New HealthLeaders Media Survey: 40% of healthcare leaders say their compensation packages are misaligned with their organization

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A new independent HealthLeaders Media report, Reforming Executive Compensation to Accelerate Change, supported by B. E. Smith, outlines how organizations can best incentivize leaders to facilitate forward progress. The report includes data from a survey of the 7,500-member HealthLeaders Media Council, and can be downloaded for free at http://www.healthleadersmedia.com/intelligence.

“We still live in a volume world, and because of that, operating margin is still one of our metrics,” says Joseph Pepe, MD, president and CEO for CMC Healthcare System.

As the healthcare industry attempts to recalibrate under reform, vacillating between volume- and value-based objectives, there is an increasing need for executive pay structures to evolve to meet changing policies and priorities.

A new independent HealthLeaders Media report, Reforming Executive Compensation to Accelerate Change, supported by B. E. Smith, outlines how organizations can best incentivize leaders to facilitate forward progress. The report includes data from a survey of the 7,500-member HealthLeaders Media Council, along with a new segmentation tool that allows access to specific data based on setting, revenue, and more. The free version can be downloaded at http://www.healthleadersmedia.com/intelligence.

Fondness for the status quo in executive compensation, especially when it comes to incentives, can lead to unfortunate mismatches between how executives understand their goals and how the organization will move forward with reform-related activities. According to the survey, nearly half of respondents say their compensation packages are misaligned with their organization’s strategies.

One contributing factor is disagreement over which metrics should direct compensation. “I don’t think the metrics have caught up with the incentive plans yet,” says Joel Seligman, president and CEO for Northern Westchester Hospital. “We don’t really agree on what good metrics are. One of the problems with executive compensation strategies is finding metrics that have some global relevance to them.”

The volume/value dichotomy adds another degree of complication to payment methodologies. “We still live in a volume world, and because of that, operating margin is still one of our metrics,” says Joseph Pepe, MD, president and CEO for CMC Healthcare System. “But more and more we're putting value metrics in our compensation packages.” The data supports this observation, with 33% of organizations already having modified or expecting to modify incentives based on the switch to value-based purchasing.

This new value-based environment seems to be having an impact not just on compensation, but also on executive recruitment and retention. “Healthcare executives seeking new career opportunities are finding the market has changed as the industry moves to bridge the gap between clinical and financial operations. Clinical integration and population health management are driving increasing demand for executives with clinical backgrounds,” says Doug Smith, president and CEO of report sponsor B. E. Smith, a top healthcare executive search firm. In this year’s survey, while only 8% of respondents say that none of their executives has a clinical background, 44% say their organization is recruiting more such leaders.

With this new mix of skills may come an increased focus on patient care within compensation packages. Currently, 43% of incentives are based on clinical performance. Nearly one-third of respondents say that a change is needed in order for their organization’s executive compensation program to address patient care objectives, but that no plans are in place to do so.

A more inevitable change, report advisors expect that incentives will shift gradually toward a team-based model. “There are two forces involved,” says Seligman. “One is a push toward individual accountability—holding individuals responsible and rewarding or punishing them accordingly. The second force is about teams, and it is more powerful. This is about building a culture of teamwork and trust between people and process.”

Other compelling statistics from the report include:

  •     Nearly one-third (27%) say performance metrics are the area of executive compensation that has evolved the most over the past two years—up 5 points from last year
  •     Almost half (48%) of incentives are based on financial measures; however, staff engagement (47%) and clinical performance (43%) are not far behind
  •     One-fifth of CEOs (20%) say their organization’s executive compensation packages are perfectly aligned with their strategies, but only 6% of other C-suite executives see it the same way
  •     The majority (82%) of leaders say their organization needs to make enhancements to its executive compensation plan to attract, retain, and engage leaders

About HealthLeaders Media
HealthLeaders Media, a division of BLR, is a leading multi-platform media company dedicated to meeting the business information needs of healthcare executives and professionals. As an integrated media company, HealthLeaders Media includes HealthLeaders magazine, HealthLeadersMedia.com, the HealthLeaders Media Intelligence Unit, HealthLeaders Media LIVE events, and California HealthFax. All these platforms may be found online at http://www.healthleadersmedia.com.

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