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
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.”