There are two changes that are certain in healthcare: transformative change and increased scrutiny of hospital (health system) CEO compensation.
The first is inevitable but the increased scrutiny on healthcare CEO compensation that will surely generate controversy is often the result of misguided and, in some cases, blatantly unfair, rationale. To be honest, some of the off-the-wall, criticism and proposals to curb executive pay was inevitable as well.
In California, the 150,000-member SEIU-United Healthcare Workers West sought to limit hospital CEO pay to $400,000, the base salary amount earned by the President of the United States. Talk about comparing apples to plantains…
Since the SEIU backed down on their threat to force a ballot initiative on this limit, I will not waste time with a specific point-by-point rebuttal of why that was one of the dumbest ideas of the year.
Suffice to say, when a multi-billion dollar healthcare system or hospital is competing in the marketplace for top leadership to run what Peter Drucker described as one of the most complex human organizations ever devised by man, it takes top dollar to win top talent, to ensure successful operations. I am not sure why anyone would want to take on the task of leading a major healthcare organization in California, or anywhere else for that matter, for a salary that is far below what the healthcare markets in other parts of the country are willing to pay for someone with similar experience and leadership skills.
To be fair, there are certainly cases, albeit isolated examples that have nonetheless attracted a lot of attention, where health systems or hospitals paid their CEO fat salaries and incentives that had no connection with the size or complexity of the business or their performance. It looks bad when a deposed CEO walks away with a fat paycheck as the hospital walks to bankruptcy court.
There are a couple of ways to avoid this kind of controversy. First, be sure the base salary is validated by market surveys, which most hospitals and health systems now do. Any severance agreement provisions should be designed to help a departing CEO transition to his or her next job, not provide lifetime financial security. And, incentive compensation must be tied to quantifiable goals in the areas of cost reduction, improvements in quality and safety, patient satisfaction and meeting the IRS standards for community need.
Secondly, do not wait for a newspaper or television reporter with a hot tip to raise this issue. Transparency is a popular term these days and it should not be selectively applied — as in concealing what the CEO makes. Have a strategy to deal with this issue before it arises, as it certainly will.
One health system I know – one that has adopted a compensation program modeled after a NYSE listed company — sat down with the editorial board of the newspaper, and visited with the news directors and producers at local broadcast affiliates on this very issue – in advance of any inquiry. They detailed their rigorous compensation committee processes and showed them the data on executive compensation that was used to develop a plan for their organization. Their reasoning was that they would rather get out in front of a story as their new CEO was being recruited to avoid a subsequent report that might be less than flattering and distracting.
One more thing, that health system that acted proactively, shared the information with their medical staff as well…