Ron Seifert, executive compensation practice leader for Hay Group's healthcare practice, discusses four trends in hospital executive compensation, including voluntary reductions in pay, the types of mistakes that typically result in reduced compensation and a shift in board mentalities.
1. More executives are voluntarily reducing their pay. In the past two years, some healthcare systems performed exceptionally well despite a discouraging economic climate. Still, many executives voluntarily reduced their pay or incentives to soften any financial burden it may have created for the hospital and to reflect the pain experienced by many of their employees. In some cases, a voluntary reduction may also help the hospital avoid other strategies to cut costs, such as mass layoffs or the termination of certain clinical services. “These actions, while difficult for executive teams, are highly empathetic to the economic challenges faced by the hospital and its employees,” says Mr. Seifert
"Other times, boards imposed reductions because they felt it was the practical and right decision at the time," says Mr. Seifert. Pay reductions have typically been temporary — meaning executives will see reinstatements later on. When bonuses are reduced, however, that pay is generally foregone.
2. Mistakes that damage a hospital's reputation will not go unnoticed. If your hospital is making headlines — and for the wrong reasons — it may leave a mark on high-level executive's compensation. Errors that result in damage to a hospital's reputation are the most likely to impact executive pay. "The things that come to my mind where decisions have been made to cut compensation are extraordinary events," says Mr. Seifert. This is a broad answer, encompassing both medical and financial realms, and leaving an area of ambiguity when it comes to the executive's role in these mistakes.
If the error is due to faulty external advice, that's one thing. But when executive decisions or the culture they are creating directly damages the institution's reputation, boards often take action and may reduce pay and/or eliminate incentives.
3. Hospital turnarounds present unique circumstances in compensation. A hospital turnaround is no small task. In today's market, leaders who have the capabilities to open new services, raise the bar on clinical capabilities or expand services — and do all of these tasks well — are "priceless," according to Mr. Seifert. When it comes to hospital turnarounds, these executives can come with a hefty price tag. Wise boards will structure incentives with specific expectations embedded in the turnaround plan.
"More often than not, incentive plans are going to be structured around the leader's ability to manage efficiently, in terms of finance and operations, and manage effectively, in terms quality and satisfaction," says Mr. Seifert. "This is where experience matters," says Mr. Seifert. Turnaround situations do, however, lend a bit more latitude since hospital administrators and boards often know "what they're getting themselves into," as Mr. Seifert says. Depending upon the severity of the situation and the types of problems incurred, the emphasis of the incentive arrangement will differ.
4. Financial stringency has shifted board room cultures. The economic and political environment of the past two years has led boards to become more conscientious of spending, connecting the dots to where money is allotted and how those resources are being utilized to reward executives. "I think the economic and political environment of the last two years has really caused boards to think carefully about what they're doing and why they're doing it. That's the undertone to which all of this has been built. There's a new norm in place," says Mr. Seifert. With all of the clinical, financial and satisfaction data available, boards are much better informed about how the hospital is performing and how to leverage performance expectations into incentive compensation arrangements.
Learn more about Haygroup.
Read more about executive compensation trends:
- 6 Steps to Determine Hospital Executive Base Salary, Incentives and Benefits
- Top 20 Highest-Paid Healthcare CEOs
- 4 Factors That Determine Hospital Executive Compensation
1. More executives are voluntarily reducing their pay. In the past two years, some healthcare systems performed exceptionally well despite a discouraging economic climate. Still, many executives voluntarily reduced their pay or incentives to soften any financial burden it may have created for the hospital and to reflect the pain experienced by many of their employees. In some cases, a voluntary reduction may also help the hospital avoid other strategies to cut costs, such as mass layoffs or the termination of certain clinical services. “These actions, while difficult for executive teams, are highly empathetic to the economic challenges faced by the hospital and its employees,” says Mr. Seifert
"Other times, boards imposed reductions because they felt it was the practical and right decision at the time," says Mr. Seifert. Pay reductions have typically been temporary — meaning executives will see reinstatements later on. When bonuses are reduced, however, that pay is generally foregone.
2. Mistakes that damage a hospital's reputation will not go unnoticed. If your hospital is making headlines — and for the wrong reasons — it may leave a mark on high-level executive's compensation. Errors that result in damage to a hospital's reputation are the most likely to impact executive pay. "The things that come to my mind where decisions have been made to cut compensation are extraordinary events," says Mr. Seifert. This is a broad answer, encompassing both medical and financial realms, and leaving an area of ambiguity when it comes to the executive's role in these mistakes.
If the error is due to faulty external advice, that's one thing. But when executive decisions or the culture they are creating directly damages the institution's reputation, boards often take action and may reduce pay and/or eliminate incentives.
3. Hospital turnarounds present unique circumstances in compensation. A hospital turnaround is no small task. In today's market, leaders who have the capabilities to open new services, raise the bar on clinical capabilities or expand services — and do all of these tasks well — are "priceless," according to Mr. Seifert. When it comes to hospital turnarounds, these executives can come with a hefty price tag. Wise boards will structure incentives with specific expectations embedded in the turnaround plan.
"More often than not, incentive plans are going to be structured around the leader's ability to manage efficiently, in terms of finance and operations, and manage effectively, in terms quality and satisfaction," says Mr. Seifert. "This is where experience matters," says Mr. Seifert. Turnaround situations do, however, lend a bit more latitude since hospital administrators and boards often know "what they're getting themselves into," as Mr. Seifert says. Depending upon the severity of the situation and the types of problems incurred, the emphasis of the incentive arrangement will differ.
4. Financial stringency has shifted board room cultures. The economic and political environment of the past two years has led boards to become more conscientious of spending, connecting the dots to where money is allotted and how those resources are being utilized to reward executives. "I think the economic and political environment of the last two years has really caused boards to think carefully about what they're doing and why they're doing it. That's the undertone to which all of this has been built. There's a new norm in place," says Mr. Seifert. With all of the clinical, financial and satisfaction data available, boards are much better informed about how the hospital is performing and how to leverage performance expectations into incentive compensation arrangements.
Learn more about Haygroup.
Read more about executive compensation trends:
- 6 Steps to Determine Hospital Executive Base Salary, Incentives and Benefits
- Top 20 Highest-Paid Healthcare CEOs
- 4 Factors That Determine Hospital Executive Compensation