Re­sults of our 30th an­nual Ex­ec­u­tive Com­pen­sa­tion Sur­vey

Sur­vey shows base salaries re­main stag­nant for a sec­ond year, but in­cen­tives help boost over­all pay for some ex­ecs; oth­ers see cuts

Modern Healthcare - - Front Page - Joe Carl­son

Hos­pi­tals have long been called the most com­plex busi­nesses on Earth, and the job of run­ning them is about to get much more dif­fi­cult. So that means salaries are ris­ing to at­tract nim­ble, com­plex­ity-minded lead­ers who can bal­ance so­phis­ti­cated hos­pi­tal op­er­a­tions and the fi­nan­cial wizardry re­quired to man­age large, cash-in­ten­sive busi­nesses with un­cer­tain pay­ment sources. Right?

Wrong. Ex­ec­u­tive salaries at all lev­els of hos­pi­tal and health sys­tem man­age­ment showed only mod­est growth in 2010 for the sec­ond year run­ning, ac­cord­ing to the Mod­ern

Health­care 30th an­nual Ex­ec­u­tive Com­pen­sa­tion Sur­vey. Av­er­age base salaries across all ex­ec­u­tive po­si­tions in­creased 2.8% in 2010.

Look­ing at a sin­gle job ti­tle—CEO of health sys­tems—me­dian to­tal com­pen­sa­tion in­creased by 2.6% in 2010 ac­cord­ing to the an­nual re­port pro­duced by com­pen­sa­tion firm Sul­li­van, Cot­ter and As­so­ci­ates. That same group saw just a 0.2% in­crease in 2009, but re­ceived a 9.7% boost in 2008.

Ob­servers of­fer nu­mer­ous ex­pla­na­tions for the ap­par­ent con­tra­dic­tion be­tween height­ened de­mand for strong CEO lead­er­ship and pay prac­tices at the top, but the most com­mon one of­fered was the re­ces­sion. That is, top ex­ec­u­tives have found it dif­fi­cult to earn—or ac­cept—the kinds of pay raises they saw dur­ing the high-fly­ing years in the 2000s now that so many hos­pi­tals have frozen salaries or even laid off work­ers.

That re­luc­tance has only been mag­ni­fied by an­other grow­ing trend—in­creased pub­lic scru­tiny, both in tax records and by elected of­fi­cials. In New Hamp­shire, At­tor­ney Gen­eral Michael De­laney is re­view­ing CEO pay prac­tices at the state’s not-for-profit hos­pi­tals, while in Mas­sachusetts, At­tor­ney Gen­eral Martha Coak­ley an­nounced last fall that her of­fice was ex­pand­ing en­force­ment ef­forts for CEO pay at tax-ex­empt hos­pi­tals and in­sur­ers.

To­day any­one with an In­ter­net con­nec­tion can learn their lo­cal hos­pi­tal CEO’s salary and all of his or her perks through greatly en­hanced fed­eral tax dis­clo­sures that first started be­com­ing pub­lic last year.

“Pub­lic scru­tiny mat­ters, as our world be­comes flat­ter and more trans­par­ent,” says Den­nis Stine, who serves on the board of di­rec­tors and helps set ex­ec­u­tive pay and fi­nan­cial strat­egy at the board level for Irv­ing, Texas-based Chris­tus Health, which owns or leases 18 hos­pi­tals in the U.S., and is the ma­jor­ity stock­holder in a com­pany that op­er­ates seven hos­pi­tals in Mex­ico.

On av­er­age, base salaries across all job cat­e­gories in the sur­vey in­creased by 2.8%, while to­tal com­pen­sa­tion in­creased by 5.5%. Those fig­ures, how­ever, mask a di­verse set of dy­nam­ics in play be­tween job types and even among the var­i­ous types of hos­pi­tals and sys­tems.

On one hand, the av­er­age health sys­tem CEO took home more than $1 mil­lion in to­tal com­pen­sa­tion in 2010, mark­ing the first time that job ti­tle has bro­ken the seven-fig­ure thresh­old in the an­nual sur­vey. Pre­vi­ously, only CEOs of health sys­tems with rev­enue of more than $1 bil­lion were earn­ing seven-fig­ure av­er­age com­pen­sa­tion. Yet on the other hand, CEOs of free-stand­ing hos­pi­tals not in sys­tems took an over­all 1.4% cut in to­tal com­pen­sa­tion in the same year, the sur­vey found.

“A lot of folks are con­tin­u­ing to per­form well and are see­ing good, solid in­cen­tive pay­ments. And you’ve got some folks who are start­ing to feel the pain and their in­cen­tives are not as high. That’s start­ing to show,” says C.J. Bol­ster, man­ag­ing di­rec­tor of the health­care prac­tice for Hay Group, At­lanta.

The Sul­li­van Cot­ter fig­ures are based on sur­veys of 4,700 ex­ec­u­tives at 850 or­ga­ni­za­tions that sub­mit­ted data on ex­ec­u­tive pay in 2009 and 2010. The to­tal com­pen­sa­tion fig­ures only re­flect bonuses and in­cen­tive pay­ments that were ac­tu­ally made in the most re­cently com­pleted fis­cal year; com­pen­sa­tion that was promised but not yet paid was not in­cluded.

Win­ners and losers

Ex­perts say the 2010 data show a wider split be­tween win­ners and losers than pre­vi­ous years, as the con­sid­er­able dif­fer­ences in hos­pi­tal per­for­mance showed up in ex­ec­u­tive in­cen­tive pay­ments for fac­tors such as im­prov­ing op­er­at­ing per­for­mance, in­creas­ing pa­tient-sat­is­fac­tion scores, ex­pand­ing physi­cian align­ment, cut­ting bad debt, and height­en­ing com­mu­nity-ben­e­fit ac­tiv­i­ties.

More hos­pi­tals are also us­ing longer-term in­cen­tive plans in which the goals span sev­eral years, as a way to spread out pay­ments and dis­cour­age turnover.

“Some hos­pi­tal sys­tems and some hos­pi­tals can per­form even in a down econ­omy, and they should be re­warded for that,” Stine says. “What I’ve seen is that base salaries have been pretty static, and the in­cen­tive plan may be riched up.”

Judg­ing by the fig­ures in the lat­est sur­vey,

Stine: “Pub­lic scru­tiny mat­ters, as our world be­comes flat­ter.”

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