A copy of the agenda for the Regular Meeting will be posted and distributed at least seventy (72) hours prior to the

meeting. In observance of the Americans with Disabilities Act, please notify us at 650-988-7504 prior to the meeting so that we

may provide the agenda in alternative formats or make disability-related modifications and accommodations.

AGENDA EL CAMINO HOSPITAL BOARD

JOINT MEETING OF THE BOARD AND THE EXECUTIVE COMPENSATION COMMITTEE

Wednesday, March 12, 2014

5:30 – 6:30 p.m.

Location:

El Camino Hospital, Conference Rooms, E, F & G, ground floor

2500 Grant Road

Mountain View, California

and

via teleconference:

Zayed 2nd

Street, Tower Building, 19th

Floor, #1903

Abu Dhabi, UAE

and

33 Longwood Drive,

Callawassie Island, SC 19910-4232

EL CAMINO BOARD MISSION: To be an innovative, publicly accountable and locally controlled comprehensive healthcare

organization which cares for the sick, relieves suffering, and provides quality, cost competitive services to improve the health and

well-being of our community.

EXECUTIVE COMPENSATION COMMITTEE MISSION: The purpose of the Executive Compensation Committee

(“Compensation Committee”) is to assist the El Camino Hospital (ECH) Hospital Board of Directors (“Board”) in its

responsibilities related to the Hospital’s executive compensation philosophy and policies. The Compensation Committee shall

advise the Board to meet all applicable legal and regulatory requirements as it relates to executive compensation.

AGENDA ITEM PRESENTED BY

1. CALL TO ORDER Neal Cohen, MD

Board Chair

5:30 – 5:31 p.m.

2. ROLL CALL Neal Cohen, MD

Board Chair

5:31

3. POTENTIAL CONFLICT OF

INTEREST DISCLOSURES

Neal Cohen, MD

Board Chair

5:31 – 5:32

4. EL CAMINO HOSPITAL

EXECUTIVE COMPENSATION

PHILOSOPHY

ATTACHMENT 4

Nandini Tandon, Chair,

Executive Compensation

Committee

Michael Stewart,

Sullivan & Cotter

public

comment possible motion

5:32 – 6:15

5. PUBLIC COMMUNICATION

A. Oral Comments

This opportunity is provided for persons in

the audience to make a brief statement, not

to exceed 3 minutes on issues or concerns

not covered by the agenda.

B. Written Correspondence

Neal Cohen, MD

Board Chair

6:15 – 6:18

Agenda: Join Meeting of the El Camino Hospital Board and Executive Compensation Committee March 12, 2014 Page 2

AGENDA ITEM PRESENTED BY

6. ADJOURN TO CLOSED SESSION Neal Cohen, MD Board Chair

6:18 – 6:19

7. Gov’t Code Sections 54957 and 54957.6 for

report and discussion on personnel matters. - El Camino Hospital Executive

Compensation Philosophy

Nandini Tandon, Chair, Executive Compensation Committee Michael Stewart, Sullivan & Cotter

information 6:19 – 6:29

8. RECONVENE OPEN SESSION Neal Cohen, MD Board Chair

6:29 – 6:30

To report any required disclosures regarding permissible actions taken during Closed Session.

9. ADJOURNMENT Neal Cohen, MD

Board Chair 6:30 p.m.

Separator Page

Att 4 - ECH Executive Compensation Philosophy.pdf

Administration

DATE: ECH Hospital Board – March 12, 2014

TO: El Camino Hospital Board of Directors

FROM: Nandini Tandon, Chair and David Reeder, Acting Chair,

Executive Compensation Committee

SUBJECT: Discussion Regarding Executive Compensation Philosophy

BOARD

ACTION: Information

Executive Summary:

One of the Executive Compensation Committee’s goals is to recommend the FY

2015 executive compensation philosophy as well as benefit and compensation

plan design to the Board.

The Board requested a joint discussion with the committee members.

The community members will share their expertise and experience to provide

education, perspective, and ideas for best practices with the Board.

The Committee wants to engage the Board in a meaningful discussion on

executive compensation philosophy. Mike Stewart from Sullivan Cotter will

facilitate the discussion.

Next Steps:

The Committee is meeting on March 20, 2014 to discuss the input from the

Board and to develop recommendations for the April or May Board meeting.

The Board will need to approve any recommendations no later than the June

meeting for a July 1, 2014 effective date.

attachments

Separator Page

Att 4b - Exec Comp Phil Discussion 022714jj.pptx

Presented to:

© 2014 Sullivan, Cotter and Associates, Inc. The material may not be reproduced or copied without written consent of SullivanCotter.

