Healthcare executive incentive payouts look bad amid COVID-19

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The average base salary for health system CEOs managing an organization with more than $3 billion in revenue was $1.7 million as of Jan. 1. Average total cash compensation was $2.7 million.

Generally, the larger the system, the bigger the pay increases. Health system executives overseeing an organization with more than $3 billion in net revenue saw weighted average base salary increases of 4.6% and average total pay increases of 10.2% as of Jan. 1. That compared to 3.4% and 4.5%, respectively, for executives at systems with less than $1 billion in revenue.

Large organizations have scaled up significantly in prior years through mergers and acquisitions, driving up salaries and incentive payouts, said Tom Pavlik, a managing principal at SullivanCotter. “When the economy was robust, there was more focus on finding and retaining top talent to lead the organization through higher salaries or incentives plans,” he said. “Right now there is so much uncertainty—most are focused on recovery and what lies ahead in the fall, so it’s hard to speculate when things may return to what it looked like previously.”

While larger systems typically doled out higher pay increases, SullivanCotter couldn’t specify whether those salary or incentive bumps were linked to improved financial performance.

“One of the implications of COVID-19 is accelerating the need for cost efficiencies and revenue growth,” Greenblatt said. “From the compensation committee’s perspective, I think this is going to elevate the imperative for performance, and compensation is an important tool to drive that performance.”

Outside of salary and incentive cuts, many hospitals have stopped any matching contributions during the pandemic. They can also try to renegotiate the fees firms charge to manage retirement plans, which can yield 25% savings, said John Lowell, partner and actuary at October Three, an actuarial firm specializing in retirement plans.

Looking ahead, providers should still track executives’ and companywide performance against original incentive thresholds, Sullivan said. A lot of boards still want to offer some type of bonus, albeit a smaller one, and it will be good to have some benchmarks to see how executives and companies rose of to the occasion or fell short, he said.

“Then they can see how well they are doing on patient satisfaction, engagement, safety, clinical quality and other areas to help the committee come up with some type of variable pay,” Sullivan said.



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