As the health care industry continues to change, severance programs have become increasingly important for employers to remain competitive, avoid potential litigation, and facilitate succession planning. According to new survey findings, a clear majority (83%) of health care organizations have a written severance agreement with their CEO.
“The health care industry is experiencing significant organizational change, and as a result, severance agreements are becoming more prevalent,” said Tom Flannery, Partner in Mercer’s Talent business. “While there is an abundance of quality data on cash compensation and benefits, little information is available on severance, which is an important part of the executive compensation package.”
The 2013 Health Care CEO Severance Survey, conducted in partnership with Mercer, Witt/Kieffer, and Hunton & Williams LLP, assesses CEO severance practices for 196 health care providers and health plan/managed care organizations across the United States. It is a comprehensive source of data to help organizations provide appropriate compensation packages for their executives. To find out more about the survey results, visit www.imercer.com.
According to the survey, severance benefits are most commonly triggered by involuntary termination without cause or a change-in-control. While just 5% of organizations provide service-based severance benefits, the majority of organizations continue benefits for a fixed period, typically 24 months. Moreover, most continue benefits during the severance period, including dental, vision, and life insurance.
“As the industry itself is becoming more complex, so are CEO severance packages,” said Jena Abernathy, Partner with Witt/Kieffer. “There are significant differences in the way that terms and provisions can be structured,” she added, “so it’s important that health care organizations gather information about standard practices and benchmark against each other.”
Other survey findings reveal that slightly more than one-third of organizations provide for mitigation (reduced or terminated benefits if the CEO is employed during the severance period). Additionally, two-thirds of organizations indicated severance benefits were subject to a non-compete or non-solicitation agreement.
“Under IRC 4958, executive compensation, including severance payments, must be paid in a reasonable manner,” said Doug Mancino, Partner at Hunton & Williams LLP. “Because of polices like this, it’s important for organizations to have a written severance agreement with their CEO that has been reviewed by both an independent consultant and legal counsel.”
Mercer is a global leader in talent, health, retirement, and investments. Mercer helps clients around the world advance the health, wealth, and performance of their most vital asset – their people. Mercer's more than 20,000 employees are based in 42 countries, and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy, and human capital. With over 53,000 employees worldwide and annual revenue exceeding $11 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @MercerInsights.
Witt/Kieffer is the preeminent executive search firm that identifies outstanding leadership
solutions for organizations committed to improving the quality of life. We are the only leading executive search firm specializing in health care, higher education, life sciences, board services and not-for-profit industries. We have more than 40 years of experience in executive recruiting exceptional C-suite leaders. For more information, visit www.wittkieffer.com.
About Hunton &Williams LLP
Hunton & Williams LLP provides legal services to corporations, financial institutions, governments and individuals, among other entities. Since our establishment more than a century ago, Hunton & Williams has grown to more than 800 lawyers serving clients in 100 countries from 19 offices around the world. Our practice has a strong industry focus on energy, financial services and life sciences, and our experience extends to practice areas including bankruptcy and creditors’ rights, commercial litigation, corporate transactions and securities law, intellectual property, international and government relations, real estate, regulatory law, products liability, and privacy and data security. Visit our website at www.hunton.com. Follow us on Twitter and LinkedIn.