by Tony Chen

Here's an interesting article from the Boston Globe about Boston-area hospital CEO salaries. Doctors and nurses not washing their hands between patients? If so, Paul Levy, CEO of Beth Israel Deaconess Medical Center loses almost $70,000 of his bonus. This is the same guy who asked his blogging audience whether he makes too much? Not surprisingly, commenters are impressed/shocked at his openness, though some were cynical about his real intentions. So, what's fair? There are a few schools of thought around CEO compensation:

- Market Value - "whatever the market will bear" is of course the most American, capitalistic answer. It becomes purely a supply/demand question. If you don't offer market value, the person you're trying to woo for the spot will go somewhere else. Typical factors to consider include the individual's unique characteristics (qualifications, experience, responsibilities, skills), the company's situation (revenues, geography, competitive positioning), and the industry's status (market conditions, availability of talent, economic conditions).

- Entrenched Executive Compensation Committee - Some would say that it's all a conspiracy. Executive compensation is typically set by a subcommittee of the board working in conjunction with an executive committee consultant. These consultants perform benchmarking research to determine market value. I've heard (someone please verify this for me) that they are sometimes paid a bonus if the candidate accepts the position. So it would seem their incentive is to recommend a higher salary? Plus, in some companies, many board members have existing and strong relationships with the CEO, and you wonder how much sway the CEO has in selecting committee members.

- Value - Some also think about the real value/impact of a CEO. For $1MM spent on this CEO, is s/he bringing in more than $1MM in value? For a $1B company with $20MM in net profits, this person would have to increase profits by 5%. This becomes a straight-up ROI calculation. Of course, this value is difficult to measure, but some have argued that this money would yield a higher return elsewhere.

At the end of the day, there's no denying that the CEO position is a very difficult position. Stress levels are high (hospital CEOs like other CEOs get death threats, too), the hours are long, the skill set needed is unique, and the long-term impact to the organization is tremendous. And I think it's a good development to have incentives more closely tied to key non-financial metrics.

Check out the most recent Fortune 100 CEO Salaries. And go to Guidestar for non-profit executive compensation information. I should note, too, that American CEOs are much better compensated than their European and Asian counterparts.