Hospital CEOs lead by example and with transparency during downturn.
Beth Israel Deaconess Medical Center President and CEO Paul Levy is still puzzled by all the media attention the 621-staffed bed Harvard teaching hospital got in the past few months of a dark and deep recession when he cut executives' pay and asked employees to find $20 million in cost savings that could reduce the more than 600 anticipated layoffs.
"This whole thing is so commonsensical that frankly I'm bemused and I find it extraordinary that it's interesting," says Levy. "It never occurred to me not to ask. The best way to deal with the problem is to ask the people who are actually doing the work every day what their suggestions would be."
John Fox, president and CEO of Emory Healthcare, found himself in a very similar situation at about the same time. The 1,184-licensed bed Atlanta-based health system lost $50 million in investments when Wall Street tanked, and Fox estimates that more than 500 layoffs would have been needed to plug a $30 million budget shortfall.
"Simply put, it's the worst recession in 60 years and it was starting to touch us all," Fox says. "What I was staring down the barrel of was if we do this all through labor it would have negatively impacted more than 500 jobs. We wanted to choose a different road."
With the goal of cutting costs while saving as many jobs as possible and still delivering quality care, the first thing both CEOs did was cut their own pay, and that of other senior executives, and then tell everybody about it.
"All of the senior people voluntarily took pay cuts," Levy says. "For all the vice presidents it was 5%. For me it was 10% plus we took away the bonus opportunity for the year, which is another 15% to 25%."
"That was essential," Levy says of the pay cuts. "You can't go to people and ask them to make sacrifices if you haven't done it yourself. Otherwise, people feel likes saps—like they've been taken. You have to model the very behavior that you're hoping will come out of the organization."
Fox agrees. "Before we went out to the employees, I went to the leadership and said we are going to have to lead first," Fox says. "All of the incentive plans for leadership were frozen. So whether we make it or not, we aren't going to take it." Pay raises were frozen, pension matches were eliminated. "We told employees there is no way in this time of sacrifice that I'm going to be anywhere near receiving an incentive plan payment or a bonus."
Once the CEOs demonstrated that they were willing to take a personal financial hit for the greater good of the hospital, it gave them even more credibility when they met face-to-face with hundreds of anxious employees at town hall meetings to outline their hospitals' fiscal straits, and to ask for help.
At Beth Israel, among the $16 million or so in cost-cutting measures, employees suggested dropping the annual staff barbeque, saving $50,000, and ending hospital reimbursements for cell phones and BlackBerry devices. "The BlackBerry thing I hadn't thought about. There's $100,000 right there," Levy says. "Stuff gets built into the cost of doing business that you don't question. Then someone says 'Why are we doing this?'"
Low-wage employees were mostly spared the cuts and wage freezes. With the reductions, Beth Israel, which has more than 6,000 employees, was able to trim the layoffs from more than 600 employees to "about 70," Levy says.
Emory got so many suggestions that it took two weeks to sort through them. "The ideas came from housekeepers to surgeons. Everybody was feeling the effect of the economic crisis. They all wanted to contribute," Fox says. "There was no stone left unturned. I now know what plants cost in every lobby and waiting area across the health system." So far, Emory hasn't laid off any of its 11,000 employees. Transparency was also emphasized.
"We said here is the environmental issue we face. Here is where we are having difficulty," Fox says. "We had proposals. We said these are the things we are looking at—on pension issues, on pay programs, on the time off and a bunch of other things. We laid out specific proposals and said this is what we are thinking about."
Both CEOs say they and their employees are painfully aware that layoffs may be tough to avoid if the economy doesn't improve in the coming months.
"The choices get harder and harder as you cut more and more. But hopefully people's sense of engagement would stay strong and that would help us through the next stage as well," Levy says. "Whatever the situation was at that time, we would explain it in the same open way. We'd say 'Here is where we are. What do you think we should do?' "