Hospital Executive Compensation Structure Developments

Hospital Executive Compensation in Recent News

Below is a quick overview of trends within standalone and health system hospital executive’s compensation structures that have received recent media attention. We have first-hand knowledge of some of these issues within our own executive searches, and these trends seem like they will have continued longevity within this sector of healthcare.

  • According to the according to Modern Healthcare’s 32nd annual Executive Compensation Survey, comps for supporting executives will continue to rise, as well. CIO’s, CFO’s, COO’s and CNO’s have all seen a continual rise in salaries, and continued (albeit highly selective) demand: “Chief operating officers earned a 3.8% bump. Chief administrative officers also earned an average 3.7% increase” (http://www.modernhealthcare.com/article/20120811/MAGAZINE/308119932#ixzz2REIuCOHi?trk=tynt). In a recent article, the Charlotte Observer reported Carolinas HealthCare System executives saw a 12% increase in compensation (http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html).
  • Compensation for nonprofit Hospital CEO’s has grown an estimated 18 percent between 2006 and 2009, according to a July 2012 release from the New Hampshire Center for Public Policy (http://www.nhpolicy.org/reports/hospitalceo_final01.pdf).
  • Last year, a California Peninsula ballot measure narrowly passed “capping the salary and compensation package for El Camino Hospital and Hospital District executives, managers or administrators” (http://www.smartvoter.org/2012/11/06/ca/scl/meas/M/).
  • For-profit hospital executives have also come under scrutiny, as news of top executive’s salaries of the biggest companies was released by Becker (http://www.beckershospitalreview.com/compensation-issues/48-statistics-on-for-profit-hospital-operator-executive-compensation.html).
  • The American Hospital Association has published a few whitepapers as a response to the “increased scrutiny from legislators, regulators, the media and even the general public” (Executive Compensation: A Primer for Establishing Reasonable Compensation Available at http://www.aha.org/advocacy-issues/taxexempt/execcomp.shtml) on its site, in attempt to establish a “comprehensive overview of the fiduciary duties of the Board and officers” for top executives at nonprofit hospitals.”
  • Despite recent public and legislative scrutiny, compensations of hospital CEO’s (and most recently, of CFO’s and COO’s) have continued to rise. According to Mercer’s 2012 integrated health networks compensation survey, presidents and CEO’s will regularly post a seven figure salary. Compensation usually does not exceed $1 million, however, Health System CEO’s in the 75th percentile are just under that at about $960,000 (Mercer 2012 Integrated Health Networks Compensation Survey, Module one).
  • However, the process of how hospital boards determine bonuses has fundamentally changed in recent years: According to a comprehensive article by Becker’s Hospital Review, compensation structures for top executives will be influenced more by performance, rather than current market data. “If you’re going to be paid at the 75th percentile, you have to demonstrate 75th percentile performance” says Dr. Thomas Flannery, a partner of the consultant firm, Mercer (http://www.beckershospitalreview.com/compensation-issues/hospital-and-health-system-executive-compensation-in-2013-8-trends-to-monitor.html).
  • Valley Regional Hospital in Claremont, N.H.’s board member Carol Vivian echoes this when speaking about their executive search and setting new executive performance goals:
    “We do determine what percentage of the goal has been accomplished and have a monetary amount tied to it,” Vivian says. “If we feel like 70% of what we’re looking for is achieved, that’s what we’ll award. Some of them will be all or nothing” (http://www.modernhealthcare.com/article/20120811/MAGAZINE/308119932).
  • This is especially good news for CNO’s, CMO’s (Chief Medical Officers), and other physicians who have gained executive-level positions, as they have clinical expertise, managed care administration, and systems application experience. And, even though CNO’s were on average paid less than some of the other C-Level counterparts, the trend of performance versus market rates in salary structure will probably see an increase in the coming years. “Those people now become in high demand because they have demonstrated the skills to do all the complex work that is necessary, and they have the hands-on experience,” Dr. Flannery says. “There’s likely to be a bump in their compensation, particularly for those who have demonstrated success” (http://www.beckershospitalreview.com/compensation-issues/hospital-and-health-system-executive-compensation-in-2013-8-trends-to-monitor.html).

 

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