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Each leader reviews their report cards with their respective managers on a monthly basis, comparing current scores with the previous month's and their annual goals. Executive compensation is reviewed annually. Administrators' individual report cards roll into the Memorial CEO's report card, so, in effect, the system leader's compensation depends, in part, on safety and quality at each individual institution.

Setting benchmarks

Although many organizations have some sort of quality-based executive compensation or incentive program in place, what distinguishes one organization from another is how difficult the goals are to attain. "A good incentive program is one with a lot of stretch--there is a 50 percent likelihood that you're going to be able to achieve it or not," Hastings says.

At Sarasota (FL) Memorial Health Care System, 25 percent of senior leaders' performance rating last year was based on quality, specifically increasing error reporting by 10 percent from the previous year. When the 500-staffed-bed hospital's fiscal year ended last October, they'd achieved a 7 percent increase in error reporting--a good jump by all standards, but not enough for full compensation in that area.

Like Memorial, Sarasota uses a report card to evaluate senior leaders' performance in each of the organization's five strategic focus areas, including quality. "While all leaders have a quality dashboard, I don't know of too many places that are using it to pay merit increases--or not," says Sarasota President and CEO Gwen MacKenzie.

Sarasota's goals and percentages change yearly, depending on organizational focus. They used focus groups to help select the 2008 measures, asking focus group participants, "If you wanted to find the safest hospitals in America, what would you look for?" Handwashing, medication administration and infection control were the top-cited priorities for consumers, so in 2008, 20 percent of leaders' merit scores will be based on handwashing and medication safety compliance.

Eventually, all Sarasota staff will be evaluated based, in part, on quality goals (in addition to the other organizational pillars), as the hospital plans to roll its executive evaluation program out hospitalwide in the coming years. In the meantime, senior leader report cards are communicated and explained during companywide meetings, in publications, and annually on local television.

"Staff are concerned that this is totally objective. That's why we're taking a couple of years to make sure it's fully transparent," MacKenzie explains.

Molly Rowe is leadership editor with HealthLeaders magazine. She can be reached at mrowe@healthleadersmedia.com.

Is It Working?

Implementing an executive compensation plan based on safety and quality is all well and good, but how do organizations ensure that it's truly effective?

Research different measurement systems. Some facilities base their programs on core measures, others use The Joint Commission's National Patient Safety Goals, and others use a little of both (and others). Organizations should look at others and then consider what measures make sense according to the performance objectives they've set as an organization, says Kathy Hastings, managing partner at Sullivan, Cotter and Associates, a national compensation and human resource management firm.

Get input from board and senior management. Ask leaders to consider the areas that need improvement and then link them to awards, Hastings says. Leaders should understand what the goals are and why they've been set.

Use stretch goals. In a good executive compensation program, not everyone exceeds their goals. Regardless of the measures an organization focuses on, the benchmarks should be somewhat difficult to attain. "If it's just a 'maintain status quo' type of measure, it's really not going to drive performance in the area," says Hastings.