It's a full-employment economy, folks, and that raises all boats. Even in the hospital industry.
MODERN HEALTHCARE's annual survey of salary and compensation trends reveals the healthiest pay boosts in three years for hospital managers, directors and executives. Look at the table on page 76. All those green bars-29 of them-are positions that enjoyed strong pay gains this year. In 1996 there were 15 positions that went up as strongly and in 1995 there were just 10.
By contrast there are 12 red bars this year, showing low raises or absolute decreases. In 1996 there were 11 such bars, and in the depressing days of 1995, there were 19. For stressed-out, downsized and reshuffled hospital managers, that's progress, of a sort.
The data come courtesy of Hewitt Associates, a human resources consulting firm based in Lincolnshire, Ill., and its subsidiary,ManagementCompensation Services, of Scottsdale, Ariz. Hewitt/MCS surveyed 226 organizations that comprise 63 integrated delivery system headquarters, 580 hospitals and 11 long-term-care facilities. The organizations reported data on a total of 21,000 employees. The figures for total compensation include base salary as of Jan. 1, 1997, plus the most recent incentive compensation payment.
The numbers given on the right-hand columns in the master table show total compensation at the 50th percentile of each job listed among all hospitals, for-profit and not-for-profit.
(The Hewitt/MCS survey also breaks the database down by hospital systems, not-for-profit secular hospitals, church-affiliated hospitals and other divisions. Consolidated hospital statistics are cited in this article and the accompanying charts as the most widely applicable to the majority of our readers.)
If you add up all the pay-raise percentages in the right-hand column on the master table, then divide by the number of entries, you get an average raise of 4.2%.
That's a big improvement over last year, when the average was 3.48%. In 1995, it was a measly 2.47%.
We are using the term "raise" somewhat loosely here. An increase in total cash compensation doesn't necessarily mean somebody got a raise, says Jim Freundt, a Hewitt compensation consultant. The increase could derive from a bonus based on good performance, which isn't quite the same as a boost in base salary.
Measured another way, the gains are strong but not as strong as last year's. Hewitt/MCS surveyed a constant group of people who were in the same job in the same facility two years in a row.
For the constant group, the overall increase in compensation, including the 11% who didn't get increases, was 5.2%. The same indicator in 1996 was 5.6%, and in 1995, also 5.6%.
Of course, these are aggregate numbers for the whole sample. Among the various departments in the hospital, the strongest increases are occurring in the administrative suite and in the finance office. According to a summary table (p. 82), administrators got an aggregate raise of 5.6%, while finance officers got 5.4%. The gainer bars are concentrated toward the upper tier of the table. As you get closer to the patient, toward the bottom of the table, the raises tend to diminish.
The top get richer. Roger S. Campbell, compensation director for the huge, Phoenix-based Samaritan Health System, noted that "executive pay has perhaps been creeping up a little more the last two or three years than some organizations have realized. Especially for your senior management: president, COO, CFO and vice presidents." He finds there is "quite a bit of pressure" to keep abreast of market rates in total compensation, "including salaries. I don't think you can make it up in bonuses."
The Hewitt/MCS data confirm Campbell's perceptions. Using median total compensation, MODERN HEALTHCARE*calculated average raises for the six occupational groupings in the Hewitt/MCS survey.
Significantly, the people getting the strongest pay increases can be found at the top of each group. On the big table, every department head except medical affairs has a green bar signifying strong pay gains.
The typical chief financial officer, for example, saw his income go up 1.7 times more in percentage terms than the aggregate of managers working in the finance department (See chart, p. 82).
In human resources, the differential is even more extreme. Median total compensation for heads of human resources departments went up 10%. The average among all seven jobs in the group was 2.5%.
When you figure in that CFOs and human resources chiefs are already starting from a much higher base, you start to see the extent to which the extra money available for compensation within hospitals is drifting upward toward the people already at the top.
Assuming that raises among the rank and file are less than those of managers, this would lead toward a widening income chasm between managerial haves and the have-nots who work for them.
On the other hand, Freundt notes, there is another factor that may contribute to this result. The increase in total cash compensation might not apply to base pay. Incentives are much more prevalent for managerial positions. "Stronger relative performance this year would lead you to have a bigger cash compensation increase for managerial positions than it would for other positions," Freundt says.
The rich get richer. Among CEOs who got a bonus, the average bonus added 39% to his base pay. For CFOs, it's 29% and for medical directors, 14%. The percentage declines as you move down through the hospital chain of command.
Surprisingly, as the hospital gets bigger, the amount of compensation at risk declines. The CEO at a hospital with fewer than 600 full-time-equivalents has 46% of his base added in the form of bonus; for CEOs at hospitals of more than 2,200 FTEs, that number is just 24%. The same trend holds true for chief operating officers, CFOs and nursing directors.
That's contrary to what one would expect, Freundt says. But then, a lot of results in the survey defy easy explanation. Such as the 2.8% decline in the pay of the medical affairs director.
"It could be a supply issue," muses Freundt, "that a lot of physicians want out of private practice or group practice. They want the certainty of a constant paycheck."
There is also the fact that medical directors might be getting paid from outside sources in addition to their hospital salary-from a university, for example. On the other hand, it may just be a leveling off after several years of strong increases.
