How leaders of hospitals and health systems are being paid is affected by the current financial climate.
A competitive talent market coupled with the thin operating margins is causing hospitals to rethink how they compensate their leaders.
Retaining and recruiting executives, however, remains a priority for CEOs, who continue to deal with the financial and operational ramifications of workforce turnover.
The challenging environment though has led to modest increases in executive compensation for the year, according to a report from consulting firm SullivanCotter, which surveyed more than 3,100 organizations representing nearly 42,000 individual incumbents.
Based on the report and other rumblings, here are three trends on executive pay for CEOs to monitor heading into 2024.
Base salaries going up
Hospitals and health systems understand that keeping and attracting talent requires renewed commitment on their end, which has taken the form of higher base salaries.
For 2023, the year-over-year median base salaries for all executives increased 4.1%, compared to 4.3% in 2022, the report found. Whereas health system executives saw increases of 4.8%, subsidiary hospital executives experienced increases of 3.9%, adhering to a trend that has been present over the past several years.
The roles within health systems that showed median base salary increases of 5% or higher tended to focus on strategy/planning, technology, financial sustainability and risk, integration, and workforce strategy.
CEOs must anticipate base salaries continuing to rise along these lines in 2024 and be prepared to compensate executive as such, even in the midst of financial unrest.
Incentive awards stagnating
Where hospitals and health systems are scaling back in executive pay, to offset the rise in base salaries, is with incentives and bonuses.
Due to a dip in incentive plan payouts in 2022, the year-over-year increase in 2023 total cash compensation (TCC) was lower than the increase in base salaries, the report revealed. Health system executives saw TCC levels increase by 3.5%, compared to their increase of 4.8% in base salaries.
As incentives are tied to the performance of organizations, CEOs have had to be cautious in extending TCC while margins stabilize. CEOs can still offer incentives, but they should be strategic by rewarding top performers and focusing incentive plans around priority areas to improve operations.
CEO pay draws scrutiny
Between recent workforce strikes and criticism of nonprofit hospitals, CEO pay has recently come under fire.
The issue has reached Capitol Hill as Sen. Bernie Sanders, I-Vt., took aim at community benefits and CEO compensation provided by nonprofits through a report by the Senate Health, Education, Labor and Pensions committee.
"While these hospitals provide woefully insufficient care to the patients most in need, they provide massive salaries to their top executives," the report stated. "In 2021, the most recent year for which data is available for all of the 16 hospital chains, those companies' CEOs averaged more than $8 million in compensation and collectively made over $140 million."
The American Hospital Associated denounced the report's argument on community benefits but didn't respond to the criticism regarding CEO pay.
The more unrest there is in the workforce, the more under the microscope CEO salaries will be. CEOs must be ready to stand by their pay, while also being cognizant of the perception from both outside and inside their organization. Assessing employees' level of satisfaction with their compensation and proactively addressing it can potentially avoid further friction.
Jay Asser is the contributing editor for strategy at HealthLeaders.