It’s Easy to See Why Labor Would be Upset with This Hospital CEO


Monday is Labor Day, a holiday here in the United States. Some nursing unions support Lean in healthcare, while others are in opposition. My stance is been that the unions should love Lean (since it  improves the workplace for their members), but they are right to criticize practices like layoffs and other things that aren't really Lean).

One thing I think we can all agree on is that it's foolish for a hospital CEO to accept a 40% raise and then turnaround and announce plans to lay off 120 employees… but that actually happened at Salinas Valley Memorial Hospital (SVMH) in California. I agree with the California Nurses Association's complaints and I'd be out there picketing with them if I lived nearby.

At least the word “Lean” never enters the discussion in the story (although there is some evidence that SVMH has used Lean improvement methods). I'd bet these planned layoffs are driven by traditional healthcare management thinking, not Lean.

The media didn't quite get the headline right. They wrote:

Dozens of nurses face layoffs at Salinas Valley Memorial Hospital

The headline should have been:

Controversy at Salinas Valley Memorial Hospital after CEO gets big pay increase and nurses face layoffs

So what happened with the pay increase?

[The union is] upset with a $172,000 raise that the hospital's CEO, Pete Delgado, received recently.

That raise increased Delgado's salary to more than $600,000.

It's $622,000, according to this story.

His base salary, previously, was $450,000. This is a hospital with 1,600 employees, so that's a relatively small hospital. The New York Times reported earlier this year that the average hospital CEO salary is $386,000.  As Becker's reported, the average independent hospital CEO salary is $380,000.

Some are outraged by those salaries, but it's probably fair to say that Delgado was not underpaid compared to his peers (although he does have California's high cost of living to deal with).

A pay increase of $172,000 equates to about a 40% raise. 38% to be precise.

No wonder the nurses would be ticked off, even without the layoff announcement.

SVMH spokeswoman Adrienne Lauren said “Delgado deserved his raise.”

“At the one-year mark of Pete Delgado's leadership, our board reviewed his contract and gave him what they thought was a deserved increase,” Laurent said.

So let's get this straight… who gets a 40% raise after ONE year on the job? Who ever gets a 40% raise?

It's the hospital's right and the board's right, even as a non-profit health system, to set pay however they want (but the public has a right to criticize it). But, this looks horrible in the face of planned layoffs and it's questionable given the hospital's performance.

Nearly 120 employees, including 54 nurses, are facing layoffs at Salinas Valley Memorial Hospital.

That's about 7.5% of staff.

The hospital spokesperson, of course, trots out the typical line that's meant to reassure the public:

VMH spokeswoman Adrienne Laurent said layoffs won't impact patient care.

I don't trust that they know that with any real certainty.

Laurent said, “Patient care is our top priority, so we are protecting that fiercely. That will not be compromised. We are responding to the market and our (patient) volume. Volumes at hospitals across the country has declined, and as a result we have to respond to that and that's good management. So our administration has looked at what we can do to right size.”

That's “good management?” The hospital is blaming lower patient volumes. I guess if the hospital's patient care volume has dropped permanently, then they don't need as many staff. It sounds like they are blaming external factors, like the economy or the Affordable Care Act (oh, he did blame the ACA).

The spokeswoman says, “Our workforce is bigger than the workload and we need to address that.” Fair enough. But, what is management doing to try to help attract new patients, gain market share, and increase the patient workload the right ways. Are there other ways of addressing their cost problems? Of course there are, even with labor being 60-70% of a hospital's cost.

The problem with their argument that “volumes at hospitals across the country [have] declined” is that it's true, but it's NOT TRUE to say that ALL hospitals have seen a decline.

In fact, many hospitals are seeing HIGHER volumes because more people are covered under the Affordable Care Act (but with lower reimbursements). The higher volumes are creating different problems at some hospitals (like excessively long waiting times in the E.D.).

When these hospitals make “patient care their top priority,” they will need more staff to care for more patients (although this is a great opportunity to use Lean methods to improve efficiency so we can see more patients without the same increase in labor costs).

We could debate whether or not the Salinas layoffs were the only path and we could argue over whether they are the end result of economic forces or the result of management that didn't have enough foresight to see this coming. One reason given for the layoffs is a shift away from more part-time nurses over to full-time nurses. I guess that's a reasonable goal, but the new CNO reportedly presented all of this to the union with no warning and no implementation plan.

I think the thing that's harder to debate is that it's foolish to accept a big increase right before announcing planned lay offs. If you're going to announce the layoffs, don't take the raise, especially if you're blaming the layoffs on the hospital's poor performance.

You can't have it both ways. If the CEO “deserves” the raise, then the hospital would be doing well and wouldn't be planning to lay off staff.

Oh, and this isn't the first time SVMH has been picketed for this pattern. In 2011, there are employee layoffs and big executive pay increases. The hospital laid off 400 workers between 2010 and 2011, while giving a number of vice presidents big raises.

“How could a majority of the board approve of the outrageous salary increases while claiming that the hospital had to lay off hundreds of caregivers out of financial necessity?” asked union vice president John Borsos. “It's not just hypocritical, but it demonstrates that the hospital has more than enough money to keep caregivers at the bedside.”

That's hard to argue with.


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Mark Graban
Mark Graban is an internationally-recognized consultant, author, and professional speaker, and podcaster with experience in healthcare, manufacturing, and startups. Mark's new book is The Mistakes That Make Us: Cultivating a Culture of Learning and Innovation. He is also the author of Measures of Success: React Less, Lead Better, Improve More, the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, and the anthology Practicing Lean. Mark is also a Senior Advisor to the technology company KaiNexus.


  1. Truly unfortunate, but clearly not uncommon in all industries. Employees are the easy, “quick” fix to making a short term financial gain to the bottom line. Another common theme is how these type of personnel cuts are complemented with raises for executive level employees, which is very hard to understand from a logical perspective. Why not “save” even more money by not giving the big raises in addition to the personnel cuts? I think it’s another example of often typical self-interest management. From what I recall reading about how these cycles typically operate, SVMH will soon be looking to add employees to the payroll (assuming business starts to pickup, which I have to believe will happen since they just paid the CEO big bucks for his business acumen–NOT).


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