Lois Dister, executive vice president and managing principal of Cejka Executive Search, answers a series of questions on trends affecting executive compensation.
Q: The healthcare industry has seen a recent emphasis on incentive plans, especially long-term incentive plans that judge successes over multiple years. How should hospitals determine which successes they will reward when drawing up a contract?
Lois Dister: The more clearly a board can define its strategic objectives for growth, quality improvement, accountability and other key goals, the more effective they will be in creating a compensation package that rewards executives for achieving results. They will be able to identify the milestones toward achieving the long-term objectives and therefore balance the incentives for short- and long-term compensation.
Q: Many hospitals are struggling financially because of the economic downturn. How does that affect executive compensation?
LD: Hospitals are like all sectors in this regard: compensation is constantly under review. Because we have seen a trend toward basing a larger percentage of total compensation on performance, the component based on financial performance would stagnate or drop with the decline of hospital revenue and margins.
Q: Are the characteristics for a desirable hospital leader changing with the advent of health reform? What are hospitals most interested in right now?
LD: Health reform is driving more "system-ness." Hospitals and health systems have to consider and prioritize a complex web of critical success factors which revolve around improving quality, efficiency, integration and transparency in the delivery of care to patients. Physicians are at the heart of almost every aspect of care, so a leader — including a physician leader — who has proven to be effective in aligning the needs of all the stakeholders has a clear advantage in today's era of reform.
Q: How can top executives increase their earning power?
LD: Successfully achieving defined goals is the key. Showing measurable improvement makes a compelling case as to the value you have delivered. [That improvement should be] based on defined needs in an organization and quantifying what [the improvement] means in terms of value to the patient and the system.
Expanding skill sets to meet new, emerging needs is also critical to improving the value an executive delivers to his or her organization. The top CEO increases his or her value by hiring an excellent team of executives who collaborate, communicate and achieve.
Q: Could you discuss compensation trends specific to physician executives? How does the physician's background affect an executive's attractiveness, earning power and responsibilities?
LD: Physicians serving in executive management and leadership roles are in high demand. Reform and the development of accountable care organizations require leadership skills that encompass clinical background, finance, operations and medical informatics.
Best practice organizations foster the leaders in their organizations and provide physicians with opportunities to gain experience in a multitude of areas, such as service line growth, financial management, technology advancement and clinical integration. Earning a post-graduate business degree is becoming a required complement to the medical degree. Earning an MBA affords physicians with an opportunity to not only learn business-relevant subject matter, but to have the shared experience of a very different learning process which prepares them to work alongside their non-physician colleagues.
We also found in our physician executive compensation survey that compensation of physician executives is positively influenced by their attainment of an MBA. Chief Executive Officers/Presidents with an MBA earned 22 percent greater median salary with an MBA than those without.
Q: What other trends do you see in executive compensation?
LD: Boards are increasingly concerned with transparency of how hospital executives are paid. Given the wide variation between their paychecks and those of majority of the employees, the board must be very clear about how that pay was earned and what value the executive team delivered in exchange.
This is very difficult for some organizations culturally, but it is healthy for the industry.
Learn more about Cejka Executive Search.
Q: The healthcare industry has seen a recent emphasis on incentive plans, especially long-term incentive plans that judge successes over multiple years. How should hospitals determine which successes they will reward when drawing up a contract?
Lois Dister: The more clearly a board can define its strategic objectives for growth, quality improvement, accountability and other key goals, the more effective they will be in creating a compensation package that rewards executives for achieving results. They will be able to identify the milestones toward achieving the long-term objectives and therefore balance the incentives for short- and long-term compensation.
Q: Many hospitals are struggling financially because of the economic downturn. How does that affect executive compensation?
LD: Hospitals are like all sectors in this regard: compensation is constantly under review. Because we have seen a trend toward basing a larger percentage of total compensation on performance, the component based on financial performance would stagnate or drop with the decline of hospital revenue and margins.
Q: Are the characteristics for a desirable hospital leader changing with the advent of health reform? What are hospitals most interested in right now?
LD: Health reform is driving more "system-ness." Hospitals and health systems have to consider and prioritize a complex web of critical success factors which revolve around improving quality, efficiency, integration and transparency in the delivery of care to patients. Physicians are at the heart of almost every aspect of care, so a leader — including a physician leader — who has proven to be effective in aligning the needs of all the stakeholders has a clear advantage in today's era of reform.
Q: How can top executives increase their earning power?
LD: Successfully achieving defined goals is the key. Showing measurable improvement makes a compelling case as to the value you have delivered. [That improvement should be] based on defined needs in an organization and quantifying what [the improvement] means in terms of value to the patient and the system.
Expanding skill sets to meet new, emerging needs is also critical to improving the value an executive delivers to his or her organization. The top CEO increases his or her value by hiring an excellent team of executives who collaborate, communicate and achieve.
Q: Could you discuss compensation trends specific to physician executives? How does the physician's background affect an executive's attractiveness, earning power and responsibilities?
LD: Physicians serving in executive management and leadership roles are in high demand. Reform and the development of accountable care organizations require leadership skills that encompass clinical background, finance, operations and medical informatics.
Best practice organizations foster the leaders in their organizations and provide physicians with opportunities to gain experience in a multitude of areas, such as service line growth, financial management, technology advancement and clinical integration. Earning a post-graduate business degree is becoming a required complement to the medical degree. Earning an MBA affords physicians with an opportunity to not only learn business-relevant subject matter, but to have the shared experience of a very different learning process which prepares them to work alongside their non-physician colleagues.
We also found in our physician executive compensation survey that compensation of physician executives is positively influenced by their attainment of an MBA. Chief Executive Officers/Presidents with an MBA earned 22 percent greater median salary with an MBA than those without.
Q: What other trends do you see in executive compensation?
LD: Boards are increasingly concerned with transparency of how hospital executives are paid. Given the wide variation between their paychecks and those of majority of the employees, the board must be very clear about how that pay was earned and what value the executive team delivered in exchange.
This is very difficult for some organizations culturally, but it is healthy for the industry.
Learn more about Cejka Executive Search.