Discussion on

Executive Compensation Philosophy

El Camino Hospital

• Components of Executive Compensation in Not-For-Profit Health Care Market:

– Base salary – reflects experience and sustained performance. Salary ranges are broad (50%) and approximate P25 to

P75 of market data

– Annual incentives – include downside risks and upside potential, based on performance.

– Long-term incentives – less prevalent than annual incentives and focuses on longer-term objectives and retention of

executives.

– Standard benefits – provided to all employees.

– Executive benefits – typically focused on supporting executive retention and addressing areas where standard benefits

are capped for higher earners.

• Current Guiding Principles of Executive Compensation Philosophy at El Camino Hospital:

– Support the Hospital’s ability to attract, retain, and motivate a highly-talented executive team with the ability and

dedication to manage the Hospital accordingly.

– Support the Hospital’s mission to improve the health and well-being of the communities we serve through quality health

care, education, and research, and to provide care to those in need regardless of the patient’s ability to pay.

– Support the vision of the Hospital as the preferred community healthcare destination in Silicon Valley based on quality,

innovation, and the individualized patient experience.

– Develop and administer cash compensation and benefit programs that allow the Hospital to attract, retain and motivate

executives.

– Considers the Hospital’s financial performance and ability to pay which shall be balanced with the Hospital’s ability to

attract, retain and motivate executives.

– Govern the executive compensation programs to comply with state and federal laws.

– Attract and retain talented executives, who are committed to accomplishing the goals of the Hospital.

Executive Compensation Philosophy

and Competitive Positioning

1

Peer Groups:

– National, not-for-profit hospitals and health systems of similar size and complexity.

• El Camino Hospital competes for talent nationally.

• National data are more robust and more consistent than regional data.

• El Camino Hospital uses a geographical adjustment to the market data to reflect the “geographic

salary differential” of the Silicon Valley.

Current Compensation Philosophy Market Positioning.

• Salary ranges set based on 50th percentile, actual salaries based on a combination of paying

competitively, rewarding performance, recognizing competencies, credentials, and experience.

• Target incentives and total cash compensation intended to create 50th percentile market positioning,

based on organization and individual performance.

• The combination of median total cash compensation and competitive (median) benefits intended to

produce 50th percentile total compensation.

• An important consideration has been whether to focus on percentile position of individual

components of pay or to focus on the whole program (i.e., total cash compensation or total

compensation (including benefits)).

Executive Compensation Philosophy

and Competitive Positioning

2

• It is essential that the executive compensation program be designed so that it aligns with the critical

business and mission interests of the organization.

– A blend of fixed and variable compensation that provides appropriate security, performance

expectation and retention to executives responsible for leading execution of the organization’s

strategy.

• Each organization must assess its strategic business interests, its mission, its organizational culture

and the national and regional competitive factors that affect recruitment and retention of senior

executives.

• The changes that are occurring within health care have influenced organizations to reconsider their

focus on key organizational measures of performance.

– Increased focus on quality and patient satisfaction while maintaining fiscal performance.

– Responsiveness to the regulatory environment.

• It is the role of the Compensation Committee to oversee executive compensation philosophy and

design and to ensure that the program, including all elements of compensation, is both competitive and

rigorous in its support of the mission and business interests of the organization.

Role of Executive Compensation

3

• Executives typically have a portion of their total cash compensation “at risk” (i.e., its delivery is based

on organization and individual performance against a set of well-vetted goals and performance

metrics).

• The level of target award opportunities usually varies by both the size of the organization and the level

of the executives.

– For organizations similar to El Camino Hospital, typical CEO target award opportunities range

between 25% and 40%. For the next level of executives, target incentives range between 20% and

30%.

• Typically, incentive plans are designed in conjunction with competitive base salaries to provide an

opportunity to leverage total cash compensation to a higher position in the market based on

organization and individual performance.

• Annual incentive plans are highly prevalent throughout the not-for-profit health care industry.

– Long-term plans are employed by approximately 30% of health systems and hospitals and they are

used to focus attention on strategic business goals and to serve as retention vehicles for senior

executives.

– It is also possible to incorporate elements of longer-term organization priorities into an annual

incentive plan.

• At the heart of the effectiveness of any variable pay program based on organization and individual

goals is the rigor and the transparency of the goal setting and assessment process.

Variable (Incentive) Compensation

4

• Typical market practice is to have a blend of organization and individual goals, usually with a heavier

emphasis on organization performance.

