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Balancing Compensation Amid Economic Woes

John Commins, for HealthLeaders Media, July 19, 2010

From all indications, the nation is emerging—however slowly—from the worst recession since the Great Depression. Although the brightening economic outlook will be welcomed, it also creates a new set of challenges as nonprofit hospitals and health system struggle to retain top-level executives.

Providing top talent with hefty pay hikes or bonuses at a time when 15 million people are out of work could prove to be a public relations disaster for a nonprofit hospital, especially if rank-and-file workers have received modest (if any) pay hikes.

On the other hand, the market for top healthcare talent is competitive. Nonprofits that don't provide executives with fair market compensation risk losing them, which is a far more expensive proposition.

Ron Seifert, executive compensation practice leader for Hay Group's healthcare practice, says that compensation increases in the last year were below historical trends, partly because many executives understood the market realities and "took one for the team." However, in the coming year, if the economic recovery continues, Seifert says, those same executives might not be so willing to wave the pom poms.

Seifert says most nonprofit hospital boards—well aware of the economic realities, political climate, and public perception—have done a good job exercising discretion with executive compensation packages over the last year.

The Hay Group's 2010 Healthcare Compensation Study, which looks at data from more than 120 integrated health systems, and 1,268 hospitals, found that pay hikes for healthcare employees decreased in 2010 to a rate of 2.5%, compared with a 4% increase in 2009.

For the C Suite, the newly released survey found that:

  • Turnover decreased at the executive level: CEO (5.2% in 2009-2010 from 14% in 2008-2009), the COO (4.1% from 11.6%), and the CFO (5% from 12.2%).
  • Executives faced a drop in salary increases: all executive groups experienced a decrease in both the most recent and next planned salary structure increases from the 2009 report. For instance, in 2010, the number of CEOs receiving at least a 6% increase in base salary has dropped to 22%—its lowest level in 10 years.
  • "People have been hunkered down," Seifert says. "They have been fully committed to seeing their organizations and healthcare through this very difficult time, but these are executives and they are not blind to opportunity. These hospitals need to be run by capable leaders and if you have high-performing individuals, the reality is you shouldn't mess around with their retention if they are that critical for you."

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