Quick Take:

Watsonville Community Hospital’s governing board approved a four-year contract Wednesday for its new CEO, Stephen Gray. The current Sutter Bay Medical Foundation top executive will take over Nov. 1. Gray’s contract includes a base pay of $475,000 along with multiple incentive bonuses if the CEO hits annual goals set by the board, a $35,000 signing bonus and a 12-month severance package.

Watsonville Community Hospital’s governing board voted Wednesday to appoint Stephen Gray as the hospital’s new chief executive. That included approving an annual compensation package of more than $640,000 for Gray’s four-year contract, which the district said reflects the “highly competitive market for health care leadership” and the need for a CEO who will stay with the struggling hospital long term.

Gray, the current chief administrative officer and operations executive for Sutter Bay Medical Foundation – Santa Cruz, will start leading the hospital Nov. 1. He wasn’t present at the board meeting as he’s still working in his current role.

The new CEO takes the reins as the hospital is entering its second year as a publicly owned entity following two decades of for-profit ownership. The hospital has been run by the Pajaro Valley Health Care District since it was purchased out of bankruptcy in August 2022.

Since then, hospital leadership has carried out a business plan to break even by 2024 after enduring annual losses of more than $20 million. Last month, officials said that while they’ve brought their annual losses down to about $5 million — which they view as a success — they’re barely scraping by.

The hospital announced last month it was receiving an $8.3 million loan from the state’s Distressed Hospital Loan Program. It was among 17 other hospitals statewide to get support from a $300 million initiative.

Dr. Joe Gallagher was the lone district board member to vote against Gray’s contract, citing the hospital’s financial problems. He said he felt the $641,250 annual pay was too high, especially at a time when the hospital is struggling financially.

Gray’s four-year contract includes a base pay of $475,000 along with multiple incentive bonuses if the CEO hits annual goals set by the board, a $35,000 signing bonus and a 12-month severance package.

Gallagher proposed the staff revise the contract down to a base pay of $375,000 with a six-month severance package, which he said reflected an average of the salary paid to interim CEO Matko Vranjes, the salary range listed in the job posting and the salary paid to former CEO Steven Salyer, who voluntarily took a 10% pay cut because of the hospital’s financial situation.

“A salary offer of $375,000 I think is much more reasonable,” Gallagher said.

In a report to the board, the district said it had hired recruitment consulting firm Wipfli, which recommended a total CEO compensation package of between $468,000 and $810,000 based in part on compensation paid to CEOs of hospitals in Monterey County.

The district said it arrived at the current figure “based on Mr. Gray’s experience and expertise, and the desire to engage a successful CEO to provide long-term leadership, and in recognition of the highly competitive market for health care leadership.”

Marcus Pimentel, who served on the CEO search committee, said Gray’s roots in the community and his experience will be positive for the hospital.

“I stand behind the recommendation,” he said in response.

No other board members directly responded to Gallagher’s comments and proposal about the contract.

Board member Tony Nuñez said he felt good about the decision to approve Gray’s contract. He also thanked Vranjes for stepping up after Salyer resigned in April.

In an update to the board, Vranjes said the hospital is still working on the logistics for the $8.3 million loan and expects to access those funds in the next month or so. He also said the hospital staff is still in negotiations with the nurses union on a new contract.

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