LHC Group Called Out for High Executive Compensation
A news outlet fired shots against LHC Group (Nasdaq: LHCG) in a report last week, accusing the home health care provider of cronyism by stacking its compensation committee with lobbyists and approving eye-popping salary bumps for executives.
The article, written by Robert Donachie in The Daily Caller—a news and opinion website co-founded by well-known conservative pundit Tucker Carlson—questioned whether LHC Group has violated Nasdaq rules. Lafayette, Louisiana-based LHC Group disputed these claims to Home Health Care News, while others argued that its committee set up is a benefit to the home care industry.
Compensation and Company Growth
Specifically, the report called out CEO Keith Myers’ salary, which jumped 47.7% in a two-year period—from $1.76 million in 2013 to $2.6 million in 2015—according to records. While The Daily Caller noted the significant increase in a short, two-year period, it failed to mention that LHC Group’s stock has doubled in the past few years—a critical consideration in executive compensation.
“In a lot of companies, the compensation is tied to achievements of certain metrics,” Brian Tanquilut, senior vice president of health services equity research with Jefferies, told Home Health Care News. “Generally speaking, compensation, as long as it reflects improvement or growth in company performance as defined by specific metrics, is justified. We see problems when company fundamentals and stock price are going one way and management compensation is going another. In this case, they are both moving in the same direction.”
LHC Group’s Compensation Committee also conducted an independent review after engaging a consultant, Pearl Meyer & Partners (PM&P). These reviews showed that Myers’ compassion was comparable to market value.
In 2012, PM&P found Myer’s compensation was in 21st percentile of the compensation peer group and ranked 13th of 16 of the compensation peer group, which included other health care bigwigs such as Amedisys Inc. (Nasdaq: AMED), Almost Family (Nasdaq: AFAM), Addus HomeCare (NasdaQ: ADUS), Genitiva Health Services (Nasdaq: GTIV), The Ensign Group, Inc. (Nasdaq: ENSG), and more, according to the same proxy records cited by The Daily Caller.
Despite the independent review and the market fundamentals to back up an increase in salary, the article questioned the makeup of the compensation committee. Specifically, LHC Group’s compensation committee has three members with ties to lobbying and political positions that make them not only powerful people, but also already on LHC Group’s payroll.
The committee is made up of two former Congressmen: Senator John Breaux (D-LA); and Representative W.J. “Billy” Tauzin, who is a Democrat turned Republican. The third member, Monica F. Azare, is a former counsel to Tauzin, The Daily Caller reported.
“Breaux and Tauzin are both paid lobbyists for both LHC Group and for Partnership for Quality Home Health Care, a group co-founded and chaired by LHC’s CEO,” the article reported.
LHC Group denies these ties violate any rules.
“These consulting arrangements do not undermine the independence of Senator Breaux or Congressman Tauzin, disqualify them from service on our Compensation Committee or violate any Nasdaq or SEC rule or regulation,” LHC Group said in a statement to Home Health Care News.
Furthermore, former politicians are frequently board members in private companies after serving in government, according to Tanquilut.
“Its not uncommon, especially in other industries,” he told Home Health Care News. “You have a lot of ex-governmnet officials sitting in company positions. They bring knowledge to these corporations. …If they were sitting legislators then it would be an issue [for LHC Group], but in this case, they are not.”
As LHC Group is one of the largest home health care providers and active in lobbying with home health associations, the expertise on its board could be considered a benefit to the entire industry, according to Brian Tanquilut, an analyst with Jeffries.
“I think it helps the whole industry in that sense,” Tanquilut said of LHC Group’s influence as a major provider. “That’s probably one of the weaknesses of the nursing industry compared to physicians and hospitals—their lobbying was pretty weak for a long time. Having this knowledge base to help them navigate—at a time when health care policy is changing—is a good thing.”
Written by Amy Baxter