Intelligence Report: Changes in Executive Compensation

Michael Zeis, December 9, 2015

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.

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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.


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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.

Michael Zeis

Michael Zeis is a research analyst for HealthLeaders Media.

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