Compensation Concerns

In our November Intelligence Report, 88% of healthcare leaders indicated that their organization's executive compensation structure needs enhancement to attract, retain, and engage leaders. What are some changes your organization has implemented recently or is exploring along these lines?

Michael D. Williams
President and CEO
Community Hospital Corp.
Plano, TX

On incentive compensation. The compensation committee of the board adopted a philosophy two years ago that says we will target the 50th percentile for executive compensation cash and, more important, the 75th percentile for total cash compensation. Inherent in that is an expectation that there is going to be at least a 25% cash incentive compensation payment. That is not just for the executives or the CEO; that is across the managerial staff of both the corporate and the hospital offices.

On competitive recruiting. Boards in the not-for-profit world have to understand that, while their compensation structures can't necessarily be the same as [those] with the investor-owned segment, there still has to be some ability to be competitive to recruit. We are seeing more individuals recruited with business acumen coming from the investor-owned sector to the not-for-profit sector. About 70% of our executive team has worked in the investor-owned sector. What we are finding is, to recruit the executive talent that we need ... we are looking into the investor-owned sector for those individuals who want to marry mission and margin, and we are having much success in bringing them over in competitive pay fashions, but out from under the pressure of quarterly performance.

On retaining talent. Compensation is but one factor in addressing turnover. Much more important than compensation is culture. One of the reasons we are seeing individuals jump from organizations is that, although the compensation package is attractive, the culture is not where they want to find themselves.

Kenneth S. Lewis, MD, JD
President and CEO
Union Hospital
Elkton, MD

We are one of 10 hospitals in Maryland that are under a unique reimbursement model called Total Patient Revenue. This reimbursement model rewards the transition to value-based care delivery. Our board of directors has established goals for the management team that support the transition to this new model.

Also, our board has been more than comfortable allocating financial resources for coaching and development of the talent we have here. That is not just for programs to develop traditional areas of expertise but to improve our ability to develop the relationships and skills needed to function in a new environment.

As one of the few remaining independent community hospitals in our region, we have had many conversations about affiliations or mergers. For the time being we believe that we are best off with an affiliation model that maintains our independence. A severance package was developed for change and control for almost all executives on the senior executive team. That also provides some degree of reassurance. The package encourages leadership continuity if there is a merger. Eligibility for payment and the severance model would occur if an executive experiences significant change in the scope of his or her responsibilities or compensation. It has worked out well in promoting some degree of comfort.

Denny DeNarvaez
President and CEO
Wellmont Health System
Kingsport, TN

There is an interest in creating more at-risk compensation than there has been in past years. It's not that we haven't had strong at-risk compensation, but it wasn't necessarily tied directly to the idea that if you create something that is helping physicians and the facility fiscally and qualitatively that you should be rewarded.

This industry now is every bit as complex as any entrepreneurial industry. So how do you attract talent? We have just started to have that conversation. The other issue we have talked about is, how do you retain talent at a time when there is so much unknown?
We use three different surveys to peg our compensation and make sure it is market driven. It is a very defendable position.

We have to run our facilities with strong folks. We have always been proud of when you get the best and brightest talent, you don't need 10 of them. You can take one good executive and do what others do with four and five of them. That we have proven in our cost of care. It's not so much per se what we are paying one individual but what is our cost of compensation in total and how are we managing that. And when we hit on those markers, we hit best practice.

Joseph Pepe, MD
President and CEO
Catholic Medical Center
Manchester, NH

The incentives were once based on personal goals, and we felt that the best way to get a team approach and everyone rowing in the same direction would be that everyone has to be responsible for team goals. Those team goals used to be a small percentage. Now we have flipped that and the team goals are 75% and the individual goals are only 25%. So even though you may be in finance, that quality goal is very important to you because that is part of your incentives, and vice versa.

Because of this, we have seen the silos coming down and now when you go into interdepartmental meetings, you see people from five or six different departments all working together. Everyone is pulling and pushing for everyone else because if one person fails, we all fail, and if one person does well, we all do well.

We are focusing on the value metrics that we are going to be penalized on with CMS—readmissions and certain outcomes along with patient satisfaction—rather than some other value metrics that we are not getting penalized on. This change is going to take place; some quickly, some moderate, and some will be a little bit more long term. The trick is to know which is which.