Healthcare Issues & Trends

Advice & Insights for healthcare's Leaders & HR Professionals


EXECUTIVE PAY FOR PERFORMANCE: THE FUNDAMENTALS The How, Why, When, Where, and What of Executive Pay

Posted on November 11, 2013 by Gallagher Integrated

While the idea is simple—paying more to get more—the realities of healthcare executive pay are much more complex. From the compensation issues arising from healthcare reform to those that have existed for decades, understanding the linkage between executive pay and organizational performance is as important as ever. So INTEGRATED Healthcare Strategies offers this exploration of The Fundamentals; a literal How, Why, When, Where, and What of executive pay for performance in a free E-book.

Here you will find five summaries of articles authored by INTEGRATED thought-leaders, that provide five different perspectives to help you better understand how pay impacts performance so you can better manage your organization's success. The full articles can be accessed by downloading INTEGRATED’s free E-book!

HOW can pay impact care?

Article: “Improving Quality of Care Through Executive Incentive Plans”, Eric Reehl, senior consultant

Between healthcare reform and accountable care organizations, the industry continues to emphasize quality to determine executive incentive plans. In a recent survey by INTEGRATED Healthcare Strategies on quality measures used at hospitals and healthcare systems, we found that the CMS Hospital Quality Initiative (HQI) measures were the most common. When this survey was conducted, more than half of the respondents used the CMS measures to assess quality. Learn more in INTEGRATED’s free E-book.

WHY do execs get pay increases?

Article: “Why is Executive Pay Still Rising?”, David A Bjork, senior vice president & senior advisor of executive compensation

With nearly 6,000 hospitals and hundreds of health systems competing for executive talent, there are plenty of open positions and a lot of recruiting activity. However, executive pay continues to rise. Find out why in INTEGRATED’s free E-book.

WHEN will new approaches arrive?

Article: "Hospital and Healthcare System Executive Compensation: The Future of Performance and Pay", Kevin Talbot, senior vice president & practice leader of total compensation and rewards

According to INTEGRATED Healthcare Strategies’ 2013 National Healthcare Leadership Compensation Survey, more than 80 percent of all hospitals and healthcare systems have annual incentive plans for their executives. Most of these plans are relatively similar in design, employing a combination of financial and non-financial performance metrics and targeting incentives at around 20 percent to 30 percent of base salary depending on the position. What does this mean for the future of executive compensation? Download INTEGRATED’s free E-book for the answers.

WHERE is non-profit CEO pay headed?

Article: "CEO Compensation Practices in Nonprofit Hospitals: A Matter for Public Concern and Action?”, Ken Ackerman, chairman, and David Bjork, senior vice president & senior advisor of executive compensation

Virtually all non-profit hospitals and health systems are facing major challenges such as labor shortages, intense competition, and increasing financial risk for various dimensions of performance—quality, patient safety, patient satisfaction and efficiency. Find out how this impacts where non-profit CEO pay is headed in INTEGRATED’s free E-book.

WHAT incentives drive value-based care?

Article: “Using Executive Pay to Bridge the Gap to Value-Based Care”, Becker’s Hospital Reviewinterview with Kevin Talbot, senior vice president & practice leader of total compensation and rewards

Typically, for an annual incentive plan, CEOs receive an incentive that is 30 percent of their base salary. To achieve that fully, they need to meet certain criteria. In terms of how much of that 30 percent is based on financial versus clinical, 40 percent or less should be based on financial. A majority should be based on clinical quality, patient safety and patient satisfaction. Are you curious how this is happening? Answers can be found in INTEGRATED’s free E-book.

These five articles authored by INTEGRATED thought-leaders will be offered as a free downloadable E-book October 1 — December 31, 2013. Don’t forget to visit our website and download your copy!

Connections Between CEO Pay and the Size and Complexity of the Organization

Posted on October 21, 2013 by Gallagher Integrated

Last week Modern Healthcare published, “Hospitals with Expensive Tech, High Patient Satisfaction Have Highest-Paid CEOs.” In this article, Ashok Selvam, writes that pay for non-profit CEOs has little to do with their quality scores or performance. Selvam also writes, “high-level executives generally make more at hospitals with expensive technology and high marks in patient satisfaction, according to a new study published in JAMA Internal Medicine.”

INTEGRATED Healthcare Strategies conducted research earlier this year and came to a similar conclusion as the JAMA study, finding no significant connection between CEO pay and a hospital's financial performance or its performance on process quality, mortality or readmission rates. However, we found that there is a significant connection between CEO pay and the size and complexity of the organization. Larger and more complex organizations like academic health centers and integrated health systems pay more than smaller, less complex organizations. As a result, net total operating revenue is a reliable predictor of pay for executives.

