Executive compensation is one area under significant attention as healthcare providers implement new strategies to aid the transition from volume to value-based care, especially in the face of declining reimbursements, tightening operational margins and increased rates of leadership turnover, according to the 2014 Executive Compensation Survey report by HealthLeaders Media Intelligence.
The report, Reforming Executive Compensation to Accelerate Change, shows many organizations' compensation structures need major enhancements to attract, retain and engage leaders. According to the survey, 40 percent of executives say their hospital or health system's executive compensation packages are not aligned with their organization's strategies, which can lead to serious consequences like slowing progress and driving executive turnover.
The survey was conducted in August among 454 respondents, including the HealthLeaders Media Council and select members of the HealthLeaders Media audience, 48 percent of which were senior leaders. Highlights from the report are shown below.
- Thirty-three percent of respondents said their executive compensation structure needs major enhancement, while 49 percent believe minor enhancements are needed and 18 percent don’t think any are necessary.
- Only 7 percent of respondents think their organization's executive compensation packages are aligned with their organization's strategies. Fifty-three percent believe their executive compensation packages are pretty well aligned with their organization's strategies, and forty percent believe they are either slightly or seriously misaligned.
- Thirty-five percent of respondents said change is needed to their organization's executive compensation strategy to meet the financial needs of healthcare today, but there is no plan yet. Twenty percent said no changes have been made and none are needed and 15 percent reported change is needed and a plan is pending.
- Thirty-one percent of respondents said change is needed, but there is no plan yet regarding their organizations' executive compensation strategy to address the patient care objectives of healthcare. Twenty-seven percent said change was made in the right direction, while 2 percent said change was made in the wrong direction. Seventeen percent believe no change is needed and none have been made.
- In consideration of the shift from fee-for-service to value-based purchasing, 43 percent of respondents said their organization has not modified its group or team incentives for executive compensation packages or don't expect to do so, while 33 percent reported their organization has either already modified its team incentives or plans to do so.
- More health systems (41 percent) than hospitals (31 percent) or physician organizations (24 percent) have made or intend to modify group or team incentives for executive compensation packages.
- Survey respondents indicated that incentives are weighted slightly toward team goals (55 percent) over individual goals (45 percent).
- Sixty-four percent and 60 percent of executives at organizations with medium and high levels of net patient revenue, respectively, receive a greater portion of team-based incentives than executives at low-revenue organizations (46 percent).
- Forty-eight percent of respondents said operating margin targets serve as a basis for their current individual incentive payments, followed by staff engagement or satisfaction targets (47 percent), clinical performance targets (43 percent) and cost containment targets (42 percent).
- Operating margins serve as a basis for 60 percent of respondents' current team incentive payments, followed by clinical performance targets (59 percent) and staff engagement or satisfaction targets (51 percent).
*Note: Respondents were allowed to select multiple responses for some questions.