This article appears in the November 2012 issue of HealthLeaders magazine.
At one time, compensation may have been a sleepy activity—administrative at its core, but hardly routine. The foundations for compensation are the written and unwritten agreements between employer and worker. At the executive level, both the demands and the compensation tend to be greater, and so it is essential to lay out clear expectations and a commensurate set of incentives.
Incentives shifting from financial to clinical
As the healthcare industry shifts from a fee-for-service foundation to one of value-based purchasing, executive compensation programs are affected, as well. Most enterprises attempt to base a portion of compensation on performance, providing a mechanism for emphasizing one's role in helping the organization meet its objectives. Leaders contributing to the 2012 HealthLeaders Media Executive Compensation Survey indicate that, overall, 80% of their compensation is base salary, while 10% is an incentive payment. The rest is retirement and noncash compensation.
Of the four items mentioned most frequently as being the basis for incentives, two are conventional financial targets—operating margin and financial efficiency. The other two are care performance metrics—clinical quality and patient satisfaction. As one would expect, more executives with clinical responsibilities cite clinical performance as an incentive. But patient satisfaction and clinical quality are among the top four items mentioned by individuals with administrative, operations, and finance responsibilities, as well as those with clinical responsibilities.
"With a move toward more of a value-based system, there should be more of a focus on at-risk compensation, moving toward a system where all of us—doctors, hospitals, and providers—are going to be taking on more financial risk in addition to the clinical risk of caring for patients," says Jeffrey M. Fried, FACHE, president and CEO of Beebe Medical Center, a not-for-profit health system serving Sussex County, Del., from a 210-licensed-bed hospital in Lewes and six other locations.
For this year and next, a financial measure, operating margin, tops the list of objectives on which incentives are based. The second- and third-most mentioned items are patient satisfaction targets and clinical quality targets. Even though 72% of respondents from health systems use clinical quality measures as incentives, 72% of that industry setting also use operating margin. But the ascendance of clinical measures as incentives is not a big-enterprise phenomenon.