As more hospitals are being sold, top hospital executives need to make sure they have "change of control" agreements in place, says Paul Creasy, a partner in Organizational Consulting Group in Avon, Ohio. The agreement, also known as a "golden parachute," provides a payout to a hospital executive in the event of a takeover. Here Mr. Creasy offers some pointers on these agreements.
1. Get an agreement in advance of sale. It is better to have a change of control agreement in place before the hospital is put up for sale. CEOs who do not have an agreement should approach their board and ask for one.
2. Non-CEOs also can have agreements. Other executives in the C-suite can also have agreement, but instead of approaching the board, they would approach their CEO to get one. "The further you go down the food chain, the less likely it is to have this agreement," Mr. Creasy says.
3. If the sales process has already started. If executives do not have a change of control agreement by the time the sale is being negotiated, they should try to get one inserted in the sales agreement during negotiations.
4. Establish a reasonable payment. The agreement establishes the payment level, expressed as a multiple of the executive's base salary. Hospitals have to be careful about setting the payment too high and risking Internal Revenue Service sanctions. Mr. Creasy has researched severance payments at not-for-profit hospitals, as reported on IRS 990 forms, and found a wide variation in the multiples, ranging from half to seven times of the yearly salary.
5. Establish triggers. A single-trigger agreement simply pays out in the event of a change of control. A double-trigger agreement assumes that the executive would stay under the new regime, and it would pay out only in the event of second trigger, which could cover events other than just the dismissal of the executive, such as a downgrading or being asked to move more than 100 miles.
Learn more about Organizational Consulting Group.
1. Get an agreement in advance of sale. It is better to have a change of control agreement in place before the hospital is put up for sale. CEOs who do not have an agreement should approach their board and ask for one.
2. Non-CEOs also can have agreements. Other executives in the C-suite can also have agreement, but instead of approaching the board, they would approach their CEO to get one. "The further you go down the food chain, the less likely it is to have this agreement," Mr. Creasy says.
3. If the sales process has already started. If executives do not have a change of control agreement by the time the sale is being negotiated, they should try to get one inserted in the sales agreement during negotiations.
4. Establish a reasonable payment. The agreement establishes the payment level, expressed as a multiple of the executive's base salary. Hospitals have to be careful about setting the payment too high and risking Internal Revenue Service sanctions. Mr. Creasy has researched severance payments at not-for-profit hospitals, as reported on IRS 990 forms, and found a wide variation in the multiples, ranging from half to seven times of the yearly salary.
5. Establish triggers. A single-trigger agreement simply pays out in the event of a change of control. A double-trigger agreement assumes that the executive would stay under the new regime, and it would pay out only in the event of second trigger, which could cover events other than just the dismissal of the executive, such as a downgrading or being asked to move more than 100 miles.
Learn more about Organizational Consulting Group.