Intelligence Report: Changes in Executive Compensation
As the healthcare industry transforms, healthcare leaders are facing new value-based incentives, as well as requirements for new skill sets.
This article first appeared in the November 2015 issue of HealthLeaders magazine.
Recasting organizational objectives to address shifts to value-based care has two major effects on executive compensation. First, incentive programs have to shift to reflect new directions. Second, attention to fundamental changes in compensation through at-risk reimbursement and capitated payments requires new executive skills, which in many cases will mean additions to and departures from the team that leads the organization.
Such moves within the executive ranks often are accompanied by a degree of disruption. And, in cases where new executives are sought to fill new roles, organizations are finding that they must be able to clearly define a set of responsibilities for which they may have little firsthand knowledge. Further, they will be recruiting from a limited and in-demand set of candidates, which can place upward pressure on executive compensation across the board.
Incentives: Finance on top
The executive team is accustomed to focusing on the numbers. Because financial stability of the organization will always be a top concern, compensation programs tilt their variable components toward financial performance. But financial performance is now becoming linked to the shift to value-based performance, which increases the use of executive performance parameters based on various aspects of clinical performance.
With operating margin/cash flow placing as the top-mentioned incentive for both individual (76%) and group incentives (71%), we can see the dominance of financial objectives in executive compensation. The percentage including operating margin or cash-flow targets among individual targets varies little by organization size. But this is not the case for patient engagement/satisfaction and clinical performance, which are the individual goals mentioned second and third most often. Higher percentages of medium- (76%) and high-revenue (74%) organizations than low-revenue organizations (58%) have patient engagement or satisfaction targets. Likewise, higher percentages of medium-revenue (64%) and high-revenue (60%) organizations than low-revenue organizations (49%) have clinical performance targets.