"You're paying a medical affairs director the same as you were about two years ago," Freundt says. In 1995, directors' median total compensation was $182,300.
A couple of jobs jumped by leaps and bounds: Public affairs rose 14% and physician recruiting 16.4%. As for the former, "It's one of the sweet mysteries," says Freundt. As for the latter, "Everybody wants to hire docs."
Still, Freundt cautions, it's important not to get too wrapped up in the year-to-year swings. Lots of positions show dramatic surges or sharp drops that really can't be accounted for. It's more prudent to look at two-year or three-year averages. Consider the CFO. The 9.3% increase this year looks extraordinary, but last year that position suffered an absolute decline of 0.3%. If you smooth out the bumps and potholes using a present-value calculation, you get an annualized increase of 4.4% each year for the CFO. That's a little more comprehensible.
Freundt thinks another factor that possibly contributes to these sharp swings is the combining and enlarging of job titles, a consequence of system affiliation or work-force downsizing. Five years ago, job titles in the survey matched people's job descriptions fairly tightly, he says. Now, it's fuzzier. "So they might take the base pay listed here and boost it a little for the extra responsibilities," Freundt says.
Losers. The worst losers on the whole compensation table are the compensation and benefits directors themselves, who took a 6.6% hit, dropping to $49,900 from $53,400 the year before. They are one of three positions on the table to show a drop over two years, in this case of 3.1%. The other two downers over that span are marketing, -2.3%, and medical affairs, -1.6%.
Nursing shift supervisors are really taking it on the chin. They gave back almost 4% of their pay in 1997. Since the 1995 survey they've gone from $46,000 to $46,500-all of 1.1%. And these are the people who are supposed to do more with less at the bedside. It may help explain why some militant nurses are screaming for blood.
Nursing unit managers are doing marginally better. They show a 1.5% increase this year, and 6% over two years. If nurse managers are thinking about bailing out of the hospital, they might trot across the street to home health, where the average raise was 6% to $62,000. That beats a nursing unit manager (at $54,800) or a shift supervisor (at $46,500).
Of course, if anybody is wondering where the real raises are going in nursing, he need look no farther than the executive level, where managers of nursing services reaped a 7.8% raise, to $97,000. That category is up more than 10% over what it was making in 1995. The mean average total compensation for this position is $99,900.
Looking for labor. To gauge how strong employment growth can affect hospitals, look at the Cornhusker State. For the past three years Nebraska has enjoyed the lowest unemployment of any state, averaging 3%. Employers are desperate for labor.
"It is hard, I can tell you, getting qualified people, because they're already working somewhere," says Carol Lindstrom, compensation manager at Good Samaritan Health System in Kearney, Neb. "The quality in the applicant pool is not there as much as it was before."
Kearney has about 25,000 people and is three hours west of Omaha. Good Samaritan has 287 beds and 1,500 employees.
"We consider our counterparts in Lincoln and Omaha as competitors for the same labor pool for RNs and higher-paid patient-care jobs," Lindstrom says.
Hospitals in Omaha have to compete with casinos across the Missouri River in Council Bluffs, Iowa, for lower-level jobs. Low unemployment in Kearney has led to salary pressure on general services positions, such as environment and food service.
But the low unemployment doesn't affect recruiting or salaries in upper management. "When you start getting up to the department director level, we still have to recruit those people usually from out of state," Lindstrom says.
Likewise in the Kansas City region. Al Himegarner, vice president of human resources for St. Luke's-Shawnee Mission Health System, reports that entry-level positions are hard to fill. At higher skill levels and in managerial ranks, there is no shortage of qualified people and no ballooning of salaries.
Laura Hays, human resources manager at All Children's Hospital in St. Petersburg, Fla., reviewed data for the past several years and found the hospital's turnover rate has stayed the same. She is not seeing any particular pressure on salaries. "The reasons people are leaving here are not due normally to other positions locally," she said.
Consolidation pressures. Catholic Healthcare West, which operates 37 hospitals in Arizona, California and Nevada, isn't noticing salary pressure across the board, says Kathy Martens, corporate compensation specialist in San Francisco. She isn't aware of any positions in the executive arena that haven't seen raises, nor has she seen any unusual increases.
The challenge is coming up with appropriate salaries for positions created through regionalization of hospital operations. "Most of what we're seeing has to do with new positions," she says. "For instance, we would not have a CEO for each hospital in our current structure. We would have a CEO of a region," consisting of five to seven hospitals, she adds.
CHW is using a number of factors to set those salaries, including the size of the organization, defined by net revenues and number of beds. They also look across all of CHW to make sure there is pay equity. Systemwide, CHW is neither adding to nor subtracting from the executive ranks, rather shuffling them around in a zero-sum game.
There are perils to this approach, Freundt notes, and he hears about them from clients. Affiliation raises issues of culture and compensation. How should pay levels be aligned? "If you're trying to save costs, you can't boost everybody's pay in an affiliated system," he says.
What often happens is that middle-managers get stretched. "If I'm a vice president, I pick up a lot of those additional responsibilities," Freundt observes. He gets complaints from department directors and vice presidents that they are overloaded with responsibilities after their work force is downsized.
But some hospital boards are not above using that as a stick. "With the big supply of laid-off hospital managers, why should we pay more?" they ask.
Apparently, it's still a buyer's market in hospital management talent.