Pay starts flowing when nonprofit CEOs leave the job

Calling it quits can pay well for CEOs at big nonprofit groups in Minnesota — particularly for those at health insurance companies.

John Naylor, the chief executive at Minnetonka-based Medica, received about $5.5 million in 2023 compensation when he stepped away in September of that year, powered by $3.1 million he got from a separation agreement.

The big haul puts Naylor at the top of this year’s Minnesota Star Tribune list of highest paid nonprofit CEOs, but he’s not without peers when it comes to significant exit pay.

Blue Cross and Blue Shield of Minnesota disclosed to the Minnesota Star Tribune this month that former CEO Craig Samitt received about $5.6 million in compensation during 2021, though he retired in April of that year. Samitt had served about three years running the Eagan-based health insurer.

Executive compensation consultants say limited reporting requirements and a lack of precision with terms like “severance” and “separation agreement” can make it hard for the public to know exactly what’s going on with compensation in situations like these.

“In general, they are reporting the financial conditions as required, but details — I think they would see those as proprietary," said Alexander Yaffe, managing director with the consulting firm Pearl Meyer.

A Star Tribune review of federal tax filings and documents on file with the state Commerce Department shows several nonprofit CEOs in Minnesota since 2018 have received additional compensation upon stepping down as chief executive, or even after the conclusion of their tenure, with only little explanation in regulatory filings.

In general, such payments are driven by contractual obligations, Yaffe said, and should not be considered compensation for doing no work.

“From a reporting perspective,” he acknowledged, “there’s no insight into any of that.”

The Star Tribune annually ranks the largest nonprofit groups in Minnesota and reports compensation details for CEOs. Health care providers and health insurers routinely dominate the list.

In 2023, Rochester-based Mayo Clinic was the largest nonprofit group once again, with nearly $18 billion in revenue. That was more than the combined revenue of the No. 2 and No. 3 nonprofits on the list — Bloomington-based HealthPartners and Blue Cross of Minnesota.

The rankings are based on 2023 data, which is the most recent information available due to lags in reporting executive compensation.

Pay figures for 2023 still aren’t available at St. Cloud-based CentraCare and Duluth-based Essentia Health, two of the 12 largest nonprofits in the state. Both groups typically report compensation in late spring because their fiscal years end in June, whereas most large nonprofits report financial results on a calendar year basis.

Naylor worked for more than 13 years at Medica, including about seven years as chief executive. During his tenure, the health insurer garnered national attention for sticking with the individual markets in Iowa and Nebraska during 2018 when all other health insurers fled amid losses under the federal Affordable Care Act.

In 2021, Medica paid nearly $223 million to acquire a majority stake in Dean Health Plan, a Wisconsin-based health insurer. The acquisition didn’t reverse a decline in profitability. In early 2024, Medica eliminated about 162 jobs on a base of some 3,000 employees overall.

Medica didn’t say what led to Naylor stepping down in September 2023. The insurer described the transition as “amicable” in a statement to the Star Tribune.

His separation agreement that year included about $2 million in incentive plan payouts based on his time as CEO. Normally, the incentive payouts would have come in 2024 and subsequent years, but Medica opted to provide a lump sum payout.

In addition, Medica provided Naylor with 12 months of salary as part of his separation payment, or about $1.1 million. The insurer says it provided the pay because it hadn’t yet named a replacement for the CEO.

Such payments can make sense, compensation experts say, when a nonprofit wants the departing chief executive to be available to whoever is coming into the job.

Yaffe couldn’t comment on Naylor’s incentive payout in particular, but he said nonprofits in general have an obligation to make good on providing such compensation, since it’s typically driven by employment agreements.

At Blue Cross, Craig Samitt took the top job in summer 2018 and retired nearly three years later after leading the health insurer through the early days of the COVID pandemic.

In filings with the state Commerce Department, Blue Cross did not disclose Samitt’s pay during his final year. The insurer later did so after the Star Tribune pointed to rules suggesting the disclosure was required.

In 2021, the nonprofit insurer provided Samitt with a $3.26 million severance payment, plus nearly $1.94 million in bonus pay, $389,076 in salary and $47,541 in other compensation

“The scope of the severance reflects the amount paid to Dr. Samitt as his total retirement package,” the insurer said in a statement. “The bonuses were for prior years short- and long-term incentive programs.”

Rank-and-file workers offered severance will often receive two weeks' salary per year of service, a standard dwarfed by CEO severance packages, said Dr. Vikas Saini, president of the Lown Institute, a Massachusetts-based group that evaluates executive compensation.

“The numbers are eye-watering because, already as CEOs, they make a lot more than your average union Joe,” Saini said.

Survey data from consulting firm Sullivan Cotter suggests just over half of CEOs get about 24 months worth of base pay as severance. Fewer than 4% get 36 months' pay, which is in the ballpark of what Samitt received.

He entered a somewhat risky situation when he took the CEO job at Blue Cross, however, from a tenure perspective. In the decade or so before Samitt started work in 2018, Blue Cross had four different chief executives, including one who lasted just six months.

Medica described Naylor’s compensation as including money from a “separation agreement,” and did not mark it as severance in a regulatory filing. Blue Cross described a large chunk of Samitt’s pay as “severance,” but also described the pay as part of a retirement package.

The term “severance” for a CEO often has a negative connotation, suggesting something has gone wrong. But compensation experts say it’s not always a negative judgment.

Similarly, Yaffe cautioned against jumping to outrage when CEOs still show up on regulatory filings as receiving pay after they’re no longer on the job.

The Star Tribune’s review also found:

Whether the source is a separation agreement, severance, lagged incentive pay or some other aspect of an employment contract, nonprofit CEO compensation generally is troubling to people, Lown’s Saini said, because it’s large, somewhat clandestine and connected to nation’s flawed health care system.

“If we’re really going to grapple with the problems of health care, which are so expensive, unaffordable, driving medical debt — all the things that everybody knows about and are problematic — I think this is a moment to rethink some of that and ask: can we have more transparency?" he said. “Can we really try to understand what the hell is going on, how the money is flowing?”

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