12 commandments for compensation committees looking to improve governance

Compensation committees are integral to ensuring hospitals and health systems are offering competitive salaries to attract and retain talent, while also remaining within the confines of what is fair and justifiable.

Due to the public scrutiny surrounding executive compensation, committees need strong governance, according to F. Kenneth Ackerman Jr., chairman of INTEGRATED Healthcare Strategies.

Mr. Ackerman outlined 12 ways for compensation committees to improve governance on March 16 at the American College of Healthcare Executives' 2015 Congress on Healthcare Leadership in Chicago.

According to Mr. Ackerman, compensation committees should:

  1. Have independent directors with the necessary skills to understand the unique challenges healthcare faces.
  2. Create a committee charter to help set a game plan and get everyone on the same page.
  3. Implement a board-approved compensation philosophy to guide and support their decisions and processes.
  4. Continuously reassess peer groups and comparators to help committees set appropriate benchmarks for executive compensation.
  5. Establish a rebuttal presumption of reasonableness for their compensation decisions, which can come in handy in case of an audit.
  6. Meet with executive sessions and board members two or three times a year to keep compensation an open dialogue.
  7. Conduct a formal CEO appraisal with full board involvement at least once a year.
  8. Conduct a self-evaluation of the compensation committee itself to evaluate strengths, progress and areas of improvement.
  9. Prepare a defense for tax exemption.
  10. Focus on full disclosure of total compensation using tools such as tally sheets.
  11. Review severance obligations frequently.
  12. Apply the same rigorous standards and processes to physician compensation.

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