Opinion: Don’t ask voters to set private-sector salaries

As we Americans celebrate Independence Day, it’s worth remembering that our rebellious forebears weren’t looking to replace tyranny of the monarchy with tyranny of the majority.

That thought comes to mind in the wake of the latest failed effort by the Service Employees International Union-United Healthcare Workers West to use California’s initiative process to increase its membership.

Union leaders have tried at least two times to put an initiative on the ballot that would cap the salaries that nonprofit hospitals pay their executives. The ostensible purpose was to protect taxpayers from having to subsidize multimillion-dollar paychecks. But the real purpose, as was made clear in an arbitrator’s report last month, was to pressure the leaders of non-union hospitals into staying mute while SEIU organized their workers.


This illustrates one of the main drawbacks with California’s initiative system. In theory, our version of direct democracy is a safety valve for the public, a chance to make needed changes in the law when the Legislature can’t or won’t. In practice, though, the main sponsors of initiatives have been unions, business groups and other special interests hoping to tilt the budgetary, legal or regulatory playing field. Sometimes those efforts serve the public’s interest as well; witness the push by activist Tom Steyer and environmental groups in 2012 to change how multi-state businesses are taxed in order to raise money for energy conservation projects and the general fund. But sometimes ballot measures only appear to have a broad public purpose, when really they’re serving some individual’s or group’s hidden agenda.

Consider the SEIU’s initiative, formally known as the Hospital Executive Compensation Act, which would bar any not-for-profit hospital in California from paying executives more than the federal government pays the president of the United States in salary and expenses (currently $450,000). Even if you don’t believe that’s a ridiculously low amount to pay the leader of the free world, and it is, the presidency is a public-sector job. Public-sector pay has never been viewed as an appropriate benchmark for the private sector.

Supporters of the initiative argue that because taxpayers effectively subsidize these hospitals, and because taxpayers foot all or part of the bill for the patients on Medi-Cal and Medicare, they shouldn’t have to pay huge salaries to hospital executives. In an advertisement in The Times on Friday, the SEIU-UHW executive board singled out Cedars-Sinai Medical Center for paying (by the union’s calculation) more than $1 million each to 10 executives in 2014, including $4.6 million to Chief Executive Thomas Prisalec. “And they call themselves a non-profit? Charity? Really?” the ad says. “Cedars is just one of many examples in a California hospital industry where CEOs get extremely wealthy while patients face crippling costs.”

Even if you like the idea of letting voters set private-sector salaries, there’s something undeniably distasteful about the SEIU-UHW’s tactics.

The fact that the initiative attracted more than 600,000 signatures is a testament to the emotional resonance of the SEIU’s argument, which plays to the widespread public concern about rising healthcare costs. Still, the union has hardly been a force for constraining insurance premiums and medical bills; instead, it has fought to increase healthcare costs by improving the pay and benefits received by the 85,000 hospital employees it represents. That’s its job.

Federal law already dictates that nonprofits pay their executives “reasonable and not excessive” amounts, meaning that their salaries must be comparable to those at other similarly sized employers in the region with similar missions. If it’s a good idea to slap a hard cap onto those salaries, why do it just at hospitals? Why not at every charity?

The simple answer is that it’s not a good idea to have voters or the government set the price of anything that’s not monopolized, including chief executives’ pay. Now if high salaries at charities really are a problem caused by misplaced incentives in the tax code, Congress can address those incentives — for example, by barring tax-deductible donations from being used to pay salaries over $1 million (just as the tax code bars for-profit companies from deducting more than $1 million in salary per employee). But simply forbidding nonprofit hospitals in California to pay anyone more than the president makes would drive the most talented and highly valued administrators to hospitals in other states or to other employers in California.

Nor would it address any of the factors behind the disproportionately rapid rise in healthcare costs, such as the aging population and the incessant introduction of expensive new technology and treatments.

Granted, none of these arguments may be as compelling as the SEIU’s contention that fat-cat hospital execs are soaking both taxpayers and patients. But even if you like the idea of voters setting private-sector salaries — and can live with the precedent that would set — there’s something undeniably distasteful about the SEIU-UHW’s tactics here.

The union pushed the same initiative (along with one limiting how much hospitals could charge for care) in 2014, but called off the effort after the California Hospital Assn. agreed to try to make it easier for SEIU to sign up 30,000 new members at non-union hospitals, and the union agreed to help the hospitals lobby for higher Medi-Cal payments. That deal, which was memorialized in a contractural “code of conduct,” barred both sides from backing hostile initiatives through the end of 2015. But the pursuit of higher Medi-Cal reimbursements has been unavailing, and the non-union hospitals haven’t been receptive to the SEIU’s ministrations. To ratchet up the pressure on those employers, the arbitrator found, the union’s leadership repeatedly threatened in 2015 to file its executive-pay initiative if no progress was made with the non-union hospitals. Two members of the union’s leadership eventually filed the initiative in November 2015, and the union pledged $3 million in support the following month. That violated the contract, the arbitrator found, which is why, after a push from a state court judge, the SEIU announced that it wouldn’t move ahead with the initiative — for now.

It’s understandable that taxpayers would resent subsidizing charities that pay executives more in one year than many voters will make in a lifetime. But it’s a perversion of the initiative process when a group tries to harness voters’ resentments to advance its own parochial interests.

Twitter: @jcahealey