Beaumont CEO says he's taking a 70% pay cut as layoffs sweep through administrative staff

With Michigan's largest hospital system "financially hemorrhaging" and under a cloud of uncertainty for at least the next two years, the CEO of Beaumont Health says he's taking a 70 percent cut to his base pay and is forgoing any bonuses.

John Fox's total compensation in 2018 was $5.9 million, including base pay of nearly $1.85 million, a bonus of $1.6 million, $810,000 in other compensation, and retirement and deferred compensation of $1.66 million, according to Beaumont's most recent returns filed with the Internal Revenue Service.

Fox's cut in pay is the steepest percentage cut among the hospital systems in the region that have disclosed CEO pay reductions. The CEO of the Detroit Medical Center is taking a 10 percent cut, while the chief at Michigan Medicine is taking a 5 percent cut.

• The latest: Michigan coronavirus map, locations, updated COVID-19 news
• What Michigan's new coronavirus stay-at-home executive order means
• Can you buy seeds in Michigan? Confusion reigns over Whitmer stay-home order.
• When Michigan unemployment, stimulus checks, and $600 CARES money will arrive

On the west side of the state, Tina Freese Decker, president and CEO of Spectrum Health, will take a 40 percent reduction in pay. Her direct leadership team will take a 30 percent reduction, according to a news release.

On Tuesday, as Fox announced Beaumont Health was laying off 2,475 employees and terminating another 450, he said he empathized with those workers, many of them administrative staff. 

Fox explained that his father was the sole breadwinner in his family of seven children, and his dad lost his job several times.

"I experienced firsthand the difficulty and stress that can happen when these kinds of issues fall on families and individuals," Fox said. "Providing unemployment insurance for these individuals is by no means perfect, but it's a heck of a lot better than certainly my father experienced for my family when we went through our times. And we are also committing that for all the employees, we are going to be providing health insurance to them as part of our program and continue that at our discounted rates."

However, union-represented employees who were laid off will not be eligible for the continuation of insurance benefits, Fox said.

"Unfortunately, their agreement does not allow for them to have health care coverage," he said.

While Fox and other executives will take pay cuts, he wasn't clear about precisely how much money they stand to lose. 

He declined to specify exactly how much money he would lose from the pay cut. He also declined to provide a dollar amount for the average pay cut of Beaumont executives.

"I'm not going to go down the rabbit hole," he said. "I don't really have an average calculated for all of them. My situation is very simple. If I made $1,000 this week, it's cut to $300 for next week. It's 70 percent. And the math is that simple," he said.

"Frankly, you know, those are all in our 990," he said, referring to financial returns that tax-exempt organizations file with the IRS.

According to those IRS filings, Fox had total compensation of $3.12 million in 2016, $5.67 million in 2017, and $5.93 million in 2018.

When asked how his base pay in 2020 compares with prior years, he said, "It's close. I'll let it go at that. Again, I'm not going to go into details. I don't have any bonuses coming in nor does any other executive."

Later Tuesday, Beaumont spokesman Mark Geary released this statement:

"John Fox has committed to taking a temporary 70 percent reduction in his base salary for an undetermined amount of time. Given the expected 2020 financial performance of the organization, incentive plans for our CEO and other executives are projected to not have any payout due to the 2020 financial losses associated with the pandemic."

Fox became CEO of the Beaumont health system, which has eight hospitals and roughly 38,000 employees, in 2015 after leaving Emory Healthcare in Georgia. 

Two Beaumont doctors, who spoke on condition of anonymity to protect their jobs, said Fox was doing the right thing by cutting his own pay.

One said it was "the responsible thing to do" and was not surprised to see administrative workers being laid off.

Beaumont has been top-heavy for years, the doctor said. "Administrative costs have been a glaring sore that people in the clinical world have been wondering about. They (administrators) have been riding on the coattails of the people who are generating revenue."

The other physician said Fox's pay cut sends "a good message. ... This is the best thing Mr. Fox has done since he’s come here."

This doctor also noted that Beaumont is "bloated" with administrative staff "who don't take care of patients," prompting this doctor to wonder, "Why do we need all these administrative people? Apparently, we don't."

But a Beaumont nurse who cares for COVID-19 patients and spoke on condition of anonymity for job protection reasons, said Fox's pay cut isn't enough. He should have taken a salary of $1 during the pandemic.

"He's been making millions for years and we get a measly $1,000 for putting our lives on the line," the nurse said, referring to the essential-worker bonuses expected in this Friday's paycheck. Some Beaumont employees qualified for a $1,000 bonus. Others are to receive $500. Some won't get any bonus pay at all. 

