In a denomination that has long stressed dedication and sacrificial wages, there are at least 52 highly paid Adventist hospital executives receiving annual “total compensation” ranging from $815,000 to $5,079,386.1 The reportable W-2 earnings in the group averaged $729,434 per individual in 2010. With benefits, retirement, and other perks, this lifted individual executives’ “total compensation” along with wages to an estimated average of $1,346,679 in the same year, according to data obtained from the IRS 990 reports.2 There are many more executives on the way up from $196,500 to $815,000.
As a point of reference, the annual wage of former General Conference (GC) President Jan Paulsen in 2008 was $87,008.3 If you are looking for a career that provides an opportunity to stack up worldly wealth and help coordinate the healing ministry of the Seventh-day Adventist Church, just about any administrative job in the Adventist healthcare system is your best option.
A Pivotal Decision
Persons closely connected to wage and salary policies for workers in God’s vineyard are aware that the General Conference approved a higher remuneration structure for top administrators and other employees in the Adventist healthcare corporations. The last step occurred during the 1989 Spring Meeting of the GC Executive Committee, acting as a North American Division committee.4 Adventist Review reported that the topic of wage-scale improvements provoked a lively and sometimes cantankerous debate. Aspects of the debate continue to the present.
The first session on Wednesday, April 5, 1989, was highly charged with emotion. Some delegates accused the healthcare executives of being motivated by greed and avarice. One hospital president said that “he had finally found something worse than going to the dentist and that was attending Spring Meeting.”5
The meeting chairman, former GC President Neal C. Wilson, favored the new salary structure. At the end of the day he could see that removing the salary caps for hospital leaders was not going to pass, so he called for a motion to table the matter. Church leaders present in the meeting discussed how higher pay had already caused tension between hospital employees and church workers.
Individuals who opposed larger wages felt that the decision was contrary to repeated statements from the Spirit of Prophecy, such as: “If a portion of the workers receive large wages, there are others, in different branches of the work, who will call for higher wages, and the spirit of self-sacrifice will gradually be lost sight of.”6 Several statements from Ellen G. White concerning wages in church institutions were read, and the committee broke away from deliberations at least twice during the day to pray for divine guidance on the matter.
Committee members supporting the new salary cap included a few laypersons and the union conference presidents who chaired the Adventist healthcare systems. During the ensuing debate, 14 committee members spoke in favor, including four from hospital administration, and 13 were against the motion. Five committee members were neutral. In the background David Dennis, then director of the GC Auditing Service, was well aware that the union presidents on the hospital boards were enjoying “nice perks … [including] pampering them with freebie cruises to Alaska and other significant gifts.”7
Adding a sour note during discussions, Dennis spoke out about the loss of 34 experienced auditing personnel who were lured away from the GC by offers from the healthcare system.8 Afterward and into the night, Chairman Wilson met with various individuals and drew up “seven safeguards that, if added to the motion, might make it more acceptable.”9
Near the end of the next day, after some members of the opposition had left for home, Wilson again brought up the wage matter. He rejected the argument used the day before that removing the salary caps was one more step down the road that would eventually lead to separation of the hospitals from the church. This argument had been expressed artfully by the highly respected GC Treasurer, Don F. Gilbert, who was concerned about placing wages for hospital executives on a worldly standard.10 Trying to take some of the wind out of the arguments, Donald Welch, then president of Adventist Health System, assured the GC brethren that “his group would recommend lower rates than the consultants’ study.”11
Chairman Wilson contrasted the ideal with the pragmatic and said that anyone who objected should come forward and present viable alternatives.12 It appeared that “the only way for our medical work to return to the church’s wage scale would be to start new institutions operated on the original medical missionary philosophy that led to the founding of Battle Creek Sanitarium.”13
Reports in Adventist Review and Ministry magazines indicated that the hospitals were facing financial challenges in retaining top management under church wage caps. At the same time, morale was also suffering. With the federal government enlarging Medicare and the management of the ever-growing healthcare markets becoming more complex, objections to higher administrative wages simply faded into the sand.14 After that, the law of supply and demand prevailed with a different economic model for highest-compensated employees.
The removal of salary caps did not come easily. It took some arm twisting, including cajoling and a secret ballot at the end of the day on Thursday. Fifty-two members voted yes, and forty-two voted no.15
How Much Should Executives Be Paid?
Salaries for key hospital executives were allowed to jump from $81,700 to $116,400.16 The approved plan included a 10-percent differential for geographic considerations and an additional 10 percent for the three largest hospitals at that time—Florida Hospital, Kettering Medical Center, and Loma Linda University— and the health systems corporate offices.17 This was three to four times the earnings of other church employees, including some who voted for the change. Once freed from church wage caps, the top hospital executives’ total compensation ballooned (within a few years) to well over a million dollars, using a variety of reward strategies to create more annual pay.
Currently almost 50 percent of executive earnings are in the form of bonuses, incentives, and other cash, including deferred nontaxable benefits, gross-up tax payments, travel for companions, and supplemental employee retirement plans not available to lower-paid hospital employees.18 These supplemental gains were one way to get around the salary caps approved by the GC, and they are not unusual for the nonprofit hospital industry.
When accounts of these executives’ high wages began to appear in the newspapers, many church members raised their eyebrows and wondered what was happening. Others were shocked and outraged to learn of the details.19 One of the first stories was carried by the Washington Post. The Post reported that Bryan Breckenridge left his job in 1997 as president of Washington Adventist Hospital with a lump-sum payment of $4.74 million, and soon thereafter chief financial officer Edmund R. Peters also resigned with $3.1 million in total compensation for the year.
