Efforts to keep salaries in check continued this year, according to Modern Healthcare's 32nd annual Executive Compensation Survey. Sullivan, Cotter and Associates, a Chicago-based consultancy, once again provided data for the survey.
Overall, the average base pay for executives representing 26 positions at hospitals grew by 3.2% for 2012, or $246,366 versus $238,712 in the previous year. In 2011, hospital executives' base pay increased 3.1%.
The survey also analyzed data from executives making up 41 job positions at healthcare systems. Their average base pay increased by 3.6% to $284,406 in 2012, compared with $274,571 the previous year. In 2011, system executives saw their base pay increase 3.3%.
In the C-suite, chief financial officers were among the executives seeing the largest average gains in total cash compensation, and it didn't matter where they worked: CFOs at hospitals as well as systems saw their compensation increase by 4.8%. While chief compliance officers at hospitals saw a larger raise of 5.9%, CCOs working at healthcare systems saw a 3.9% average increase.
CFOs at systems where net revenue exceeded $1 billion earned an average of 5% more than last year, taking home a salary of $671,895. Meanwhile, finance executives at larger free-standing hospitals, those with more than $250 million in annual revenue, also received a 5% increase in total cash compensation, according to the survey.
“In particular, for a position like CFO, you're essentially seeing a lot of financial challenges in the industry because of healthcare reform, a lot of challenges, especially in health system mergers and acquisitions,” says Kathy Hastings, a managing director at Sullivan, Cotter. “It increases the scope and breadth of responsibilities for a position like CFO.”
In the current financial climate, providers are seeing more value in an effective CFO and are offering the more talented candidates higher salaries as competition for the best and the brightest heats up, Hastings says. CFOs are also taking on additional duties, with the healthcare industry eliminating some managerial jobs, which is also driving their compensation, she says.
Meanwhile, CEOs at healthcare systems earned a 3.7% increase in average total cash compensation, while chief operating officers earned a 3.8% bump. Chief administrative officers also earned an average 3.7% increase.
While other positions represented in the survey posted significantly smaller growth in their pay, no positions saw decreases in their average total cash compensation.
Ron Seifert, a vice president and the executive practice leader for the Hay Group, a global consultancy based in Philadelphia, says executives aren't taking pay cuts. If some salaries are decreasing, it's likely because of turnover, he says, with those new to their jobs receiving lower pay than their predecessors.
That's in line with an observation American College of Healthcare Executives President and CEO Thomas Dolan has made, saying that was also a trend worth noting when talking about salaries of not-for-profit association executives.
There were several decreases in median figures for executive positions represented in this year's survey. For example, data from 26 COOs at smaller free-standing hospitals, those with revenue of less than $250 million, saw median cash compensation fall by 4.3% compared with 2011. Top reimbursement executives at systems saw their median total cash compensation drop by 8.8%.
Despite the decreases in some of the median cash compensation categories, Hastings says she expects pay increases to be a notable trend in the future, and increases in bonuses and other incentives that lift total cash compensation should continue in coming years. While the Internal Revenue Service now has stricter rules that require not-for-profit organizations to disclose these additional payments, Hastings says the public information won't completely curb them, but the scrutiny is here to stay.
“I think the watchful eye of the public, federal government and the states will continue to look at executive compensation in all industries, not just healthcare,” Hastings says.
CEOs working at systems were the only ones with average total cash compensation exceeding $1 million, an amount that was inflated by pay packages of CEOs at systems with net revenue of more than $1 billion. Breaking down CEO pay by organization size showed that those CEOs at organizations bringing in more than $1 billion were the only ones in the survey earning average total cash compensation of more than $1 million, earning more than $1.3 million last year.
Contrast that with CEOs at system hospitals with less than $250 million in net revenue, who earned average total cash compensation of $365,099—a 0.7% increase from the prior year.
COOs at systems with net revenue above $1 billion took home the second-largest total cash compensation amount, $872,815. Both CEOs and COOs at the larger systems saw 3.9% increases in average total cash compensation.