Many hospitals and health systems are reconfiguring executive incentive pay amid heightened scrutiny on executive pay and evolving performance metrics, according to SullivanCotter.
Incentive pay increased for hospital and health system executives on average last year because more executives hit financial and other performance metrics.
"Although performance is improving year-over-year and payouts approximate target, we still saw about half of organizations change their annual incentive plans for the 2024 fiscal year. This included a refined approach to goal calibration and increased weighting of financial and system-wide performance metrics – highlighting the need to focus on financial sustainability, integration, and refined care delivery models to move forward in a post-COVID environment," said Tom Pavlik, Managing Principal, SullivanCotter.
Most health systems still tie financial metrics heavily to executive incentive pay alongside quality, patient experience and more. In a survey of 3,300 healthcare organizations, 93% said their executive compensation includes financial measures; 85% have quality and 75% include patient experience and access within their packages. Another 73% focus on people, 61% have patient safety metrics tied to incentive pay and 41% consider growth.
The average weight given to each metric is:
Financial: 32%
Quality: 22%
Patient experience and access: 20%
People: 18%
Patient safety: 17%
Growth: 19%
SullivanCotter recommended compensation committees examine their incentive plans and goals to make sure they're aligning with strategic priorities. The organization also recommended reviewing and updating the entire executive compensation package to ensure pay is competitive based on impact, role and performance to attract or retain talented leaders.
"For incentive compensation, it's important to assess these plans in the context of the organization's near and long-term strategy when setting performance metrics and objectives to ensure ongoing effectiveness," the report advised.