– El Camino Hospital has a 70/30 weighting on organization and individual performance. CEO is 80/20.

• Organization goals are typically developed by management and recommended to the Board or a Board

Committee for approval.

• In recent years, there has been a clear movement to a balanced scorecard approach to goal setting

that reflects not only the mission of the organization, but the changing realities of the health care

market.

– Quality

– Financial

– Patient satisfaction

– Others

• Best practice suggests that, in most circumstances, goals should be results and metrics driven, not

process driven.

• A truly effective performance-based executive compensation program will have a rigorous, well-vetted

set of goals that reflect the annual and, increasingly, long-term business interests of the organization.

• It is incumbent on management and the Board to engage in full and transparent discussions of both

goal-setting and performance assessment against the goals.

Performance Goal Setting

5

• Total Compensation includes base salary, incentive compensation, and benefits

• Competitive benefits help attract and retain employees

• Some benefits provide security (i.e., severance, retirement plans, disability and life

insurance)

• Cost of basic employee benefits are higher in Silicon Valley than national median

• Certain employee benefits are capped, and executives do not receive the same benefit

(as a percent of pay) as employees (i.e., disability and retirement)

• Benefits may be strategic and/or earned long-term (i.e., current SERP has 5-year vesting

period) to enhance retention

• Competitive severance pay may be critical to attracting and retaining executive talent

• Employment agreements increase executives’ sense of security and help forge a stronger

commitment to the hospital. More importantly, they avoid protracted negotiations in the

event of termination of an executive.

• El Camino Hospital’s executives are recruited nationally from both non-profit and for-profit

healthcare organizations. For-profit organizations frequently offer stock options as a part

of total compensation.

Benefits and Total Compensation

6

• As the Committee develops recommendations, what fundamental elements of the executive

compensation philosophy and design does the Board want us to consider?

– Peer group definition (note: typical is revenue 50% to 200%; ECH is using 50% to 150%)

– Competitive positioning in the market (current position is median across all components adjusted for

geographic labor differential in Silicon Valley)

– Incentive opportunities levels (i.e., modest opportunity to leverage increased total cash compensation

based on strong organization performance).

– Supplemental executive benefits

– Severance

– Longer term rewards for achieving strategic goals

• Does the Board want to weigh executive and/or organizational performance to a greater degree in

compensation design and administration?

• Does the existing process for organization goal setting and assessment of performance against the

goals provide adequate rigor and transparency?

• How can the Compensation Committee and Board improve their interaction to ensure confidence in the

role of the compensation program as a vehicle to support the recruitment, performance and retention of

key executives as well as the mission and business goals of the organization?

Going Forward

7

Separator Page

Att 4c - Executive Comp Philosophy.doc

Approval: 2/13/13

\\San01\policies & procedures\BOARD\03.03_BOD_ExecutiveBenefitsPlan.DOC

El Camino Hospital Rev.: 11/30/12jj

EL CAMINO HOSPITAL

BOARD OF DIRECTORS POLICIES AND PROCEDURES

03.01 EXECUTIVE COMPENSATION PHILOSOPHY

A. Coverage:

The Chief Executive Officer (“CEO”) of El Camino Hospital (“the Hospital”) and those

executives reporting directly to the CEO and approved participants. Participation in the

plan is subject to approval by the Hospital Board of Directors.

B. Reviewed/Revised:

New: 2/08, 6/09, 12/08/10; 8/10/11, 2/13/13

C. Policy Summary:

The compensation philosophy is the official statement of El Camino Hospital’s Board of

Directors regarding the guiding principles and objectives upon which executive

compensation decisions are based, and the general parameters and components for

accomplishing these objectives.

The executive compensation program encompasses both cash compensation (salary,

incentive pay, and other cash compensation) and non-cash compensation (employer

provided benefit plans and perquisites) which in whole, represent total compensation.

The program is governed by the Board of Directors and the Executive Compensation

Committee which provide direction for governance and administration of executive

compensation programs and their effectiveness in attracting, retaining, and motivating

executives.

D. Executive Compensation Philosophy:

The philosophy describes the guiding principles and objectives of the executive

compensation program. Executive compensation decisions will be made using the

following guiding principles and objectives:

1. Support the Hospital’s ability to attract, retain, and motivate a highly-talented

executive team with the ability and dedication to manage the Hospital

accordingly.

2. Support the Hospital’s mission to improve the health and well-being of the

communities we serve through quality health care, education, and research, and to

provide care to those in need regardless of the patient’s ability to pay.

