As short- and long-term incentive plans become more popular and CEO compensation becomes more transparent, hospital CEOs must achieve tangible results to justify their high salaries to the public. Here are the top 10 traits of high-earning hospital CEOs, according to two healthcare recruiting experts.
1. They meet short- and long-term goals. According to Larry Robinson, senior vice president and managing principal of RCG Executive Compensation Group, most hospitals and health systems use short-term incentive plans for their executives. But long-term incentive plans, while relatively uncommon now, are gaining in popularity and are expected to pick up steam in 2011. The highest-earning CEOs over the next few years will sit down with the hospital compensation committee and outline goals for the year as well as the next few years, says John Fulcher, director of healthcare recruiting for Bauer Consulting Group. He adds that while the short-term plan should be tied to quarterly objectives — decreasing readmissions, for example, or increasing patient satisfaction scores — long-term plans might be based on goals such as growing a hospital service line or adding a children's hospital.
Accomplishing short- and long-term goals impacts a CEO's current compensation, but it could also impact his or her ability to gain new employment in the future, Mr. Robinson says. "You look for candidates who met or exceeded their goals," he says, adding that hospitals may be more lenient about accomplishments if the hospital suffered financially due to economic downturn. The most important part of designing short- and long-term incentive plans, he says, is to ensure that all goals are quantifiable, understandable and achievable.
2. They analyze potential employer markets. When a hospital and a CEO work together to design an incentive plan, Mr. Robinson says, generally, the CEO will draw up a list of potential goals, submit them to the board and receive feedback. This process leads to a final decision on the goals for the next year and several years, depending on the compensation model. Mr. Fulcher recommends a new CEO takes a careful look at the hospital's local market when deciding his or her goals. "Is there a children's hospital, and will the market support a children's hospital?" he says. "What's the hospital's current market share and the [region's] current population growth?" He says CEOs should take advantage of public information on population growth and other factors. A CEO should not aim to gain a significant market share if the hospital has already captured a majority of the local market, for example.
3. They take risks with compensation. Most CEO salaries today are made up of several parts that, as a whole, form "total direct compensation." These parts can include base salary, short-term incentive plans and long-term incentive plans, as well as benefits. Because incentive plan pay is dependent on the CEO meeting a number of pre-determined goals, a higher percentage of incentive pay is a significant risk. However, Mr. Fulcher says the most successful CEOs in the coming years may be those who accept the risk of an incentive plan and embrace the opportunity to achieve that extra money.
More and more, hospitals are unlikely to offer executives large base salaries with small incentive plans. This model means the hospital must accept the risk that the executive will earn a high income without accomplishing pre-determined goals. On the other hand, a compensation model that places too much emphasis on an incentive plan can force the CEO to accept far more risk than the hospital. The smartest CEOs will create a balanced combination of the two sides — enough base salary to guarantee relative financial stability, and enough incentive pay to push them to achieve goals.
4. They stay put. In a culture enamored with quick change and rapid growth, Mr. Robinson says the healthcare industry has remarkably resisted the trend of high turnover among executives. More than ever, hospitals and health systems recruiting new executives value historical longevity with several organizations. "Building a physical plant and maintaining it doesn't happen overnight," he says. "We're all interested in moving to new employment if there's a higher pay opportunity, but you don't want to move too quickly. You want to build a strong track record of performance and continuity."
He says the most attractive CEOs will have spent a long period of time with fewer than five organizations. "One of the first things anyone looks at is: do you see a pattern of sustained employment with one organization and the executive moving up through the company?" he says. "If you see someone moving among a number of different hospitals, that causes concern. Relationships with the board and the community are so important, and you don't develop those overnight." He says this trait goes hand-in-hand with the increasing popularity of long-term incentive plans. Hospitals want to know that a new CEO will stay with the facility long enough to implement real change.
5. They prioritize the hospital's mission. With all the upcoming changes to the healthcare industry, it can be easy for hospital and health system CEOs to get distracted. With so many priorities to focus on — EMR implementation, coding system transition, profitability, regulatory changes and more — CEOs can forget to prioritize the hospital's mission. Mr. Robinson says this trait is essential for CEOs who want to keep a tight hospital budget. "Many hospitals were founded on the basis of service of the community and its needs," he says. "There are so many things that are peripheral these days, and the key is to keep focused on the things that are core to the mission of the organization." This focus could also help hospital profitability, as the CEO will be less likely to recommend spending money on initiatives that don't fit with the hospital's core values.
