Lown Institute: 7 questions to guide decisions on hospital CEO pay

Amid the experiences of the COVID-19 pandemic, there is an opportunity for boards of nonprofit hospitals to rethink how their CEOs are paid, particularly compared to the staff at their facilities, representatives with the Lown Institute wrote in a Feb. 10 article published in Health Affairs.

The Lown Institute, a nonpartisan healthcare think tank, examined the gap between the pay of hospital staff and the CEO, as well as the implications of it.

As part of the Lown Institute Hospitals Index, a big-data project launched two years ago, the think tank compared CEO compensation and the average wage of lower-wage staff based on information from Internal Revenue Service 990 forms, CMS and the Bureau of Labor Statistics for 2018 (the latest year available). Their analysis of 1,097 nonprofit hospitals on the Lown Index included staff such as janitorial and kitchen workers and medical records personnel, but excluded staff with advanced degrees, such as physicians and nurse practitioners.

The Lown Institute ultimately found that hourly hospital CEO compensation, on average, was eight times the hourly pay of lower-wage staff in 2018. But representatives with the think tank noted that the ratio varied widely, with some CEOs paid twice the rate of other workers. They found that the highest ratio was 60 times the hourly pay of general workers.

Additionally, researchers said they found that size, urban location and teaching status were associated with higher CEO hourly compensation compared to general worker pay.

Given their research, the Lown Institute recommended that boards of nonprofit hospitals consider the following seven questions:

  • What should CEO pay be based on: size and complexity of the organization; revenue; patient outcomes; community health; comparisons to for-profit corporate CEO pay?       
  • How should complexity or the degree of difficulty of the CEO role be measured?
  • Is there a maximum acceptable level of compensation? What should bonuses be based on, if offered?
  • Should there be a norm or maximum established regarding the most equitable multiplier between CEO pay and wages of general staff?       
  • Should CEO pay and total compensation be reported and transparent for all individual hospitals as well as health systems?
  • How much should CEOs be paid to ensure organizations are able to recruit effective leaders without further inflating healthcare costs or increasing wage disparities that affect communities they serve?       
  • At a high-revenue hospital, how much more should CEOs be paid for enhancing profit more?

"Our opinion is that as institutions dedicated to the public good and the health of their local communities, nonprofit hospitals should be measured by the value they create — both business value and social value," the Lown Institute researchers concluded.

To read the full article, click here.

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