Healthcare Exec Compensation Models Play Catch-up

Karen Minich-Pourshadi, for HealthLeaders Media , December 11, 2012

Metrics, benchmarks create line of sight

Nearly three years ago, Trinity Health in Livonia, Mich.—which owns 36 hospitals, manages 12 others, and has a large network of outpatient, long-term care, home health, and hospice programs across 10 states—revised its executive incentive structure. Debra Canales, executive vice president and chief administrative officer at Trinity Health, says the renegotiation of payer rates; changes in pensions, regulations, and reporting; the evaluation of its market; and activity prior to the approval of the PPACA all contributed to the organization's reassessment of its compensation model.

The board compensation committee called on Sullivan, Cotter and Associates to help it set reasonable base salary compensation for executives. Then Trinity Health altered its incentive structure to align everyone, from the CEO to the organization's staff, to focus on five areas: community benefit, care experience, quality, best people, and stewardship. Online scorecards set metrics using internal benchmarks so staff can track the hospital's and the entire organization's performance.

"We wanted to create a line of sight from the top down that tied to our strategic plan," says Canales.

"At a for-profit hospital you might see these [goals] tied to stock options or performance shares, but we don't have that as an option. Nevertheless, our board wanted us to be accountable for our progress, and what better way to encourage everyone to be accountable than by putting pay at risk on both an annual and a longer-term basis. We apply various weights to reflect the importance of the goals in our plans," explains Canales.

In addition to varying the weight of a goal, Trinity Health uses a mix of annual and long-term incentives for executives and pairs these with group and individual incentives. For instance, one year the health system wanted to advance diversity and inclusiveness across the entire organization. To make it a priority for all leaders, it made implementing a diversity plan for each division related to its at-risk compensation program—meaning every executive in the top 200 had to create and define a program, or none of the executives would receive an incentive payout.

"In fiscal year 2013 our objective is to define a plan that results in a template for the ministry and hospitals to follow for population health management, and we'll set benchmark targets and a maximum payout," says Canales. "We've been at this for two years now, and we're starting to get some discipline and rigor around how we track and measure goals and we're getting better at narrowing our focus. It's a very different approach than what we took a few years ago, and we are seeing success at aligning everyone in the organization."

In the past, a core set of goals and a larger number of strategic imperatives were shared by all of Trinity's teams. Many of the goals focused on infrastructure improvements and individual region or specific hospital objectives, Canales says. However, the organization knew it could do better at achieving its goals by creating ones that fostered a new level of teamwork and integration across the entire organization.

"For example, our hospital executives can earn some of their at-risk compensation when their hospitals launch a senior emergency center, as defined by us. The leaders' success and reward are determined based on their assessment and how it meets the community needs, implementation time frames, and quality of care," she says.

Canales says the organization works in a similar way when assessing, measuring, and rewarding the development of clinically integrated networks, the launch of community needs assessments, and the development of shared service organizations.

"Goals like these are complex, requiring support and performance from a broad cross-section of integrated teams. This type of goal setting and focus is helping us accelerate our achievements by leveraging our talent across the organization like never before," she notes.

Achieving results through weighted incentives

Though both Trinity Health and The Christ Hospital vary the weight of their incentives based on the importance of the objective, in response to the changes in healthcare in the past two years, Cincinnati-based Catholic Health Partners uses its executive compensation model to evenly weight incentives around financial, community benefit, and patient experience objectives. CHP is one of the largest nonprofit health systems in the country, with $5.4 billion in assets and employing 32,000 people at more than 100 organizations, including 24 hospitals.

With such vast holdings, the system had been using regional compensation committees and consultants to establish executive-level compensation, until this year when it centralized that function so it could create better alignment and cost efficiencies.

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