6. They have a background in finance. Mr. Robinson says he has recently seen increased emphasis on candidates with a strong finance background. "To understand the fiscal operation of a large facility takes in-depth knowledge, and when you're dealing with all the government payment programs and reporting requirements, you really need to have a wide breath of technical knowledge," he says. 2011's most successful CEOs will not simply rely on the expertise of their CFOs but bring their own knowledge as well.
7. They get involved with new initiatives. Hospital CEOs who ignore changes through healthcare reform could endanger facility revenue and therefore their own compensation, Mr. Fulcher says. Valuable CEOs should already be involved in local and national initiatives surrounding ACO development, payment reform and physician integration. They should also be up-to-date on changes to coding, reimbursement, regulatory and HIT rules, which means a constant "finger on the pulse" of healthcare news.
8. They understand the hospital board's perspective. It may be too soon to predict an economic recovery, but many believe the worst of the recession is over. In light of this prediction, Mr. Robinson says hospital CEOs should recognize that hospital boards will be increasingly concerned about executive retention. If executives have more employment options, hospital boards will offer increasingly competitive compensation — a boon for hospital leaders.
9. They're hungry for growth. In any industry, CEOs should hunger for new growth and opportunity, Mr. Fulcher says. "You've got to have someone who wants to be a hands-on director and a hands-on manager, who wants to lead the organization to success," he says. He says a CEO cannot settle for "good enough" in hospital performance. This hunger will mean more initiatives, projects and ideas that benefit hospital revenue, as well as more frequent achievement of incentive plan goals.
10. They cut costs in simple ways. Cost-cutting in the hospital setting doesn't have to mean huge effort, Mr. Fulcher says. CEOs who want to make more money should start with their facility, where a gain in revenue or a decrease in cost will most likely mean more money in their own bank account. While personal gain should never be the sole motivator for CEO attention to hospital finances, it can be a nice side effect when a leader puts effort into increasing profit.
Mr. Fulcher says successful CEOs in 2011 will increase revenue through simple measures, such as taking the time to speak with local physicians, tightening up billing and collections processes and looking at data on turnover times and readmissions.
Read more on executive compensation:
-4 Trends in Hospital Executive Compensation
-4 Best Practices for Hospital-CEO Board Relationships
1. They meet short- and long-term goals. According to Larry Robinson, senior vice president and managing principal of RCG Executive Compensation Group, most hospitals and health systems use short-term incentive plans for their executives. But long-term incentive plans, while relatively uncommon now, are gaining in popularity and are expected to pick up steam in 2011. The highest-earning CEOs over the next few years will sit down with the hospital compensation committee and outline goals for the year as well as the next few years, says John Fulcher, director of healthcare recruiting for Bauer Consulting Group. He adds that while the short-term plan should be tied to quarterly objectives — decreasing readmissions, for example, or increasing patient satisfaction scores — long-term plans might be based on goals such as growing a hospital service line or adding a children's hospital.
Accomplishing short- and long-term goals impacts a CEO's current compensation, but it could also impact his or her ability to gain new employment in the future, Mr. Robinson says. "You look for candidates who met or exceeded their goals," he says, adding that hospitals may be more lenient about accomplishments if the hospital suffered financially due to economic downturn. The most important part of designing short- and long-term incentive plans, he says, is to ensure that all goals are quantifiable, understandable and achievable.
2. They analyze potential employer markets. When a hospital and a CEO work together to design an incentive plan, Mr. Robinson says, generally, the CEO will draw up a list of potential goals, submit them to the board and receive feedback. This process leads to a final decision on the goals for the next year and several years, depending on the compensation model. Mr. Fulcher recommends a new CEO takes a careful look at the hospital's local market when deciding his or her goals. "Is there a children's hospital, and will the market support a children's hospital?" he says. "What's the hospital's current market share and the [region's] current population growth?" He says CEOs should take advantage of public information on population growth and other factors. A CEO should not aim to gain a significant market share if the hospital has already captured a majority of the local market, for example.
3. They take risks with compensation. Most CEO salaries today are made up of several parts that, as a whole, form "total direct compensation." These parts can include base salary, short-term incentive plans and long-term incentive plans, as well as benefits. Because incentive plan pay is dependent on the CEO meeting a number of pre-determined goals, a higher percentage of incentive pay is a significant risk. However, Mr. Fulcher says the most successful CEOs in the coming years may be those who accept the risk of an incentive plan and embrace the opportunity to achieve that extra money.
