LA Times: Public hospital official got nearly $1 million in severance on top of $3.9-million retirement payout

NewsMay 18, 2011

Sam Allen – LA Times

A Salinas public hospital district, already under fire for granting its outgoing chief executive $3.9 million in retirement payments, also doled out nearly $1 million to the executive as part of an unusual severance agreement, according to records obtained by The Times.

The payment fattened what was already considered one of the more generous public pensions ever given in California. Its disclosure prompted the state Assembly earlier this month to order an audit of the hospital district’s finances.

The Salinas Valley Memorial Healthcare District board gave its CEO, Samuel Downing, a cash payment of $947,594 in 2008, according to a hospital report on his compensation. The money came from a special severance fund set aside for when Downing ended his employment with the public agency.

But the board decided to award him the money while he remained working as CEO, hospital officials said.

Downing retired last month, taking with him that payment, a series of other supplemental retirement benefits totaling $3.9 million and a regular pension of $150,000 a year. He earned about $670,000 in base salary during his final years of employment, along with other benefits such as a car allowance and paid time off.

In an interview Monday, Downing said he felt he deserved the pay after a long and successful career at the hospital, where he started in 1972.

“It sounds like a lot of money to everybody … but I know what the industry is and I know the board did an independent study,” he said. “The board did an excellent job. They made sure we had competitive salaries.”

But several other district hospitals contacted by the Times, as well as compensation experts, said it is unusual for an entity to award severance when the recipient remains employed and continues to draw a salary.

Typically, they said, severance is promised to the employee only in the event they are forced from their jobs.

“It’s absolutely outside of the industry standard to pay a severance upon retirement,” said Jeff Christenson, a compensation consultant at the firm Integrated Healthcare Strategies. “The theory of severance pay is to protect an executive or an employee from an unforeseen termination.”

“It sounds like this board decided to take very good care of him,” said Mark Lipis, an executive-benefit expert who is based in Los Angeles.

Salinas Valley hospital officials said the severance payment stemmed from a handshake agreement between Downing and a previous president of the board of directors.

In 2000, the hospital’s board decided to execute a formal contract, stipulating that Downing would be paid 18 months’ salary upon the end of his employment. Then in 2008, after a profitable year for the hospital, the board members decided to “extinguish the liability,” in case Downing’s compensation rose in the future, said Mike Profumo, one of the hospital’s financial consultants.

“The board members were looking down the road … with a thought that the hospital would continue to do better financially,” he said, adding that there were also concerns about how the money would be taxed after Downing turned 65.

None of the current board members, who are elected to their positions, responded to interview requests Tuesday. The hospital is a public entity that receives some taxpayer funding. In recent years, it has faced declining revenues and patient admissions, which have forced the reduction of about 600 staff positions.