Considering Compensation

In our November 2014 Intelligence Report, 82% of healthcare leaders said that their organization needed to enhance its executive compensation structure to attract, retain, and engage leaders. HealthLeaders Media Council members discuss the factors involved.

This article first appeared in the May 2015 issue of HealthLeaders magazine.

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

One of the challenges that we face is finding individuals who possess the experience and the business acumen that are necessary to lead in this complex environment. Historically in healthcare, relational skills sometimes were enough to create opportunities for success. Now the mandate is the combination of relational skills with business skills to be able to lead organizations in such a fashion that they can be competitive and continue to be successful.

Executive compensation is but one component of the fit. It is what I would call the threshold component. Once that interest is created, we find that if we are competitive in executive compensation, then it's all about culture.

Finding the right metrics for value-based compensation is a fairly straightforward process. Historically the gatekeepers for incentive compensation have been quantitative in nature from the standpoint of EBITDA earnings or financial focus. What many organizations, including ours, are now doing is having clinical outcome gatekeepers in place, as well, before incentive compensation can be paid. That is a great opportunity to say externally that the bottom line is important but outcomes are just as important, if not more so.

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

Over the past few years we have aligned executive compensation incentives with value-based metrics, which have driven executive performance and engagement already. Now we have embarked on a major development and succession planning program, which we believe will be very important toward recruiting, retention, and addressing the problems of executive turnover.

Our biggest business expense is on people—their education, salary, benefits. So it's important that we take a look at this and don't treat them like one size fits all. We are revamping our evaluation forms and processes throughout the entire hospital. We are trying to align our culture of compliance and respect and service into these evaluation forms and goals.

With some executives, it's about the senior executive retirement plans. With others, it's about contracts. Not all executives want the same things. We need to be flexible. We look at individualizing when we can but also keep in mind equality throughout the senior leadership team. We're trying to get them to be more efficient at the things they do well, and we're trying to take off their plate the things that are not up to their license, giving them more support so that they can be more efficient in doing the things that they were hired to do.

If I am going to preach that the market is paying for value-based healthcare, then I cannot be giving them incentive bonuses based on volume. I have to start paying them for performance, just like the market.

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

On aligning with goals: The compensation process for hospitals needs to be aligned with the overall organizational objectives. It's the whole transition from volume to value. That has occurred within this state and that has significant implications from a compensation perspective.

On population health: You are not going to be able to achieve population health or some of the quality initiatives on your own. The incentive/goal piece of compensation is becoming increasingly important, and it is starting to move away from individual goals to executive team goals. There clearly is a greater focus now on tying compensation to performance, quality, population health, and cost containment—less on a direct connection with operating margins, because the reality is that unless we achieve the objectives for quality, population health, and cost containment, there will not be an operating margin to reward.

On compensation and the long view: There was a time when the goals were not only individually focused but they were short-term, too. Not only are we seeing the transition to group goals but also multiyear goals. These changes take time, and to do a "one-and-done" approach toward incentive goals no longer seems rational in this environment.

On compensation and the long view: There was a time when the goals were not only individually focused but they were short-term too. Not only are we seeing the transition to group goals but also multiyear goals. These changes take time, and to do a "one-and-done" approach toward incentive goals no longer seems rational in this environment.

Hamlin J. Wilson
Senior Vice President for Human Resources
Wellmont Health System
Kingsport, TN

Our organization would be among the 82% in the survey who are working to enhance executive compensation. We have to remain competitive in our market, and our market at the executive level is very broad. We want to be able to recruit from all over the country for our vacancies.

More and more there is a push toward ensuring that executive compensation is structured around performance, specifically clinical outcomes. A lot of organizations have not yet fully leveraged clinical outcomes and quality in designing the executive compensation plan, specifically around variable-based pay.

In our organization, for the past 10 years we have structured executive compensation and variable pay around patient satisfaction and financial outcomes. The one area that has been on the table that we may be poised to go after this year is the matter of clinical quality outcomes. We are investigating the degree to which we need to restructure our program to address the quality aspect of the work we do.

I am not sure there is a "right way" to do this. You have to look at each organization to make it right for that organization. But there are some things we have to make sure we do correctly when we move toward quality. We have to make sure we pick the right outcome measures. That can be a bit of an art.