SMH board goes overboard?

Sarasota Memorial Healthcare and its flagship, Sarasota Memorial Hospital, have been and remain a point of pride for Sarasota.

For nearly 20 years, the health care system has been on an uninterrupted streak of growth and success medically and financially, thanks to a great degree to the noteworthy leadership of three CEOs: former CEOs Dr. Duncan Finlay and Gwen McKenzie and current CEO David Verinder.

Sarasota Memorial is frequently ranked among the nation’s best hospitals in a variety of measurements, and when you drive by the increasing physical stature of its campus on Tamiami Trail, Sarasota Memorial easily looks to be one of the region’s leading businesses and public institutions, if not the leading business and public institution. After all, more than 730,000 people a year receive treatment in the system; it employs nearly 8,000 people and generates $1.15 billion a year in revenue.

Consider how it has grown in size and medical prestige. In 2015, it added a Level II trauma center; in 2017, it added a residency program with Florida State University and completed a new rehabilitation center. Last year, it opened its Venice hospital and recently dedicated the new Jellison cancer tower. And it is ranked among the best in the nation for heart treatment, rehabilitation services for serious diseases and robotic surgeries.

This two-decade transformation starts at the tip of the spear: the CEO and the leadership team the CEO assembles. Clearly, Verinder, who was named CEO in 2014, has guided SMH to high achievements on multiple, essential fronts: medical superiority (recruiting top doctors), customer service and outcomes (which require staff training and the right culture) and financial performance (an astute balancing of capital and business operations).

SMH is regarded as a high performer in the latter, financial performance, based on the way the Moody’s rating agency measures profitability. As most CEOs know, it’s no easy feat to manage day-to-day challenges while at the same time pursue multimillion-dollar initiatives such as the completion and opening of a new hospital in Venice and the completion of the new cancer tower, and then to do this during a worldwide health crisis and still manage to maintain what many financial analysts would consider a mountain of cash on the system’s balance sheet, $1.3 billion.

How the hospital system performs financially is important to Sarasota County taxpayers because they have a financial stake and risk in its operations. As a public hospital taxing district, Sarasota Memorial imposes a current 1.042 millage rate on all county property. In the past two years, Sarasota County taxpayers contributed $64 million and $61 million in property taxes, respectively.

The risk to taxpayers is what happens if management messes up. The hospital board can raise the tax rate.

Fortunately, Sarasota County taxpayers can feel satisfied overall and comfortable that Sarasota Memorial Healthcare System’s management has been and is a competent steward of this important taxpayer-supported and community institution.

Sure, there was a controversy last year over management wanting to use $300,000 in hospital funds for a political action committee — which it rescinded. But over the tenures of Finlay, McKenzie and Verinder, Sarasota Memorial has avoided the public turmoil that engulfed the hospital in the late 1990s and early 2000s.

Most recently, to acknowledge the hospital system’s success, the nine elected members of the Sarasota County Public Hospital Board have rewarded Verinder for his performance. In February 2021, the board voted to extend Verinder’s two remaining years on his contract by eight years. With only one member dissenting (Tramm Hudson), the board voted 8-1 to give Verinder a 10-year contract and increase his base salary to $1,125,000. That raised him from being in the 60%-plus percentile of peer CEOS to near the 75th percentile.

In January, the board boosted Verinder’s pay again. On another 8-1 vote, with Hudson against, the board voted to boost Verinder’s base salary 12%, to $1,263,000, and increase a short-term incentive plan. It gave him a plan allowing him to earn up to 45% of his base if he met certain short-term metrics. The previous incentive was 35%.

Two weeks ago, members of the hospital board’s governance committee decided Verinder needed more. It is recommending a new long-term incentive plan that will give Verinder the opportunity to earn up to an additional 25% of his base if he hits certain targets by the end of fiscal 2024: up to 12.5% if the system’s total revenues reach $1.55 billion and up to 12.5% if the system averages a 5.3% operating margin over the term.

Neither of those targets is much of a stretch, given recent trends.

Altogether, you can figure Verinder is likely to be earning close to $2 million a year for the next three years — and beyond.

Is he worth it?

That, of course, depends on whom you ask. We’re strong believers in capitalism, merit pay-for-performance and you get what you pay for.

Verinder is worth a premium, and his performance certainly stands up well to his peers.

If there is to be any criticism or questioning, it’s not of Verinder. It would be of the elected members of the hospital board members. It appears they have been quick and easy when it comes to increasing Verinder’s compensation.

In particular, they veered far out of the norm in the hospital industry and business in general when they agreed to giving Verinder a 10-year contract. At the time of the extension, the hospital board’s outside compensation consultant was asked if she knew of other hospital system CEOs with 10-year contracts. She did not, acknowledging that 10 years was out of the norm.

Typically, hospital CEO contracts are three to five years.

We are bringing Verinder’s compensation to light — in particular, his 10-year term — not to be at all critical of Verinder but to shine some light on an elected board that has a fiduciary duty to the citizens of Sarasota County.

The eight board members who approved the 10-year term did so, they said, out of fear of losing Verinder, who, by the way, has made no indications of wanting to leave. While that deal might have given comfort to current board members, it tied future board members in ways they do not know yet.

This is also worth noting: When public boards vote 8-1 and the minutes of meetings show overwhelming agreement on many issues, taxpayers can begin to wonder whether the board members are doing enough to challenge the organization’s leaders and remembering their chief responsibility: that of fiduciaries to taxpayers.