Healthcare Issues & Trends

Advice & Insights for healthcare's Leaders & HR Professionals


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.

The most engaged employees leave first?

Posted on June 21, 2013 by Gallagher Integrated

Employee engagement in healthcare organizationsHow can it be that your healthcare organization's most engaged employees would also be the ones at the highest risk of leaving? That doesn't make sense, right?  Well, it does if you look beyond the overall engagement score.

If you've read any of our previous posts on employee engagement, you'll recall that INTEGRATED Healthcare Strategies uses multiple metrics to calculate engagement that include categories like: exerting extra effort; willingness to promote the organization as a workplace; being an overall satisfied employee; and really feeling a sense of belonging to the organization.

INTEGRATED thinks about engagement at a much deeper level. Our employee engagement expert, David Rowlee, PhD, likes to understand how that engagement score actually came about. For example, there is an engagement group called 'Seekers' that exert an extremely high level of effort, takes a great deal of pride in the organization, promotes the organization as a great place to work, is highly satisfied and feels strongly connected...but wants to leave the organization at the next possible opportunity. That's a problem.

Visit www.integatedhealthcarestrategies.com or www.clearlyunderstandable.com to watch our latest video and others in the series that tell you everything you don't know, and need to know, about understanding employee engagement in your organization.

 

The 5 Types of Workforce Employee Engagement Profiles

Posted on May 21, 2013 by Gallagher Integrated

To truly understand employee engagement survey scores, healthcare organizations must look beyond the "face value."  This is an area where many surveys fall short--only providing an overall score and not analyzing deeper--a dangerous mistake if seemingly high engagement scores mask underlying problems.

Most healthcare organizations are surprised to discover there are five types of engagement groups that typically exhist in their organization:  Engaged, Seekers, Campers, Detaching and Separated.  How are they different from one another, and how do they each impact an organization?   

These are complex concepts, but the meanings are clear.  That's why INTEGRATED, along with Dr. David Rowlee, developed a video series to make employee engagement, "Clearly Understandable." 

In the fourth video in the series, Dr. Rowlee profiles each of the five engagement groups and explains why Seekers are the most dangerous.  

If you have less than five minutes to see intel critical to your organization's success, check out the video on YouTube.  Or, visit our website to see all the videos in the series.

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.

Past Posts