaritan.

Ruggiero said the goal was never to shut Legacy Emanuel down, but that the strike did have some disruptive effect, with clerical workers helping out in the kitchen and managers on cleaning duty.

Ruggiero estimated 90 percent participation in the strike — the first-ever at that unit — and reported that as many as 200 workers took part in picketing.

Three days after the strike, Ruggiero said, the hospital closed the cafeteria for two days, something it had never done before. Ruggiero thinks the closure, which cost workers lost wages, was intended as retaliation for their having exercised their right to strike. The union has filed an unfair labor practice charge with the National Labor Relations Board over the closure.

© Oregon Labor Press Publishing Co. Inc.