Healthcare Exec Compensation Models Play Catch-up

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

Quality and patient satisfaction: Metrics of the future

The move by some organizations toward using quality and patient satisfaction metrics to align the C-suite to achieve more than the organization's financial performance goals is a step in the right direction, says Thomas Dolan, PhD, FACHE, president and CEO of the American College of Healthcare Executives, based in Chicago. But, he adds, one thing that any healthcare organization should move away from in the TCC for executives is the use of perquisites, free privileges paid by the organization, such as club membership, which must be reported on Form 990.

"The public doesn't like perquisites; they want to know why someone who earns a huge salary can't pay their own golf membership. I recommend that executives take compensation in salary and bonuses rather than perquisites, as they are hard to defend," says Dolan. "The way incentives should be constructed should be very cut and dried so people can understand them and the organization can justify them."

Thus far, however, perquisites don't appear to be disappearing from the C-suite compensation package and are on the rise. A 2012 Equilar, Inc. Nonprofit Healthcare Institutions Report notes that 87% of healthcare institutions provided perquisites or had reimbursement policies in place for their officers in 2010, up from 84% the year before. (Equilar's data was derived from tax returns from fiscal year 2010.) The most common benefit granted to executives is club dues, provided by 43% of organizations in the study.

The perquisites can include cars, country club memberships, cell phone allowances, extra paid time off, 403(b) retirement plans, severance benefits, and supplemental retirement plans, all of which are now subject to public scrutiny as they must be reported on Form 990. Hastings, with Sullivan, Cotter and Associates, says compensation committees need to reassess how their executives' total compensation package reflects upon and supports the organization's overall mission.

"Form 990 highlights executive compensation, and people see those salaries and may take issue with them. But if an organization can justify how it arrived at those numbers, then it becomes less of an issue," Hastings says. "But they should be prepared to defend their decisions."

There is a continual push for transparency at healthcare organizations and the Senate Finance Committee is making moves toward encouraging healthcare organizations to that end. Currently the committee is reviewing a draft proposal that would eliminate an organization's ability to offer perquisites, and would require organizations to make publicly available which compensation surveys and thresholds are used to benchmark the reasonableness of an executive's compensation. If this passes, this criterion would be in addition to the information that must be provided for IRS Form 990.

As organizations strive to align the compensation of CEOs and C-suite leadership with the new healthcare objectives, the use of metric-driven short- and long-term incentive plans will become increasingly dominant, Hastings says.

Plus, as organizations seek to transform care delivery over longer periods, long-term incentives can become a useful retention tool toward building leadership continuity in the C-suite, she notes.

"This is still a gentle shift toward incentive-based performance pay, and it's not going to happen overnight for all organizations," Hastings says.  

This article appears in the November 2012 issue of HealthLeaders magazine.

Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
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