Otto estimates that incentive compensation represents between 25%-40% of base salary. "That is at a decent-sized healthcare system doing between $500 million and $1.5 billion of net revenues. That gives you a sense that cash compensation is the pie and base salary is going to be anywhere between 65%-70% of the pie," he says.
Boards at tax-exempt hospitals are particularly sensitive to public scrutiny about high executive salaries and recognize that compensation can be more easily justified when it is linked to specific goals.
"That is attractive to a lot of boards and committees. ‘I am willing to pay these dollars but we need to see outcomes that are commensurate with what we are willing to pay,'" Otto says. "At tax-exempt healthcare providers a lot of board members are coming from the for-profit world. They are used to these kinds of incentives. It is not a foreign concept for them to think of a base salary and annual incentives and even a base, annual and long-term incentives as major components of an executive's pay package."
It shouldn't be surprising that we see this shift in compensation packages because everything else in healthcare is in a state of flux.