Does Executive Compensation Structure Need an Overhaul?

This article appears in the March 2013 issue of HealthLeaders magazine.

In our November 2012 Intelligence Report, many healthcare leaders (38%) said that major enhancements are needed to their organization's executive compensation structure to retain and engage leaders. What tactics or strategies do you think should be preserved and what needs to change? What new areas need to be developed to ensure that you can attract and keep talented leaders?

Wallace Strickland 
President and CEO 
Rush Health System 
Meridian, Miss.

I have been at Rush 43 years. I understand compensation is an important part of it, but you also have to enjoy what you are doing. I don't know how we get back to where I think it used to be, where we are in this because we think we are doing this for the right reasons. We are helping take care of people. 

In the 1920s, the Rush brothers, who were physicians and sons of the founder, had a creed for the hospital: My brother's keeper, where those who can take care of those who can't. That is a philosophy that most of the doctors and administrative staff have here. They make very good money but they could make more money at other jobs and other locations.

When most of the local news media look at a Form 990 from a nonprofit, they gasp at how much money is made and they think that is all people live for. They don't assume that people are there for other reasons.

Michael Ugwueke 
Executive vice president and COO 
Methodist Le Bonheur Healthcare 
Memphis, Tenn. 

On incentives. Incentive compensation works. Many organizations have different philosophies about where they set their base pay slightly below the median. But to really engage folks, more should be done on the incentive compensation side to change the behavior and make people really earn it for remarkable work, not just making the averages.

On margins. The margins are getting a little tighter for hospitals, and the IRS and the media and everybody is looking at executive compensation. When people earn through incentives it makes everybody more aware, and working more together as a team because their incentives are tied together. As margins get smaller, we will see more of this.

On improvements. But those incentives have to be tied to remarkable improvements, not just marginal improvements based on quality metrics such as reductions in length of stay and improvements in patient satisfaction. I would suspect that in the next two or three years we will see some specific things coming out along those lines.

Greg Pagliuzza
Vice President and CFO
Trinity Regional Health System
Rock Island, Ill.

Our major focus for executives is a base salary with incentives built into it. The core of what we have been doing is very effective. On an annual basis we look at it and say, "What do we need organizationally throughout the whole system to get the outcomes we are focusing in on?"

It is very focused on a grand scale, which means Iowa Health System in total. We set targets of what we need from a quality perspective, from a patient satisfaction perspective. As we progress into population health we are getting incentives tied into that target also.

We are also looking at our benefits package to make it a cafeteria approach. If you know you are going to be five or 10 years in the system you have greater latitude to select certain benefits that would fit someone who doesn't plan on staying within the system. On the other hand, if you think you are going to be a long-termer, then you have options to select your benefits accordingly.

We are trying to create that flexibility to attract different people from the outside while maintaining and supporting people from the inside to stay within the system from a compensation and benefits and opportunity standpoint. All executives are talked about with the CEOs and the head of the system in a very open process so people know who is lined up for the future, who is a keeper.

David Griffiths
CFO and Vice President of Finance
Regional West Health Services
Scottsbluff, Neb.

We are a nonprofit organization and the biggest thing we struggle with is we don't have incentive plans like a lot of the for-profit organizations have that would help to initiate some changes or drive people harder toward some of the strategic goals we have in place.   Incentive compensation could do a lot to drive those changes and get them here quicker rather than trying to let things evolve the way they naturally have in the not-for-profit world.

We are not quite where we would like to be within the market itself. So when you are talking about trying to introduce a new compensation component, it is hard to do that when you are not really succeeding with your existing compensation plan. If you have something measurable that people can show they accomplished, it does help support the salaries that are paid.

I don't know that we have some of the same compensation issues in our organization that some of the larger ones do. But there could be some more transparency about how these salaries are determined and support what is accomplished for those salaries.

This article appears in the March 2013 issue of HealthLeaders magazine.