Health systems pay CEOs less than independent hospitals

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Planned median base salary increases reached 3 percent in 2011 for employees of large integrated health systems (IHS), which is an increase from 2010 when providers reported a planned 2.4 percent median base salary increase for healthcare employees, according to a compensation report from Hay Group Healthcare. Conversely, independent hospitals are reporting lower median base salary increases of 2.3 percent in 2011, reflecting the ongoing economic challenges facing those employers.

The 28th annual Hay Group Healthcare Compensation Study reported its results in two separate reports: the IHS report and the hospital report. Originally chartered by eight core companies, the IHS report now provides data from 109 systems as well as an additional 25 subsystems, representing more than 6,000 incumbents. Overall, 1,188 hospitals participated in the database covering more than 580,000 incumbents. Of the hospitals that participated in this report, 997 are acute care facilities. The data in these reports have an effective date of Jan. 1. The authors noted that making pay comparisons on the basis of job title alone can produce comparisons that do not reflect job content or complexity. 

When looking at actual pay changes between 2010 and 2011, there is a “noticeable variation” at the CEO level, according to the authors. CEOs at nonprofit IHS received a median 4 percent increase in base salary for 2011, while independent hospital CEOs saw an increase of 5 percent. The variation in total cash compensation (base salary plus annual incentives) is even wider between the two: CEOs at IHS saw an increase of 3.1 percent, while independent hospital CEOs saw an increase of 6 percent in total cash for 2011.

"Economic uncertainty has forced boards and human resource departments to invest more to attract and retain leaders who can execute in this challenging environment," said Ron Seifert, vice president and executive compensation practice leader for Hay’s healthcare sector. "Leaders who have the fortitude and competencies to lead complex organizations through complex times will be at a premium, and boards have become aware of that."

According to Hay's report, incentive plans in 2011 reflect the healthcare industry's increased focus on long-term improvement. For instance, while IHS CEO's median rate of increase to base salary has grown by 1.5 percentage points in 2011, the rate of change for median total cash has dropped 2.3 percentage points, which appears to be due to a decline in the use of annual incentive plans. In fact, the prevalence of annual incentive plans for nonprofit IHS has dropped 10 percent since 2007, when a high of 89 percent of systems offered these plans.

Currently, only 79 percent of nonprofit IHS offer one-year plans—the lowest in at least six years. At the same time, the popularity of long-term incentive plans has increased dramatically from 2006 when only 14 percent of IHS offered long-term incentives to senior executives; 25 percent of IHS offered these plans in 2011.

Some additional findings from the report include:

  • Patient satisfaction remains the most prevalent performance measure for annual incentives, with 79 percent of providers using this as the primary measure across all executive employee groups of the organization.
  • Only 28 percent of health systems have reviewed their annual incentive plans in the last two years. For 37 percent of health systems, it has been at least five years since annual incentive plan designs were reviewed.
  • At independent hospitals, nurses received the highest average salary structure change in 2010 at 2.8 percent.
  • Median increases for IHS salary structures (2 percent) are equivalent to those in the financial services sector, the health insurance sector and the general market
  • Ninety-three percent of the surveyed organizations with an long-term incentives plan use a single type of award; the remaining 7 percent use two or more types of awards.

"The growth of long-term incentives is directly related to healthcare's focus on the future," remarked Seifert. "Boards are using these plans as a means to ensure senior executives are motivated and focused on achieving long-term goals. With good goal setting, these plans can strengthen and accelerate the achievement of critical multi-year objectives."