Nonprofit Hospital Systems:

Survey on Executive Compensation Policies and Practices

GAO-06-907R: Published: Jun 30, 2006. Publicly Released: Jul 28, 2006.

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As a part of Congress's continuing efforts to oversee the activities of the nonprofit sector, it asked us to review executive compensation issues at selected private, nonprofit hospital systems to gain an understanding of the policies and practices related to the salaries, benefits, travel, gifts, and entertainment expenses paid by these hospital systems. Our study's key questions were as follows: (1) What corporate governance structure do selected hospital systems report as having in place over executive compensation? (2) What is the basis for the compensation and benefits earned by, awarded to, or paid to the executives as reported by selected hospital systems? (3) What internal controls do selected hospital systems report as having in place over the approval, payment, and monitoring of executive travel and entertainment expenses, gifts, and other perquisites? On June 5, 2006, we briefed Congressional staff on the results of our work. This report transmits the briefing provided to Congressional staff, as amended to reflect some additional observations.

We received responses from 65 of the 100 hospital systems. The hospital systems reported similarities in certain governance and compensation policies and practices. For example, hospital systems commonly reported policies and practices such as having an executive compensation committee or entire board with primary responsibility for approving executives' base salary, bonuses, and perquisites; having a conflict of interest policy that covers members of the executive compensation committee and compensation consultants; and relying upon comparable market data of total compensation and benefits prior to making compensation determinations. With respect to perquisites and entertainment and travel expenses for their executives and the related internal control for these payments, the 65 hospital systems reported a range of practices. For example, hospital systems commonly reported that they provide for payment of automobile-related expenses as a perquisite to executives. They also commonly reported having written policies that cover business travel and entertainment expenses. However, hospital systems reported a mix of practices related to payment for other perquisites such as memberships in recreational and social clubs and audits of perquisites and entertainment expenses.

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