Posted on Sun, Dec. 22, 2002
Bonus preceded hospital's layoffs
Albert Einstein's CEO was paid $2.25 million before 200 got the ax.
By Karl Stark
Inquirer Staff Writer
http://www.philly.com/mld/inquirer/4790257.htm
A beleaguered hospital system in North Philadelphia paid its chief executive a $2.25 million bonus just months before it suffered its worst loss in 15 years and laid off more than 200 workers.
Leaders of the Albert Einstein Healthcare Network successfully pushed last year to reward chief executive officer Martin H. Goldsmith for many years of leadership. Goldsmith received an unpublicized $2.25 million payment in July 2001, months before the network began the first of three rounds of layoffs, executives involved with the network said.
The payment has triggered a debate over whether Goldsmith wielded too much control over the Einstein board. The payment came on top of Goldsmith's annual salary, which amounted to $768,000 in 2001, higher by far than those of his peers at the vast Jefferson Health System, which includes Einstein.
Goldsmith, who announced his retirement in October, is presiding over Einstein until a successor is chosen. He is poised to receive more money in severance, officials said.
Goldsmith's total compensation will likely be more than double that of his boss at Jefferson or of the CEO of the University of Pennsylvania Health System. The region's two largest systems paid their leaders just more than $1 million in salary and other compensation in 2001.
The public is likely to be skeptical when an executive receives a large bonus before a big slide in performance, said Hugh A. Mallon III, president of Executive Compensation Concepts, in Baltimore, which specializes in nonprofit leaders' pay and benefits.
Nonprofits, he said, bear a special obligation to justify executive pay to the public because of their tax-free status.
Goldsmith declined repeated requests to discuss his compensation. A spokeswoman for Einstein, Renee Bunting, said Goldsmith deserved the bonus because he had engineered 14 years of positive results before 2002's loss. "With the exception of last year, we have a pretty solid track record financially during a time when a lot of hospitals didn't, in a community that is very difficult," she said.
Bunting would not disclose Goldsmith's exact pay, saying it was policy to wait until top salaries are revealed in the spring on forms filed with the IRS.
Executives close to the network revealed Goldsmith's compensation in discussions with The Inquirer.
The push to boost Goldsmith's pay came from Einstein's trustees. Goldsmith's contract was due to expire in mid-2001, and the bonus was part of the renegotiation, Bunting said. Sam Frieder, chairman of the Einstein board in 2001, campaigned that year with Jefferson officials on Goldsmith's behalf, Bunting said.
Frieder, who heads D.E.S. Tobacco Corp. in Jenkintown, did not return phone calls.
The final decision on Goldsmith's pay rested with the Jefferson Health System's Compensation Committee, which approves CEO pay. Jefferson hired a consultant, Charles Scott of Mercer Human Resources Consultants, who found that the bonus was comparable to those given in similar hospital networks. Scott would not say which organizations he used in the survey, citing client confidentiality.
A Jefferson spokeswoman, Phyllis Fisher, said the system approved the payment because Einstein had made a commitment to Goldsmith. "The Jefferson Health System honors the agreements made by its members with their employees," she said.
Some Jefferson officials said Goldsmith's pay was approved to appease Einstein and avoid a civil war within the network. Jefferson, the region's largest health-care system, ranges from the well-endowed Lankenau and Bryn Mawr Hospitals on the Main Line, to the research-intensive Thomas Jefferson University Hospital in Center City, to the community-minded Frankford Hospitals in the Northeast and Bucks County.
Goldsmith's pay has sowed distrust in the short term. According to executives close to the network, Jefferson officials are preparing to send in a forensic accountant to check Einstein's books to ensure that they were done properly.
The matter could escalate if the IRS takes an interest. Nonprofit trustees can be taxed up to $10,000 for each executive they have been found to have overpaid.
But such an action would be complicated to mount. An IRS spokesman said many complex criteria would have to be met before the tax could be applied.
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An imposing, 6-foot-3 executive who still plays competitive basketball, Goldsmith, 55, rules Einstein with a strong hand. Those who have worked with him say he is known for demanding absolute loyalty and discouraging dissent.
Some people close to the organization feel that the Einstein board, by contrast, is stocked with second- and third-generation members who enjoy their status as board members and are reluctant to challenge a dominating chief executive.
"Marty's salary seems to be well in excess of what other comparable executives are seeing," said Bruce Brownstein, an ophthalmologist at Einstein and former medical staff president at Germantown Hospital, now an Einstein affiliate. Yet "very few board members have enough insight to argue with the existing administration."
Juliet J. Goodfriend, a successful entrepreneur who recently left Einstein's advisory board of overseers in frustration after 18 years of service, praised Goldsmith's ability. But "he didn't do any work that should justify such a payment," she said. "He did not surround himself with anyone who would challenge him. What he's good at is board management."
The current Einstein board chairman, Jack F. Adler Jr., whose father also served as board chairman, declined to comment. More than two dozen trustees either refused to talk or did not return phone calls.
Robert Krauss, a corporate lawyer, was an exception. "There isn't anybody who controls the Einstein board except the directors," Krauss said.
To Krauss, Goldsmith deserves praise for making urban health his life's work. "I give the guy every credit on earth for doing what most people would have walked away from," Krauss said. "The story to be written is dedication to the community and not walking out on it."
"Did Marty get too much? I doubt it. My hourly rate is too high, but that's the market. Marty got paid for doing what the marketplace says he should get paid."
Einstein carries a storied past. Its earliest facility was founded as the Jewish Hospital in 1866 to serve Jewish Civil War veterans. The 442-bed medical center in the Logan section, long a flagship facility for Philadelphia's Jewish community, is well-known for heart care and genetic screening of diseases that afflict Jews and others. Einstein has been expanding its community presence by placing doctors as far afield as Northeast Philadelphia.
Some trustees view Goldsmith, a 28-year Einstein veteran, as a savior, heading the medical center in 1985 and overseeing Einstein's growth into a network three years later. Einstein merged with Jefferson in 1998. The Einstein network includes nationally recognized MossRehab, Belmont Behavioral Health, and the former Germantown Hospital, now largely a nursing home.
Under Goldsmith, the network has been profitable, making a high of $16.1 million on patient care in 2000. But his successful run stopped in fiscal 2002, which ended June 30. During that year, 17 surgeons - 12 percent of the staff - left Einstein and could not be replaced. The number of procedures plummeted by 8 percent to 11,696. And operating losses soared to almost $20 million on revenue of $527 million.
Goldsmith blamed the crisis, saying that surging premiums had caused doctors to flee the medical center. Goldsmith initiated three rounds of layoffs - in November 2001 and January and April of this year - targeting 211 people, from senior administrators to his private secretary.
The network is back on budget this year, Bunting said. But big challenges remain. Goldsmith's dream to build a facility in Montgomeryville has been stalled.
Colleagues were surprised when Goldsmith, 55, announced his retirement in October, saying it was his decision.
But Jefferson officials pushed him to go, leaders within the system say - and it was not because of his $2.25 million bonus. Goldsmith angered some Jefferson partners by embarking on capital projects, such as a $10 million overhaul of Einstein's emergency room, without obtaining the proper approvals from the Jefferson system, several current and former Jefferson executives said.
Bunting said Goldsmith chose to leave. "As far as I know, Marty observed all the Jefferson rules," she said.
The search is on for his successor.
Contact staff writer Karl Stark at 215-854-5363 or [email protected].