"I'm sure his bank account is pretty fat," the nurse said. "I don't feel bad for him."

Nurses are uneasy that they may be laid off in another round of cost-cutting. Fox has predicted that "we're going to be under this cloud for at least two years, probably longer, and we are financially hemorrhaging."

"If they're talking about bleeding cash, are they going to lay us off?" the nurse asked, noting other health systems in Michigan have announced layoffs of medical staff. 

Wally Hopp, a distinguished professor of business and engineering at the University of Michigan who researches the business of health care, said Fox's pay cut seems "symbolically commensurate" with the breadth of the layoffs and terminations.

He noted that the enhanced unemployment benefits that some Beaumont workers are eligible to receive during the pandemic factored into Fox's decision.

"With a huge reduction in outpatient services and elective procedures, many employees had little to do in the hospital.  By laying them off or letting them go, rather than simply cutting hours, Beaumont is probably enabling them to receive more money in the short term," Hopp told the Free Press in an email. "What will happen in the long term is anyone's guess."

Dr. Marschall Runge, CEO of Michigan Medicine and dean of the University of Michigan Medical School, is taking a cut of 5 percent to his $1.4 million base salary, said spokeswoman Mary Masson. The university's president, President Mark Schlissel, is cutting his monthly base salary by 10 percent starting May 1 through the end of this calendar year.

The Detroit Medical Center's CEO, Audrey Gregory, said Monday her pay was being cut by 10 percent for the next three months, April through June. However, the hospital system declined to provide details of her compensation package or what that cut would mean.

"We don’t provide information related to compensation," DMC spokesman Brian Taylor said.

Executives at Dallas-based Tenet Healthcare, the for-profit company that owns the DMC, also took pay cuts, Gregory told the Free Press.

Tenet’s chief executive officer took a 50 percent pay reduction, Gregory said, and the other members of the company’s executive leadership team took 20 percent cuts for the months of April to June.

The pay cuts come as the DMC has furloughed 480 employees, including 40 managers and supervisors.  

Henry Ford Health System declined to answer questions about whether its executive team was taking pay cuts.

“We are exploring a number of options to stabilize our financial performance and position ourselves to continue serving our community, including pursuing federal assistance programs and identifying ways to reduce expenses,” said Brenda Craig, a spokeswoman for Henry Ford Health. “We are committed to transparency and will share more details when we finalize our plans.”

Roughly 80 executives at the levels of vice president and above at Mercy Health and the St. Joseph Mercy Health System are taking compensation reductions up to 25 percent, and will not get performance-based incentives during this time, said Laura Blodgett, a spokeswoman for the Michigan region of Trinity Health. And in its combined eight hospitals across Michigan, temporary furloughs represent roughly 10 percent of its workforce — 2,500 employees, she said. 

Shooshan Danagoulian, an assistant professor at Wayne State University who studies health economics, said she’s hearing that hospital administrators are taking pay cuts of 10 percent to 20 percent during the pandemic.

She said these administrators realize they have to sacrifice, too. They can’t ask their physicians, nurses and other providers to risk their own health to treat COVID-19 patients or take furloughs and layoffs while they continue to take a full salary.

“This is a way for them to show solidarity” with physicians and other professionals who “are doing their own part,” Danagoulian said. 

Hopp, the U-M expert, said the 10 percent reduction in pay for the CEO at DMC is "on the low side of the range of cuts we've seen from CEOs, most of which have been in the 10 percent to 25 percent range 

"However, you have to be careful about interpreting those pay cuts, because they affect base salary, which is often a small percentage of total compensation for a CEO," Hopp said.

"The bottom line is that, even with significant cuts in base salary, CEOs are likely to feel much less pain than an average working person," Hopp said. "While enhanced unemployment benefits will cushion the blow for a while, but eventually we need to get back to work.  And that's going to be challenging as long as we are facing a highly contagious virus for which there is no vaccine and no cure."

RESOURCES:

• Hey, Michigan, here’s how to make a face mask to fight coronavirus
• Michigan coronavirus dashboard: cases, deaths and maps​
• Michigan families can get food, cash, internet during coronavirus crisis
• How to give blood in Michigan during the coronavirus crisis
• 10 ways you can help Michigan hospital workers right now
• Michigan coronavirus Q&A: Reader questions answered
• How to apply for Michigan unemployment benefits amid coronavirus crisis