What happened to those 2020 pay cuts? Final CEO pay numbers mixed in Minnesota

At the start of the pandemic, many CEOs at nonprofit hospital groups pledged to take pay cuts as Minnesota's largest health systems, bracing for economic turmoil, cut wages and furloughed workers.

The final numbers on pay are in — finally — and they show that executive compensation across the Big 12 of Minnesota nonprofits was mixed in 2020. Nonprofit financial reporting typically lags between 11 and 17 months.

Five out of nine chief executives at health systems did, in fact, see less in terms of salary combined with bonus for the year, according to a Star Tribune analysis. Yet increases in other types of compensation meant that total earnings grew for five of the nine executives.

Meanwhile, for CEOs at three of Minnesota's large nonprofit health insurers, pay was up significantly by both measures.

The findings on salary-plus-bonus at Minnesota health systems fit with the national trend in 2020 where many chief executives saw temporary salary cuts, reduced incentives and modest or no salary increases, said Bruce Greenblatt, a managing director in the executive workforce practice at SullivanCotter, a compensation consultant.

"The trends were moderation in pay during 2020," said Greenblatt, who focuses on compensation matters at health systems, but not health insurers.

"About half of executive leadership teams took base salary reductions during that year. … About 15% of organizations did not award an incentive at all to their leadership teams."

Craig Samitt, the former chief executive at Blue Cross and Blue Shield of Minnesota, topped the Star Tribune's annual list of the highest-paid nonprofit executives across the state.

His nearly $3.5 million in total compensation amounted to a doubling in pay compared with 2019. The bulk of his compensation came from short-term and long-term incentive pay for which he became eligible for the first time in 2020, the Eagan-based health insurer said in a statement to the Star Tribune.

At the outset of the pandemic, Essentia said it would reduce executive compensation by 40% and consolidate leadership roles as it eliminated some 900 jobs. Over the next few months, as uncertainty eased, the health systems reversed many of those early cuts.

David Herman, the CEO at Duluth-based Essentia Health, landed at No. 2 on the list with nearly $2.8 million in compensation, an increase of 13% compared with the previous year.

"We rehired nearly all of the staff affected by our temporary pandemic-related workforce reduction and reinstated compensation levels for our physicians and executives to help us remain competitive," Essentia Health said in a statement.

John Naylor, the CEO of Minnetonka-based health insurer Medica, saw compensation increase 37% to more than $2.5 million. UCare, a health plan based in Minneapolis, raised chief executive Mark Traynor's pay by nearly 14%, with a total compensation of $1.3 million.

In 2020, Minnesota's nonprofit health insurers saw a surge in operating income due to legal settlements and fewer claims as people delayed care amid the pandemic.

The Star Tribune's annual survey on nonprofit executive compensation focused this year just on the state's largest, all of which are big players in health care. The survey used data from annual IRS filings made available in November or May, depending on the organization.

CEO pay at Allina, Fairview and other health systems is being highlighted this summer in contract negotiations by the Minnesota Nurses Association. The union also is seizing on the rebound in revenue during 2021 at many health systems.

"The million-dollar salaries make it clear what their priorities are and that they can afford to make the changes necessary to put patients before profits," said Jack Nobel, a researcher for the Minnesota Nurses Association.

Health systems say their CEO pay is benchmarked against local, regional and national peers in order to be competitive with other nonprofits.

At Minneapolis-based Allina, compensation for former chief executive Penny Wheeler jumped nearly 21% to nearly $2.6 million. Her combined salary and bonus for 2020 was down, but the cut was more than offset by deferred pay and what filings call "other" compensation.

It was a similar story for Kenneth Holmen at St. Cloud-based CentraCare. The chief executive saw total compensation grow to nearly $1.5 million even as his salary plus bonus declined.

Holmen's other compensation included a cash-out for unused PTO as well as deferred compensation, CentraCare said. Greenblatt of SullivanCotter did not comment on pay for specific executives in Minnesota, but said he focuses on salary and bonus when analyzing compensation trends given the volatility of other types of pay.

"In many cases, that's because of these special one-time payments that really are not reflective of ongoing pay," he said.

Between 2018 and 2019, James Hereford, the CEO at Fairview, saw his pay nearly double to more than $3.5 million. The health system said a consultant's study showed he was being underpaid compared with executives at similar organizations. This, and one-time compensation, accounted for the jump. It was a different story in 2020 as Hereford's compensation fell 26% to $2.6 million.

"As a result of the financial challenges faced by the organization in 2020 related to the COVID-19 pandemic, total compensation for James was reduced," Fairview said in a statement.

Mark Gorelick, the CEO at Minneapolis-based Children's Minnesota, saw his total compensation in 2020 reduced by nearly 3% as part of wage reductions across the nonprofit. The complete pay hit for Gorelick isn't yet visible, Children's said, because bonuses are awarded following the close of any given year.

"We did not accrue or pay out a 2020 incentive bonus in 2021 due to our 2020 operating loss incurred," Children's said in a statement.

That's also true at Bloomington-based HealthPartners, which said early in the pandemic that CEO Andrea Walsh would see a 40% pay cut. Walsh's total pay in the Star Tribune analysis increased 3%, but "two years of filings are required to view the completion of the reduction," the nonprofit said in a statement.

"In our 2021 filing, for example, Andrea Walsh's incentive compensation line will reflect no incentive payout for 2020," HealthPartners said.

At Mayo Clinic, chief executive Gianrico Farrugia saw total compensation decline by 1% to a little more than $2.7 million. The decline was driven by a salary cut that placed Farrugia in an unusually large group of health system CEOs who experienced cuts, said Toni Dolby, managing director and senior consultant at Gallagher.

"Salary decreases on the level occurring during COVID were unprecedented," Dolby said in an e-mail.

Notably, these pay cuts came at a time when the job of running a health system got much more difficult, said Steve Sullivan, a managing director with the consulting firm Pearl Meyer.

Rounding out the Big 12, chief executive Kevin Croston at North Memorial Health saw less salary in 2020, but his overall pay jumped 12% to nearly $1.5 million. The increase was driven by a relatively large bonus paid in 2020 for prior-year performance.

At Hennepin Healthcare, Jennifer DeCubellis was the only CEO on the Star Tribune list who was both new to the job in 2020 and received only partial-year pay since she started in mid-February. The executive team took voluntary pay cuts due to the pandemic, the health system said in a statement, including a 20% reduction in pay for DeCubellis.

Star Tribune staff writer Patrick Kennedy contributed to this report.