High risks, high rewards

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Compensation for leaders of top public nursing home chains ranged from about $500,000 to ten times that much in 2002

By most accounts, 2002 was a tough year for many long-term care companies. But it was a rewarding year for many of the executives who ran them.

Chief executives at the country's biggest publicly traded nursing home chains earned from more than a half million to $5.5 million each in 2002, according to a McKnight's Long-Term Care News examination of financial records. Paul Ormond of Manor Care clearly led the pack. The 54-year-old made $5.45 million in 2002, which takes into account salary, bonus and options.

William Floyd, CEO at Beverly Enterprises, was second at about half Ormond's take, while Richard Matros, leader of the post-Chapter 11 Sun Healthcare was next at about $2.3 million.

McKnight's tallied chief executives' 2002 salaries, bonuses, and options, from their 2003 public proxy filings with the Securities and Exchange Commission, as part of its analysis. The options values are based on a simplified  Black-Scholes model, or 40% of the number of options granted in 2002 times the price at which the underlying stock can be sold (the so- called "strike" price).

The year 2002 was an anticlimactic end of a bankruptcy era for several of the country's largest publicly traded nursing home chains. Thanks to temporary Congressional givebacks, Medicare reimbursement rates were healthy in 2001 but headed for a "cliff" near the end of 2002. Although nursing homes' earnings had started to rebound, chief executives continued to grapple with worsening labor and liability costs, a sharpening nursing shortage and continued government scrutiny.

Of the top nine in the McKnight's analysis, Matros, Mariner Health Care's C. Christian Winkle and Kindred Healthcare's Edward Kuntz had to navigate companies out of bankruptcy.

"It's been a roller coaster ride," said David Bjork, consultant for Clark Consulting in Minneapolis. "Virtually every healthcare operation has been through boom and bust years. What's going to happen is unpredictable, because they're so dependent on government reimbursement. The healthcare industry, because it's very entrepreneurial and very risky, has also had a high-risk, high-reward executive compensation."

King of the hill

Ormond escaped bankruptcy and his company recorded the highest sector income in 2002 -- $131 million. He currently oversees the most skilled nursing beds of any chain in the country, 40,815.

"Typically, Ormond has the largest cash compensation in the industry," said Stephen Monroe, a partner with New Canaan, CT-based Irving Levin Associates, which publishes capital data on healthcare. "There's a rhyme and reason to it. He's also got the largest company by market capitalization, it's been a