One commenter in the article takes issue with the suggested lack of connection between pay and quality, explaining that the study uses only a limited set of metrics and that perhaps hospitals measure and reward different metrics. While there are certainly many variables that can influence pay, our research shows that the majority of CEOs do have incentives tied to the very metrics the JAMA study cites. In fact, 80% of CEOs have annual incentives. The most common metrics used in those incentive plans are financial performance (usually operating margin or income), process quality (typically the process metrics in the CMS Value-Based Purchasing program), and patient experience (typically HCAHPs scores), followed closely in prevalence by readmissions and mortality.

So if the majority of CEOs have performance-based incentives, and most of the incentive plans measure performance in the aforementioned areas, why is there little connection between CEO pay and performance in those areas? There are two key considerations. The first is that while most CEOs have annual incentives, those incentives make up only a small portion of total compensation. According to INTEGRATED’s 2013 National Healthcare Leadership Compensation Survey, the average annual incentive award for CEOs was about 35% of base salary. When you factor in benefits, incentive pay makes up, on average, less than a quarter of the total compensation typically provided to a CEO of a not-for-profit hospital or health system. So while pay for CEOs is variable, it is still largely driven by base salary.

The other consideration is that the level of performance required to earn an incentive varies greatly among organizations. Pay—including incentive pay—for CEOs at non-profit hospitals is typically set by the compensation committee of the board. When measuring and awarding performance, many of these committees look only at how performance compared to the prior year; few look at how performance compared to other hospitals like them. In other words, CEO pay is typically linked to financial performance, process quality, readmissions, etc., but it’s linked to progress compared to prior results, not relative performance compared to the industry. A CEO at a lower performance hospital who makes incremental gains in performance may receive the same award as a CEO at a high performing organization who maintains that high level of performance.

While there is no simple, one-size-fits-all solution for designing incentives for CEOs that strengthen the connection between pay and performance, it has to start with the boards and compensation committees that oversee executive pay, including incentives. Getting good information about the organization’s performance in comparison to peer organizations is a good first step.

Our Top 8 Most Popular Industry Intel

Posted on May 15, 2013 by Gallagher Integrated

In honor of National Healthcare Week, we at INTEGRATED wanted to give back to the dedicated professionals that make our healthcare facilities the places of trusted care that they are.  We thank the men and women in our hospitals nation-wide that play an essential role as providers of care.

Our experts are constantly developing new and insightful content for our clients and the healthcare industry. And here, we've pulled together the top eight most-popular items from the past year, ranging from articles to webinars to videos.

We hope these resources provide your organization with intel that help it operate more effectively, and prepare better for the future. 

To get upcoming newsletters, join our mail list!

National Trends in Healthcare Leadership Compensation

Posted on May 6, 2013 by Gallagher Integrated

The following article is shared as it was originally published on the INTEGRATED website in 2012.

It is critical for organizations to evaluate executive pay in terms of the total value of all elements of compensation and benefits.  Limiting the evaluation strictly to the value of salary or annual cash compensation is no longer sufficient. To this end, organizations need accurate data on total compensation, including benefits, perquisites, and the value of deferred compensation.
 
The standard executive compensation package includes salary, short-term incentive compensation, standard benefits, supplemental executive benefits, deferred compensation, and severance arrangements. Many packages also include perquisites (particularly for CEOs).  A growing minority of health care organizations (particularly those over $1.0B in net revenues) also provide long-term incentive compensation or retention incentives.  Large health care organizations also frequently use contractual allowances (signing bonuses, re-signing bonuses, housing allowances, low-interest loans, etc.) to help recruit experienced executives from across the country. All of this amounts to increasingly complex compensation arrangements, which necessitate a high level of specialized expertise to audit and evaluate.
 
The job of board members in tax-exempt health care organizations continues to grow more complex and challenging. Governing compensation is just one of the many tasks requiring diligence and technical expertise. In order to satisfy regulatory requirements while remaining competitive in a challenging market, it is critical to retain expert outside advisors on compensation.
 
The mix of pay elements varies dramatically from one organization to another. The mix of pay and the inclusion of specific elements (such as long-term incentives, supplemental benefits, and severance) affect not only the competitiveness of the package, but can also reflect the priorities and culture of the organization. For example, an organization which emphasizes a performance-oriented culture may provide average salaries and a high level of short- and long-term incentive opportunity.  An organization focused on retaining a high-performing leadership team may provide extensive supplemental benefits, long-term incentives, and retention incentives for key executives.  

