Even in the face of an uncertain economy, the challenges and pitfalls of healthcare reform, and the recent deceleration in job growth, hospital workers and executives have done relatively well this year with pay raises.
Hay Group's 2012 Healthcare Compensation Study shows that hospitals increased base salaries by an average of 2.9% in 2012, compared with 2.5% in 2011, and 2.4% in 2010.
A further breakdown shows that employees at larger integrated systems received median base salary raises of 2.9%, down from 3% in 2011, and hospital employees received 2.4% base increases, slightly up from 2.3% in 2011.
These figures will not inspire cartwheels. They're about in line with other estimates on compensation increases in other parts of the economy. However, it's worth remembering that these raises come with inflation at 1.7% as measured by the Consumer Price Index, and with an unemployment rate of 8.3% in the larger economy. Relatively speaking, healthcare workers and executives are doing all right.
Not surprisingly, the rate of growth for healthcare executive compensation is outstripping that of the general employee ranks, but not by much and that margin appears to be shrinking.
CEOs at not-for-profit integrated health systems received a median 3.2% increase in base salary for 2012, compared to a 4% increase in 2011, while hospital CEOs received a 3% increase in 2012, compared to a 5% increase in 2011, Hays Group found.
"I have seen over the last several years a much closer parallel, if not an exact parallel, between base salary increases provided to the general employee population and what is being provided to executives," Jim Otto, a senior principal in Hay Group's Healthcare Practice, told HealthLeaders Media.
"Compensation committees are asking specifically ‘what is the range of base salary increase for the rest of the employees?' They're taking that into account and unless there are particular circumstances for a position that general employee population range is the range that the committee works within to determine base salary increases."
Another trend Otto notes is the continuing shift away from base pay raises for healthcare CEOs as compensation packages continue to move toward incentive pay and long-term benefits.
"Base salary adjustments are going north compared to prior years but not tremendously. What has really influenced pay at the executive level, especially the cash compensation over the last 10 years, is the increasing level of comfort with using incentive plans," Otto says.
"I don't see that changing in the near future given our work with boards and compensation committees at the executive level dealing with compensation arrangements. They aren't looking to give the kinds of base salary increases that you used to see 10, 15, 20 years ago and they are much more inclined to putting more pay at risk to make sure they get the outcomes they are willing the additional dollars for."
Healthcare executives are also seeing an uptick in benefits and perquisites incentives that are slightly higher than in the general market. At health systems, for example, 74% of the compensation packages offered executive long-term disability benefits, compared to only 33% of the general market.
Otto estimates that incentive compensation represents between 25%-40% of base salary. "That is at a decent-sized healthcare system doing between $500 million and $1.5 billion of net revenues. That gives you a sense that cash compensation is the pie and base salary is going to be anywhere between 65%-70% of the pie," he says.
Boards at tax-exempt hospitals are particularly sensitive to public scrutiny about high executive salaries and recognize that compensation can be more easily justified when it is linked to specific goals.
"That is attractive to a lot of boards and committees. ‘I am willing to pay these dollars but we need to see outcomes that are commensurate with what we are willing to pay,'" Otto says. "At tax-exempt healthcare providers a lot of board members are coming from the for-profit world. They are used to these kinds of incentives. It is not a foreign concept for them to think of a base salary and annual incentives and even a base, annual and long-term incentives as major components of an executive's pay package."
It shouldn't be surprising that we see this shift in compensation packages because everything else in healthcare is in a state of flux.
"Because you are going to change how you operate you are probably going to change how you are structured organizationally, which means that jobs are going to change," Otto says. "We are seeing that with certain clients where they have changed operating models, how they are organized, what the jobs are going to look like both now and what they see them turning into in the future and if people are successful at doing that they are going to be in demand."
Otto says healthcare leaders understand that these new demands have changed the way they will be compensated.
"The CEOs who I talk and work with view this as the world they have been living in for a while and we aren't going to go back to the way it was where the heavy lifting of cash compensation increases was coming year over year out of base salary and not out of incentives," he says. "Those days are gone."
John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.