Adventist officials justified these wages by telling the Post reporter: “The board made a reasonable business decision that retirements for a number of the executives … were not adequately funded in comparison to what they would otherwise have received in a nonreligious organization. The decision was made to do a catch-up, if you will.” 20
The high-wage controversy is expected to intensify in the future because of the unprecedented financial pressures facing the hospital industry, including the rising costs of medical care and at times cutting back on wages and benefits to the hardworking support staff because of painful budget cuts. Of course, there are other issues too. Lofty executive pay can threaten the tax-exempt status of nonprofit hospitals if not enough is spent on indigent care, education, and outreach programs. Hospital executives defend receiving these wages, saying it has no effect on healthcare costs.21
The executives go on to champion high wages as the only way to attract highly trained individuals who can manage a hospital facility with many employees, provide access to the uninsured, and at the same time deliver quality care that saves lives. Also, they defend high wages because some income includes supplemental retirement accumulations before the executives are qualified to receive the money.
Given that the base wage may begin around $500,000, it is still disappointing to many denominational church workers to learn of such high wages. Their general reaction comes from a long-held (almost sacred) view that high wages are a substantial deviation from the “philosophy of remuneration maintained by the SDA Church involving sacrificial wages while doing God’s work.”22 Others who are more pragmatic say that you must pay for expert hospital leadership. The hard questions begin when you ask what hospital executives should make, and why.
Wrestling with such questions against the backdrop of the church’s stated remuneration philosophy makes the policy sound like a scolding based “upon the fact that a spirit of sacrifice and dedication should mark all denominational employees irrespective of the position they hold or the department or service they represent.”23 …
In economic terms, the Adventist hospitals have gross revenues almost six times greater than worldwide church revenues. Adventist healthcare is big business. These tax-exempt nonprofit hospitals are community institutions deriving in large part revenues from taxpayers (Medicare) and insurance payers. It is not widely known, but the tax reports indicate that some residual revenues are directed in supporting SDA churches, union and local conferences, and educational institutions.
For instance, in 2010 Adventist Health System Sunbelt Healthcare Corporation (the management firm that operates multiple hospitals and nursing care facilities) transferred grants totaling $1,459,050 in general support funds, which mostly went to the Lake Union, Southern Union, Southwestern Union, and Mid-America Union. Oakwood University received $100,000, and Union College received $15,000. Southern Adventist University received $3,320,500, and the Florida Conference of Seventh-day Adventists picked up $1,040,000 in general support from the Florida-based corporation.26 The grants are small compared to $2.9 billion in gross revenues reported that year …
Public awareness about hospital CEOs’ big paychecks is increasing, due in part to Wall Street and corporate abuses, but also because the subject tends to vex the public mind when compared to an average annual household income of approximately $56,000. Health economist John Troidl recognizes that “executive pay is always controversial.”27 …
Given that these hospitals exist to provide quality healthcare and are required to render community and charitable benefits, the Internal Revenue Service (IRS) is concerned about how much executive compensation (cash) is flowing away from the purposes served by nonprofit tax-exempt hospitals. Congressional leaders say such financial rewards “reveal the need for more regulation on nonprofit entities that rely heavily on government money.”30
The IRS Ensures That Nonprofits Serve the Public Good, Not Insiders
While church leadership is apparently no longer troubled about high executive salaries, the IRS has a strong interest in subjecting nonprofit organizations to what is known as nondistribution constraint, or what is more commonly called the prohibitive inurement doctrine. Simply stated, this means that nonprofit organizations cannot distribute profits to those who control the tax-exempt institutions (i.e., executives, key employees— the insider group). Generally, surplus revenues in the nonprofit corporations are retained for investments, debt payments, selfpreservation, or future plans, etc. …
If the IRS finds that an executive has been overpaid, it can fine both the executives and board members who approved the overpayment, or it can even revoke the organization’s tax-exempt status. To avoid such problems, the board must: (1) base its compensation decisions on appropriate research of the employment markets, and (2) document its decision-making process at the time it approved the compensation. The nonprofit tax-exempt corporation is required to reveal how it established executive compensation. Loans to key employees and insider business transactions must also be reported. …
Church officials contend that in order to attract well-qualified CEOs and other top executives, it is necessary to follow labor market trends, just as in other businesses. Hospitals may be taxexempt charities, but they are still complicated businesses with narrow profit margins. They need skilled and talented executives to keep them running. Management consultants go on to argue that there is, in fact, no rational basis for why executives should not be paid as much as they are paid. This all boils down to what a job is worth, what an employer is willing to pay an employee to do it, and what an employee is willing to accept as payment for the job.
A few trustees on these hospital boards might be surprised to learn that studies show that a hospital executive’s performance is not related to pay after all. In a recent major study, the New Hampshire Center for Public Policy Studies found that there is “virtually no correlation between hospital [CEO] pay and either quality or cost” at nonprofit health systems.”39 Another example of how this idea flies in the face is Barack Obama, who is paid $395,188 annually, because few executives have any greater challenge than the president of the United States. …
What Lessons Can We Learn?
Much of the deep-seated public resentment toward executive pay in healthcare can be attributed to an awareness that tax-exempt nonprofit hospitals are community institutions paid for in large part by taxpayers. However, the attitude against high wages in Adventism is somewhat different. Criticism is colored by a cautious moral veneer that many young Adventists acquired: a belief in the cultural value of working under conditions of sacrificial wages in readiness for the second coming.
For many there was a strong belief that no worker in “God’s employment” expecting to hasten this event should be paid beyond a living wage, thus providing resources sufficient to enlarge the field of workers. Some argue in more explicit terms: that it is morally wrong to pay a person exorbitant wages. Unfortunately, most people are aware that the healthcare marketplace has many hands reaching in to take a piece of the financial pie. …