Editor’s note: This article is by Howard Weiss-Tisman, of the Brattleboro Reformer, in which it was first published May 2, 2015.
BRATTLEBORO — The retirement package that Health Care and Rehabilitation Services of Vermont gave to its former CEO Judith Hayward was “extreme,” the office of the State Auditor determined, but the practice of overpaying retiring CEOs is not widespread in Vermont.
The office of Vermont State Auditor Doug Hoffer looked at compensation and retirement packages given out to the state’s highest serving health care officials following revelations that Hayward received $650,000 upon retiring from HCRS in 2014.
“The central finding of the investigation is that the HCRS incident is an extreme outlier,” wrote Vermont State Auditor investigator Andrew Stein in his report. “Although there was a trend of compensation increases for certain executives prior to retirement, and some increases were dramatic, none of those incidents rose to the level of HCRS’ compensation package.”
“Executive Compensation at the Designated Agencies,” a non-audit report, is a tool used to inform citizens and management of issues that may need attention. The State Auditor’s office opened the investigation in March following reports about Hayward’s compensation package.
The state contracts with 11 agencies to provide services, and in FY 2013 Vermont paid the agencies $302 million through programs run by the Department of Mental Health and the Department of Disabilities, Aging and Independent Living. HCRS is the designated agency for Windham and Windsor counties.
HCRS CEO George Karabakakis informed the Legislature about the package in February 2015. “The board and I felt it was important to share the information regarding the deferred compensation package to legislators and state officials,” Karabakakis said Thursday. “We wanted to make them aware of the checks and balances we put in place to insure that we are managing our funds responsibly and doing the right thing.”
In the first quarter of 2011 HCRS recorded a $150,000 expense for the CEO’s retirement package, in the following year that amount was recorded at $450,000 and then in the first quarter of 2014 HCRS told the state another $200,000 had been approved for Hayward, which brought the total to $650,000. Hayward was also paid $68,000 as a management consultant to the HCRS board for a six month period after her retirement, the report found.
The auditor’s office looked at five years’ worth of executive compensation from the other 10 designated agencies. The investigators tracked compensation for the CEOs and CFOs and also looked at compensation packages at hospitals. Generally, compensation packages were in line with other state departments and agencies, Stein determined.
Without the HCRS package included in the investigation’s findings, the average five-year increase in CEO compensation packages across all of the other 10 agencies was 6 percent, which was below the rate of inflation. Investigators did find that some designated agency CEOs enjoyed substantial compensation packages following retirement, but none of them were as excessive as Hayward’s, which increased by 123 percent over the five years, investigators found.
The CEO and CFO from The Howard Center, in Burlington, had the second and third highest increases in compensation. The Howard Center CFO saw an 84 percent increase between 2010 and 2013 and the CEO’s compensation increased by 75 percent between 2010 and 2012. The Howard Center is the largest designated agency in the state and both executives retired during the period. During the five year period the CEO at Upper Valley Services saw the fourth largest compensation increase at 40 percent, while the CEO at Northwestern Counseling and Support Services collected a 36 percent increase, the fifth largest during the five years.
Inflation rose by 8 percent during the time period.
Executive compensation, on average, was also found to be in line with packages given to state agency secretaries and department commissioners, when not taking Hayward’s package into consideration. Without HCRS, average CEO compensation at the designated agencies was $162,000 in 2014. State secretaries, on average, made $158,000 in 2014, and state commissioners, on average, were compensated $137,000.
“Although we identified numerous instances where (designated agency) executive compensation grew at a rate far exceeding inflation, the retirement package HCRS awarded its CEO was extreme when compared to the compensation of her counterparts,” the investigators wrote.
