3 Factors Influencing Hospital Executive Compensation

Hospital administrations and executives are experiencing, and will continue to experience, increasing changes to the healthcare system. Accountable care organizations, bundled payments, physician alignment, health IT initiatives, service line affiliations, reducing readmissions — they all create a carousel of issues that hospital executives must be able to balance.

Ron Seifert, vice president and executive compensation practice leader at Hay Group, says healthcare reform has put a lot of pressure on organizations to achieve higher levels of performance, and this requires capable and effective leadership. Consequently, hospitals are trying to compensate them for the added challenges. "Being an executive in healthcare is a privilege, but it's not glamorous," Mr. Seifert says. Over the past 15-plus years, he says there have been three main factors that have driven the compensation levels for hospital executives to the levels they are at today.

1. Increasing call for capable executive leaders. As mentioned, hospital CEOs, CFOs and others have more on their plate than ever before. High-ranking executives come and go at a quick pace — there have been more than 30 hospital and health system executive moves through the first two weeks of October alone — and Mr. Seifert says this increased demand for hospital leaders to run organizations under new regulations and standards is resulting in higher compensation packages in order to keep them planted. "If you think about the demand and market for executive talent, you can appreciate that and pay a sufficient level of income to retain those critical resources," Mr. Seifert says.

2. Acknowledgement of a limited talent pool. The high demand for adept hospital executives is coupled with the fact that supply is very low. Most introductory economics courses will show that a high demand and a low supply lead to very high prices, and this arena falls within that trend. Mr. Seifert says when a hospital or health system is able to find the right executive, the compensation package will reflect the hospital's desire to hire the right person and the overall trend of the market's supply. "The dynamic that is created is one of tension, and there are challenges for organizations to improve themselves," Mr. Seifert says. "Hospitals need executives to deliver on these, and to do this, they need to compensate them."

3. Market influences defined outside of healthcare. Mr. Seifert says there are indirect influences that are shaping how much hospital executives are paid. For example, he says for healthcare organizations to keep the "best and brightest," they need to keep pace with the healthcare market as well as what is being defined outside of healthcare. Salaries for executive compensation within the financial sector in particular have been under the most notable scrutiny as of late, and consequently, there have been calls for hospital boards to monitor and justify their compensation packages for the top leaders of hospitals. "Executive pay continues to be of concern in the public and political domain," Mr. Seifert says. "There's an association of greed when you talk about executive pay. It isn't to suggest, by any means, that these organizations and boards don't struggle with these decisions, but they also need to balance this with choices to keep these organizations performing and delivering on quality care."

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