More and more, hospitals are unlikely to offer executives large base salaries with small incentive plans. This model means the hospital must accept the risk that the executive will earn a high income without accomplishing pre-determined goals. On the other hand, a compensation model that places too much emphasis on an incentive plan can force the CEO to accept far more risk than the hospital. The smartest CEOs will create a balanced combination of the two sides — enough base salary to guarantee relative financial stability, and enough incentive pay to push them to achieve goals.
4. They stay put. In a culture enamored with quick change and rapid growth, Mr. Robinson says the healthcare industry has remarkably resisted the trend of high turnover among executives. More than ever, hospitals and health systems recruiting new executives value historical longevity with several organizations. "Building a physical plant and maintaining it doesn't happen overnight," he says. "We're all interested in moving to new employment if there's a higher pay opportunity, but you don't want to move too quickly. You want to build a strong track record of performance and continuity."
He says the most attractive CEOs will have spent a long period of time with fewer than five organizations. "One of the first things anyone looks at is: do you see a pattern of sustained employment with one organization and the executive moving up through the company?" he says. "If you see someone moving among a number of different hospitals, that causes concern. Relationships with the board and the community are so important, and you don't develop those overnight." He says this trait goes hand-in-hand with the increasing popularity of long-term incentive plans. Hospitals want to know that a new CEO will stay with the facility long enough to implement real change.
5. They prioritize the hospital's mission. With all the upcoming changes to the healthcare industry, it can be easy for hospital and health system CEOs to get distracted. With so many priorities to focus on — EMR implementation, coding system transition, profitability, regulatory changes and more — CEOs can forget to prioritize the hospital's mission. Mr. Robinson says this trait is essential for CEOs who want to keep a tight hospital budget. "Many hospitals were founded on the basis of service of the community and its needs," he says. "There are so many things that are peripheral these days, and the key is to keep focused on the things that are core to the mission of the organization." This focus could also help hospital profitability, as the CEO will be less likely to recommend spending money on initiatives that don't fit with the hospital's core values.
6. They have a background in finance. Mr. Robinson says he has recently seen increased emphasis on candidates with a strong finance background. "To understand the fiscal operation of a large facility takes in-depth knowledge, and when you're dealing with all the government payment programs and reporting requirements, you really need to have a wide breath of technical knowledge," he says. 2011's most successful CEOs will not simply rely on the expertise of their CFOs but bring their own knowledge as well.
7. They get involved with new initiatives. Hospital CEOs who ignore changes through healthcare reform could endanger facility revenue and therefore their own compensation, Mr. Fulcher says. Valuable CEOs should already be involved in local and national initiatives surrounding ACO development, payment reform and physician integration. They should also be up-to-date on changes to coding, reimbursement, regulatory and HIT rules, which means a constant "finger on the pulse" of healthcare news.
8. They understand the hospital board's perspective. It may be too soon to predict an economic recovery, but many believe the worst of the recession is over. In light of this prediction, Mr. Robinson says hospital CEOs should recognize that hospital boards will be increasingly concerned about executive retention. If executives have more employment options, hospital boards will offer increasingly competitive compensation — a boon for hospital leaders.
9. They're hungry for growth. In any industry, CEOs should hunger for new growth and opportunity, Mr. Fulcher says. "You've got to have someone who wants to be a hands-on director and a hands-on manager, who wants to lead the organization to success," he says. He says a CEO cannot settle for "good enough" in hospital performance. This hunger will mean more initiatives, projects and ideas that benefit hospital revenue, as well as more frequent achievement of incentive plan goals.
10. They cut costs in simple ways. Cost-cutting in the hospital setting doesn't have to mean huge effort, Mr. Fulcher says. CEOs who want to make more money should start with their facility, where a gain in revenue or a decrease in cost will most likely mean more money in their own bank account. While personal gain should never be the sole motivator for CEO attention to hospital finances, it can be a nice side effect when a leader puts effort into increasing profit.
Mr. Fulcher says successful CEOs in 2011 will increase revenue through simple measures, such as taking the time to speak with local physicians, tightening up billing and collections processes and looking at data on turnover times and readmissions.
Read more on executive compensation:
-4 Trends in Hospital Executive Compensation
-4 Best Practices for Hospital-CEO Board Relationships