Health systems are continuing to invest heavily in employee pay in 2026, but some health system leaders are also putting more focus on what those dollars deliver.
The focus comes as compensation has become more important to workers while labor remains hospitals’ largest expense. Compensation jumped from fifth to first place as the top reason employees stay in 2026, up 24 percentage points year over year, according to a global McKinsey survey.
Meanwhile, workforce spending represented 60% of hospitals’ total expenses in 2025 and rose 5.6%, according to the American Hospital Association.
For some health systems, that has put more attention on the return from compensation investments.
Baton Rouge, La.-based FMOL Health initially budgeted $11 million for compensation adjustments in 2025, but an analysis by Chief Human Resources Officer Jennifer Trahan found substantially more positions needed market-rate adjustments than anticipated. President and CEO E.J. Kuiper ultimately approved an investment of nearly $50 million, including a systemwide minimum wage increase and market-based pay adjustments. FMOL’s RN turnover rate has since fallen below 10%, according to Mr. Kuiper, who pointed out that replacing a full-time RN costs an organization about $50,000 to $60,000.
The example highlights part of the calculation behind health systems’ pay decisions: Higher compensation adds expenses, but so do turnover, prolonged vacancies and premium labor.
Oklahoma City-based OU Health has prioritized compensation investments in nursing, pharmacy, respiratory therapy, advanced practice provider and behavioral health roles, where shortages can directly affect patient care, access and operations.
“These functions carry the highest operational risk when understaffed,” CHRO Jimmy Duncan told Becker’s in March. “Investing in these areas provides the greatest return through higher engagement, improved retention, reduced premium labor and stronger patient outcomes.”
Other systems are using workforce data to determine whether compensation is actually driving a recruitment or retention problem. Chapel Hill, N.C.-based UNC Health pairs external market benchmarks with retention trends, time to fill, candidate volume and offer acceptance rates when evaluating pay investments.
“Evaluating these indicators together helps us pinpoint whether compensation is the driving challenge or if broader workforce or operational factors are influencing results,” Janel Lancaster, system vice president of compensation, HR services and HR technology, previously told Becker’s.
The scrutiny comes as health systems continue making significant compensation investments.
At least eight systems have implemented minimum wage increases in 2026, with new wage floors ranging from $15 to $20 an hour. Some have paired those increases with much broader investments, such as Charlotte, N.C.-based Advocate Health, which implemented an $18.85 systemwide minimum wage as part of a $776 million workforce compensation investment that also included merit-based raises, pay range adjustments and structural investments to support retention.
Renton, Wash.-based Providence committed more than $600 million to merit and market adjustments in 2026. President and CEO Erik Wexler said the investment followed difficult decisions made in 2025, including restructuring, workforce reductions and service-line changes.
Those investments underscore the balance health systems are trying to strike: remain competitive for workers without losing sight of labor costs.
Taken together, the examples show some health systems continuing to invest significantly in pay while putting more scrutiny on where those dollars go and what happens afterward.
With persistent workforce shortages on one side and financial pressure on the other, the next question for health systems may increasingly be whether compensation investments are improving retention, easing recruitment challenges and reducing other workforce costs — and where the results justify additional spending.
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