Outrageous salaries for hospital administrators and outlandish raises for college administrators have recently surprised and angered many Mainers.

It’s the latest example of an invidious problem rooted in a seemingly fair system of rewarding highly compensated public, nonprofit employees. 

On Sunday, March 18, the Sun Journal reported on the surprisingly large salaries sometimes paid administrators of remarkably small hospitals.

For instance, the Sun Journal revealed the CEO of Redington-Fairview General Hospital in Skowhegan, which has 25 beds, was paid more than the CEO of Central Maine Medical Center in Lewiston which has 250 beds.

Meanwhile, the Portland Press Herald revealed March 22 that 44 University of Southern Maine administrators had their salaries boosted between 5 and 41 percent after a job classification survey of similar positions at other colleges.

One employee, USM’s executive director of university outreach, received a $34,515 annual raise to $118,000 per year.

The large raises come amid a freeze on cost-of-living raises for employees across the UMaine system and after USM had cut 118 positions since 2007.

“It’s not fair to pay (employees) 20 percent less than people in similar positions at other universities,” explained USM President Selma Botman.

Never mind countless thousands of Maine workers are paid less than employees in similar positions elsewhere.

Here’s how this typically works in institutions like hospitals and universities, and why it has driven executive pay into the stratosphere.

These salary surveys are initiated or purchased by hospital  and college boards to see how top employees’ pay compares to similar jobs across the country.

Invariably, they look at the numbers and find that a hospital CEO in Maine, a relatively low-income state, is not paid as well as others elsewhere.

But here’s the real conceit of this system: Board members are generally loathe to give offense. And, of course, most boards believe their CEO is above average.

It’s the Lake Wobegon effect named after Garrison Keillor’s fictional hometown where “all the children are above average.” Social psychologists call it illusory superiority.

If your CEO is in the 45th pay percentile the only “fair” thing to do is bump him up to the 65th or 75th percentile. He is, after all, obviously above average. Forgetting, meanwhile, that someone always has to be in the 45th percentile somewhere.

Meanwhile, this is happening across the country. Almost ever hospital board thinks their CEO is above average and must be compensated slightly better than the average CEO.

This is a relentless process that constantly forces administrative pay higher and higher.

Give that process 10 or 20 years and you have administrators who never leave and whose compensation is in the stratosphere.

Private businesses also need to retain good employees, but that decision is more often based upon actual employee turnover and the more carefully calculated risk of losing the truly exceptional employee.

And, in the end, a business can only afford to pay what its revenue allows. It is constantly balancing profitability and employee compensation.

Allowing public institutions to blindly follow these compensation studies will inevitably result in extraordinarily high salaries that shock and amaze the people who must pay them.

rrhoades@sunjournal.com

The opinions expressed in this column reflect the views of the ownership and the editorial board.

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