31st annual Executive Compensation Survey show salary hikes come down to earth
Healthcare execs see smaller raises overall, but some still net strong increases while others lose ground
Five years ago, if you had told a hospital CEO that he should feel thankful to receive a 3% pay raise, the executive might have called you crazy.
Welcome to 2011. Today’s healthcare executives are operating in a world where a long recession has been displaced by a long-sputtering recovery, and C-suite officials’ paychecks have been cut in the same spirit of austerity as everyone else’s for four years running.
But in that time, the top executive jobs have only gotten tougher, experts say. Government bureaucrats have piled on new regulatory schemes that require multiyear projects and vexing 21st century questions, such as how should providers transition into a pay-for-performance world or will they ever create their own medical home or accountable care delivery model.
So the 3% average increases in base compensation that hospital and health system executives in more than a dozen categories received in 2011 were the result of conflicting forces—continued shared-sacrifice balanced against a desire to keep experienced executives on board in the post-reform age.
Modern Healthcare’s annual Executive Compensation Survey found that executives in the 24 categories tracked at hospitals posted average salary growth of 3.1% in 2011,
Pavlik says the 2011 salary figures, which were drawn from responses from about 1,200 healthcare providers across the country, fulfilled his salary predictions heading into the year, even though the raises in the range of 3% were lower than historical trends.
“That’s certainly more conservative than the last 10 years, prior to the downturn,” he says. “Pay increases were better than 4% for the rest of the decade.” Indeed, past surveys showed much larger annual increases that sometimes stretched into double-digit territory during more prosperous years.
Governing boards’ most recent decisions on executive pay seemed to answer one question that had lingered from previous surveys: whether CEOs would eventually make up the “lost” compensation when they took pay cuts and freezes along with the rest of their staffs. “Organizations have lower budgets, and I just don’t see anyone trying to catch up on an overall basis,” Pavlik says. “I think there is still a strong demand for highly skilled executives. Especially when you start looking at the strong challenges we have with ACOs, pay-for-performance. There is still strong demand.”
One factor that experts say continues to exert negative pressure on executive wages is widespread public disclosure.
In recent years, much of the attention on compensation transparency has focused on employer-provided country club memberships, generous transportation benefits and other perks that had to be specifically outlined in Internal Revenue Service Form 990 tax disclosure starting in tax year 2008.
But in the context of a long-lasting economic downturn, the CEO’s publicly reported salary and especially raises or bonuses can become a public-relations liability for a hospital board of directors, not only in relation to lawmakers and the public, but also in hospitals’ relations with their own workers.
“Executive compensation is kind of a political football,” says Lindalee Lawrence, president of Wellesley, Mass.based compensation consulting firm Lawrence Associates. “We see this in other not-for-profit organizations, not just healthcare, but the unions are not hesitant to look at the (IRS Form) 990 and bring that to the fore as part of their negotiation strategy.”
Although the increases in compensation may look modest, the total take-home pay figures for healthcare CEOs can still seem large
“I think there is still a strong demand for highly skilled executives. Especially when you start looking at the strong challenges we have with ACOs, pay-for-performance.” — Tom Pavlik, managing principal,
Sullivan, Cotter and Associates
while their colleagues in 44 job categories tracked at health systems received 3.3% increases, according to calculations from the data done by Tom Pavlik, managing principal for Chicago-based Sullivan, Cotter and Associates, the consulting firm that provides the annual survey data to the magazine.