The following is a brief summary of highlights found in the 2012 National Healthcare Leadership Compensation Survey, conducted by INTEGRATED Healthcare Strategies:

  • The data compiled for the National Healthcare Leadership Compensation Survey is effective February 1, 2012. Year-over-year trends represent changes from February 1, 2011 (the effective date of the previous survey) to February 2012.
  • The median percent increase over the previous 12 months for both system and hospital CEOs was 3.0%.  Projected increases reported for the upcoming fiscal year for all executives is also 3.0%.
  • Consistent with 2011 reporting, Chief Executive Officers have a total incentive opportunity as high as 80% to 100% of salary at target or expected value, if they are eligible for both short- and long-term incentives. Some other senior executives have a total incentive opportunity as high as 50% to 60% of salary at target or expected value.
  • Incentive plans can vary greatly between independent and subsidiary hospitals. As expected, subsidiary organizations show a higher prevalence for offering both short- and long-term incentive programs because they typically adopt an incentive structure similar to that of their parent system.

The 2013 National Healthcare Leadership Compensation Survey is currently open for participation and will publish on August 30, 2013. 
 
Other surveys currently open for participation or purchase include:
 
National Healthcare Staff Compensation Survey:  Participation open; publication on June 28, 2013
 
National Nursing Compensation Survey:  Publication on May 10, 2013
 
Medical Director Survey:  Participation open; publication on August 30, 2013
 
Advanced Practice Clinician Survey:  Participation opens on July 2, 2012; publication on December 27, 2013
 
INTEGRATED also conducts custom surveys tailor-made for healthcare organizations.  See more details on all our compensation surveys online or contact our Compensation Survey Department at Comp.Surveys@IHStrategies.com  or call 1-800-821-8481.

Parting Gifts: Severance Paid on Voluntary Termination

Posted on April 22, 2013 by David Bjork

Somehow the most egregious examples of bad practices in executive compensation come from distinguished educational and cultural institutions, rather than from hospitals and health systems.

When Jacob Lew was nominated to become Secretary of the Treasury, the press discovered that NYU gave him a parting gift of $685,000 when he quit his position there to go to Citigroup.  NYU called it severance, but acknowledged that Lew left voluntarily and that the payment wasn’t required by the terms of his contract.

A spokesman for NYU, John Beckman said, “It is not uncommon for large organizations to make payments to senior officials on their departure, as happened in this instance.”
He must have known something the rest of us didn’t, since no one else seems to think it is usual for tax-exempt organizations to  give parting gifts to people who leave voluntarily. 

It turns out he did know something the rest of us didn’t:  the New York Times reported that NYU gave Dr. Harold Koplewicz, an executive at NYU’s medical center, $1,230,000 when he left to found a competing organization.  This, too, was characterized by NYU as severance, even though Beckman said Dr. Koplewicz left voluntarily.

Severance is paid when an employer fires an executive—not when the executive quits voluntarily.  It is either a payment of damages for breaking an executive’s employment contract or payment in exchange for a release from potential claims for discriminatory or unjust termination.

Yes, sometimes employers allow an involuntary termination to be characterized as voluntary resignation, and go ahead and pay severance anyway—but not when someone is resigning to take another job—since one of the purposes of severance is to provide income continuity while the person who was fired searches for another position.

Severance paid on voluntary termination, though, is nothing but a parting gift—and parting gifts are private inurement—gifts not earned through work, not warranted by contract, just a misappropriation of charitable assets.  Why give a parting gift to someone who was paid $800,000 a year while working for NYU, as Mr. Lew was?  Gifts of this magnitude—unearned gifts—expose the recipients to risk of intermediate sanctions, and it would be hard to defend as customary practice or fair market value for services rendered.

Other universities may provide parting gifts in the form of severance to executives who resign, but it is not something that can be easily justified or excused as a common practice among large organizations, as Mr. Beckman asserts.  Most large organizations have better things to do with their resources than give money away to someone who was already paid fairly—even generously—while working. 

It is one thing to provide a placque or a watch or a gift certificate when someone retires, but few employers want to give that kind of congratulatory recogniztion to an employee who is quitting to take a job elsewhere.  It is quite another thing to provide a gift of this magnitude and claim that it is common practice.

If other colleges and universities do provide parting gifts of this magnitude, it must be because they ignore the fact that their tax-exemption depends on their using their resources to fulfill their mission, or because their trustees pay no attention to the way the university gives away its charitable assets to former employees.

Read more about David Bjork, Phd and INTEGRATED Healthcare Strategies on the INTEGRATED website.

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