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Survey Report

Top trends to consider in health care executive pay

Wynagrodzenie kadry kierowniczej wyższego szczebla
Beyond Data

By Kara Koss and Hatti Johansson | December 6, 2018

Results of our 2018 health care compensation survey reports reveal seven trending issues in executive compensation.
Health care professional speaking to group
 
The health care industry is currently in flux, with changing patient expectations, continued merger and acquisition activity, new legislation on executive compensation and new disruptors entering the market. To succeed in this rapidly evolving health care landscape, organizations must reconsider best-fit compensation models that have worked in the past.

Results of our 2018 health care compensation survey reports reveal seven trending issues in executive compensation.

 

1. Health care consumerism

Broadly defined as a movement for patient-driven and value-based care, patients are increasingly expecting to “purchase” care that provides the best service and value. With consumer-friendly companies like Apple and Amazon exploring ways to enter the health care market, traditional health care providers are searching for ways to provide more cohesive and convenient health care experiences for patients, such as wayfinding apps to make navigating the hospital campus easier and urgent care centers that offer a full complement of onsite radiology and lab testing services.

They are expanding their portfolios and exploring innovative ways to deliver health care services to their communities. To address these changing patient expectations and new delivery methods, organizations are adding positions in M&A, strategic alliance management, and digital strategy and experience (particularly in IT and marketing).

2. Continued industry consolidation

Over the past two decades, the number of M&A transactions among health care organizations reached a record high.1 Many organizations continue to build strategic partnerships to enhance their business portfolios. Findings from our 2017 Health Care Compensation Survey - U.S. show the Top Business Development Executive position received twice as many data points or job matches compared with previous years. Consolidation directly impacts staff retention as:

  • Executives and nonclinical staff are more susceptible to leaving during periods of uncertainty.
  • Larger, consolidated competitors may have deeper pockets to attract and retain talent.
  • Integration of newly acquired entities can be challenging.

As a result, organizations anticipating acquisition or consolidation need to identify critical talent early and establish a retention and compensation program to minimize the risk of losing staff.

3. Increased public scrutiny on executive compensation

The 2017 Tax Cuts and Jobs Act imposed an employer-paid annual 21% excise tax on any compensation given to the covered employees of tax-exempt organizations in excess of $1 million and severance benefits equal to or greater than three times base salary.2 Increased public scrutiny of salaries of top paid health care executives is forcing tax-exempt organizations to consider the timing and frequency of awards (e.g., sign-on bonuses, supplemental executive retirement plans and severance). Now when designing new award or benefit plans, organizations should consider both business needs and the implications of the excise tax.

4. Shifting talent markets

The markets where health care organizations attract talent are shifting. The rise of consumerism and continued expansion of services offered have led health care organizations to recruit talent from new industries outside of health care (e.g., retail, technology). At the same time, private sector companies — such as Alphabet (Google’s parent company), Amazon, Berkshire Hathaway and J.P. Morgan — are hiring executive and clinical talent away from traditional health care organizations for a possible entrance into the health care market.

As a result, when benchmarking compensation, health care organizations need to consider a broader peer group of organizations beyond health care and include organizations in the retail, technology and even financial services industries.

5. High chief executive officer turnover

Hospital chief executive officer (CEO) turnover in 2017 continues to hold steady at 18%,3 influenced by the following factors:4,5

  • A new generation of executives: Unlike baby boomers, it is becoming the norm for younger executives to explore career opportunities beyond just traditional health care organizations.
  • The evolution of the industry and leadership roles: With the shift to a value-based model, many organizations have created positions focused on population health and patient experience, which require CEOs with additional competencies.
  • Increasing industry consolidation or reorganization: The departure of a CEO often ripples through the C-suite and impacts other leadership positions.

6. Executive talent shortages

The health care industry is experiencing a shortage of management-ready talent, most noticeably at the director level, and for physician executive roles specific to clinical transformation (e.g., Chief Physician/Clinical Officer, Chief Quality Officer, Chief Population Health Officer).

The relatively limited pool of talent is creating fierce competition and driving up pay levels for these critical roles. In addition, the talent shortage is impacting employees’ perceptions of leadership development. Just over a third (37%) of employees in the health care industry believe their organization does a good job of developing future leaders, which is a potential problem because effective senior leadership is the number one driver in sustaining employee engagement.6

In order to improve the skills of its future leaders, organizations should focus on executive development and increased attention to retention and succession planning at the board level.

7. Evolving compensation models

The evolving health care landscape has implications for executive compensation packages, including less emphasis on fixed forms of pay (base salary and benefits) and more emphasis on variable pay (incentives), leading to pay structures that look and feel more like those of for-profit companies — without the equity component. Organizations are placing more emphasis on pay for performance and are reviewing incentive compensation (especially metrics) to respond to the significant changes in the industry landscape.

According to the 2018 Health Care Policies and Practices Survey Report - U.S., the primary performance measures for senior-level executives (vice presidents and above) for bonus and incentive pay programs remains organization financial performance, but patient satisfaction and clinical performance/quality are also becoming critical performance measures for executives and other staff.

Keeping these trends in mind, take control of your situation:

  • Review and modify existing compensation programs to ensure you are keeping pace with the market trends.
  • Understand the potential impact of these trends on your organization. Look at the market, not just of other health care providers but of a wider peer group of organizations.
  • Learn from what works. Use market data to understand the compensation practices that drive attraction and retention of critical talent.

Endnotes

  1. “Kaufman Hall: Number of hospital mergers jumped 13% in 2017; M&A momentum shows no signs of slowing down.” Fierce Healthcare, January 29, 2018.
  2. “Covered employees” include current or former employees who are among the five highest compensated of the organization (or any predecessor) for the current tax year or any prior tax year beginning after 2016.
  3. “Hospital CEO Turnover Rate Remains Steady.” American College of Healthcare Executives, June 14, 2018.
  4. “50+ Healthcare Executives Have Made Moves to Leave Their Jobs So Far in 2018 — Why?” Becker’s Hospital Review, April 5, 2018.
  5. “Why Is Hospital CEO Turnover So High?” Becker’s Hospital Review, August 28, 2017.
  6. Willis Towers Watson’s 2016 Global Talent Management and Rewards and Global Workforce Studies.