Turnover among hospital chief executives slowed in recent years, new study results show, but early retirements and healthcare's push for good governance could undermine that success, industry experts said.
Resignations, retirements and firings among acute-care hospital chief executive officers fell to 14% in 2005 and averaged 14.6% during the past five years, according to a yearly study released this week by the American College of Healthcare Executives. That's compared with a 16.8% average turnover from 1996 to 2000.
"I think what we're finding, over the last five years, it's pretty much stabilized," said Thomas Dolan, president and CEO of the Chicago-based professional association. Dolan credited the drop to governing boards' growing savvy regarding the healthcare industry. Directors and trustees who understand the industry are more likely to communicate well with executives and set realistic goals, he said.
Dolan, who called the 2005 drop to 14% from 16.8% a year earlier "normal variance," said ideally the turnover slowdown would continue. Lower executive turnover means less disruption and expense for hospitals, he said.
"I'd like to see (the turnover rate) at 10%," he said, though he acknowledged healthcare, just as other industries, faces a significant demographic challenge: retiring baby boomers, the oldest of whom turned 60 in January. "It's the same crunch that all society is undergoing," Dolan said. The average hospital CEO is 53 years old, he said, citing American Hospital Association data, which are also used to calculate the turnover rate. "I would expect, like in every industry, there will be a changing of the guard as the baby boomers start to retire," Dolan said.
Succession planning can help identify and groom an internal candidate or reduce the confusion and cost that accompany an external search, governance experts said.
Cultivating upcoming leaders is necessary but difficult in free-standing hospitals, said Bill Noce, who aided in the search for his successor as president and CEO at 286-bed Childrens Hospital Los Angeles. Tight margins have thinned management ranks within independent hospitals, Noce said. And hanging on to up-and-coming leaders can be difficult without the opportunities a multihospital health system can offer, he said.
Healthcare's recent push toward greater accountability may also drive greater turnover, said industry experts. Scandals such as the collapse of the Allegheny Health, Education and Research Foundation in 1998 and recent bankruptcies outside of healthcare have created an overall demand for greater corporate accountability and transparency. Hospital boards face mounting scrutiny over governance practices and executive compensation from unions, politicians and regulators.
In response, governing boards are doing away with perks such as country clubs and cars in favor of cash, scaling back severance agreements and restricting deferred compensation, said Michael Rosenbaum, a lawyer with Gardner Carton & Douglas. Pressure from regulators, watchdogs and the public has also led to more rigorous evaluation of top management, said recruiters and compensation attorneys.
"We've come a long way in 20 years," said Jim Gauss, an executive vice president for recruiter Witt/Kieffer. "You used to see (executive) evaluations done on the back of a napkin over lunch." Not anymore. Initially, such increased scrutiny on governance and boards may boost tension -- and turnover -- in the C-suite. In the long-term, however, clearly defined measures for executive performance may eliminate confusion and improve relations between directors and executives, he said.
Not only are boards using more exact measures to grade executives, but also directors have raised the financial stakes for poor performance, which may also drive turnover, said Michael Corey, a consultant with executive search firm Spencer Stuart. Roughly 40% or 50% of executive incentive compensation can be tied to performance, a figure that ran closer to 30% to 35% in the mid-1990s, he said.
North Memorial Health Care, in Robbinsdale, Minn., first tied executive incentive pay to customer satisfaction and quality measures five years ago, said Loren Taylor, North Memorial's board chairman. "What gets measured gets done," Taylor said. North Memorial's executives embraced the switch, he said, as did the 449-bed hospital's largely independent medical staff.
"It's been greatly received by the medical staff to see the recognition that there's more (measured) than the bottom line," Taylor said.