Community Health Systems will pay its former CEO up to $4 million plus hundreds of thousands of shares in the company this year to serve as executive chairman.
Wayne Smith stepped down at the end of 2020 after more than two decades at the helm of the for-profit hospital chain, which is based in Franklin, Tenn. He will get a base salary of $1 million in 2021—down from $1.6 million last year—but will continue to make most of his money in the form of cash incentive pay and stock awards, according to a Securities and Exchange Commission filing.
Smith will be able to earn up to 225% of his $1 million salary this year from the company’s Employee Performance Incentive Plan, which is the same percentage as in 2020. In 2019, the latest year for which information is available, Smith got a $3.8 million cash payout through the incentive plan. Employees get that money for hitting specific goals, with the award level fluctuating based on the level at which the goal was attained.
CHS, which declined to comment for this article, hasn’t said how long Smith will serve as executive chairman.
The role of executive chairman, typically filled by a former CEO or founder, has become increasingly common. In 2020, Compensation Advisory Partners estimated roughly 20% of companies had executive chairmen across all industries. Now, that appears to be up to about 25%, said Susan Schroeder, a partner with CAP.
Schroeder expects even more companies will add the position after The Walt Disney Company did in February 2020 and Amazon plans to follow suit in the third quarter.
“If these guys can do it, then it becomes the cool thing to do,” she said.
Total compensation for executive chairmen was typically about 80% that of the CEO according to companies’ 2019 proxy statements, up from about 60% in prior years, Schroeder said.
Smith, whose total compensation was $8 million In 2019, spent the final years of his tenure selling off underperforming hospitals that were mostly acquired through the 2014 purchase of Health Management Associates, a deal that saddled the company with billions in additional debt and contributed to sizable losses in the following years. CHS’ divestiture program appears to be helping. The company turned a small profit in the quarter ended Sept. 30, 2020 and posted a $511 million profit in 2020, although that included about $600 million in federal grants.
Smith could also earn another $400,000 this year if he meets other “specific non-financial performance improvements” and another $350,000 for “overachievement of company-level goals,” according to the disclosure.
CHS is also granting Smith several stock awards effective March 1. That includes 90,000 non-qualified stock options, 90,000 time-vesting shares and 180,000 performance-based shares. The number of performance-based shares ultimately awarded could range from 0% of 200% of that number based on whether Smith meets certain goals during the three-year period ending Dec. 31, 2023. A share of CHS’ common stock was valued at $8.43 at 2 p.m. Eastern on Monday. That would make all 360,000 shares Smith is eligible for worth about $3 million.
Tim Hingtgen, CHS’ new CEO, will make a base salary of $1.2 million this year, up from $1 million in 2020, when he was chief operating officer. Like Smith, he’s also eligible for to get up to 225% of that in the form of cash incentive pay. Effective March 1, he’ll get 100,000 non-qualified stock options, 100,000 time-vesting shares and 200,000 performance-based shares. He’s also eligible for additional payouts if he meets non-financial performance improvements and overachievement of company goals.
Kevin Hammons, CHS’ chief financial officer, will get a base salary of $700,000 this year, up from $575,000 in 2020. He’s eligible to make 125% of that in cash incentive pay and gets 75,000 non-qualified stock options, 75,000 time-vesting shares and 150,000 shares of performance-based stock.
CHS has previously retained former executives in new positions. Larry Cash, who stepped down as the company’s CFO in May 2017, stayed on as a consultant until March 31, 2020 with a $300,000 annual salary plus eligibility for benefits.