2

3. Support the vision of the Hospital as the preferred community healthcare

destination in Silicon Valley based on quality, innovation, and the individualized

patient experience.

4. Develop and administer cash compensation and benefit programs that allow the

Hospital to attract, retain and motivate executives.

5. Considers the Hospital’s financial performance and ability to pay which shall be

balanced with the Hospital’s ability to attract, retain and motivate executives.

6. Govern the executive compensation programs to comply with state and federal

laws.

7. Attract and retain talented executives, who are committed to accomplishing the

goals of the Hospital. Total compensation at the El Camino Hospital median is

not intended to be a single or controlling factor in an executive’s decision to join

or stay with the Hospital. Rather, attraction and retention will be based primarily

on executive challenges and commitments to the goals of the Hospital, which are

supported by the total compensation program.

E. Components:

The three key components of the executive compensation program are base salary,

performance incentive compensation, and benefits.

1. Base Salary. Each executive position will be assigned a salary range that is

competitive with comparable hospitals and accounts for the higher cost of labor in

Silicon Valley. The midpoint of the salary range will reflect the El Camino

Hospital median. An individual’s placement in the range will be determined based

on a combination of the following factors: paying competitively, rewarding

performance, and recognizing competence, credentials, and experience. Salary

administration guidelines will be established to assist management in balancing

these factors and to support fair and consistent practices. The Executive

Compensation Committee reserves the right to establish lower salary ranges or to

freeze salary ranges and/or base salaries when financially prudent.

2. Performance Incentive Compensation. Each executive will be eligible for a goal-

based performance incentive compensation program. The target amount for

incentive pay will be competitive with those at comparable hospitals. An

executive’s performance incentive payout will be based on their performance

against pre-defined organizational and individual goals and objectives aligned

with the Hospital’s mission, vision, and strategic goals.

3. Executive Benefits and Perquisites. The Hospital may provide executives with

supplemental benefits that are competitive with comparable hospitals as described in

the executive benefits policy. It is the Hospital’s practice to minimize the use of

perquisites in total executive compensation.

3

The Executive Compensation Committee shall maintain written policies and

procedures regarding the administration of each component.

F. Definitions

Comparable Hospital – To measure the competitiveness of the executive compensation program, the Hospital will use, in general, compensation information from tax-exempt independent hospitals from across the United States comparable in size and complexity to the Hospital. The hospitals will be comparable in size and complexity based upon net operating revenues.

Competitive Position – A determination of where the Hospital places executive salaries,

incentives, and benefits relative to comparable hospitals nationally. El Camino Hospital’s

competitive position for base salaries is the median plus a cost-of-labor adjustment for Silicon

Valley to account for the higher than cost-of-labor and cost-of -living in Silicon Valley.

Cost of Labor Adjustment – Recognizes the significantly higher cost-of-labor and cost-of-living in Silicon Valley. The Committee will periodically analyze cost-of-labor and cost-of-living data to ensure the geographic differential is appropriate and accurately projecting the El Camino Hospital median. El Camino Hospital Median – Reflects the median base pay of the comparable hospitals plus

the cost-of-labor adjustment for a particular position. The Hospital increases the comparable

hospital compensation data by 20% to calculate the El Camino Hospital median which provides

some recognition of the significantly higher cost-of-labor and cost-of-living in Silicon Valley.

Incentive Pay(out) – The payment received by an executive under the annual incentive

compensation program.

Other Cash Compensation – Other cash compensation excludes base salary or incentive pay

but includes a hiring, retention, or relocation bonus.

Performance Incentive Compensation - The amount paid in recognition of an executive’s

performance against pre-defined organizational and individual goals and objectives aligned with

the Hospital’s mission, vision, and strategic goals. The amount of performance incentive

compensation paid to an executive is determined annually and paid in a lump sum.

Salary Range - A range established as 20% below to 20% above the salary range midpoint,

resulting in a maximum amount that is 150% of the minimum amount. The Committee can

approve salaries above the normal salary range for hard-to-recruit positions or positions deemed

critical to the success of the organization.

Salary Range Midpoint - The midpoint of the salary range for each executive position will be

set at the El Camino Hospital Median. The Compensation Committee reserves the right to

establish lower salary ranges or to freeze salary ranges and/or base salaries when financially

prudent.

4

Total Cash Compensation – includes base salary plus annual incentive compensation (and other

cash) paid to an executive. Total cash compensation opportunity will be competitive to El

Camino Hospital median total cash compensation in comparable hospitals when performance is

at targeted levels.

Total Compensation – Total cash compensation, employee and executive benefit programs and

any other compensation payable to the executive.