The Board of Directors and management in hospitals and healthcare institutions rely on third party, objective comparability studies to ensure that executive pay is reasonable. Its relatively easy to identify and acquire objective sources with real-time compensation data. Using these sources, any healthcare organization can establish a range of compensation opportunities for the executive suite. However, evaluating executive performance and rewarding these individuals for their performance, is not as easy. This step can be complicated by subjective factors. True performance management and evaluation can be misguided by personal impressions and individual conflicts that almost never offer a foundation for effective performance evaluation.
Performance should always be objectively evaluated and should always have a strong foundation based on hospital and individual performance. Successful performance plans are guided by empirical tests that use quantitative and qualitative measures to evaluate success. These plans provide a link between compensation dollars and level of performance. When applied conscientiously, they allow top management to effectively communicate their assessment of individual executive performance and they allow the Board to effectively communicate their level of satisfaction with a CEO’s performance.
Using a recent survey of hospital executive compensation allows top management and the Board of Directors to develop a range of pay opportunity which is appropriate for the size of the hospital as well as its geographic location. The following tables show Total Cash Compensation by Revenue and by Cost-of-Living area (Low-Medium-High).
All Hospitals – Median Total Cash Compensation By Revenue
Total Cash Compensation Reported in $000’s.
All Hospitals – Median Total Cash Compensation By Cost-of-Living Area
Total Cash Compensation Reported in $000’s.
Source: 2018 Total Compensation Solutions Hospital Executive Compensation Survey.
These tables offer top management and the Board an effective tool that establishes the range of compensation opportunity for C-Suite executive positions. As a total cash compensation amount, this includes any rewards granted in short-term bonus or incentive plans.
To be certain, short-term bonus/incentive plans encourage the achievement of tactical goals of the hospital or healthcare system. Over the past 10 years, these plans have increased in prevalence in the healthcare industry. The award opportunity as a % of base salary has increased from 15% of base salary to 35% of base salary for the CEO; and from 10% of base salary to 25% for VPs. Setting the exact amount of these awards falls under the performance evaluation process.
When evaluating performance, the Board and management must establish which factors are important to the hospital: revenue growth, operational efficiency, patient safety, or other factors. Research suggests that a combination of these factors, among others, typically leads to a better understanding of the link between pay and performance and how that link is established.
Performance metrics reflect the ownership structure of the healthcare institution. Publicly traded healthcare companies tend to utilize income and revenue as the primary measure while not-for-profits often use clinical measures and patient surveys such as the following:
- Clinical Quality Metrics
- Patient Satisfaction
- Operating Margin/Operating Income
- Patient Safety
- Mission Accomplishment
- Employee Satisfaction/Engagement
- Community Benefit and/or
- Employee Retention/Turnover.
With this linkage and with this higher level of understanding, a fair and equitable level of pay can be established for executives in a healthcare environment. As a result, pay satisfaction is increased immeasurably.
