When voters in one California hospital district last November approved a ballot measure intended to limit what El Camino Hospital could pay its executives and managers, the hospital's board worried about the implications in terms of attracting and retaining skilled administrators to work at the publicly run facility.
Under Measure M, 394-bed El Camino, Mountain View, could have paid its executives no more than twice what the state's governor earned, or about $330,500. The mandate raised uncertainties over whether the hospital could retain top-flight executives if they couldn't offer salaries competitive with similar-sized facilities. El Camino President and CEO Toni Ryba earned $695,000 as a base salary in 2012, plus a bonus of $137,815. Measure M could have hurt El Camino's ability to retain Ryba and other executives, says hospital spokeswoman Chris Ernst. The measure would have reduced Ryba's pay to the level of “a rural hospital about a quarter of our size,” she says.
The issue became moot last month when the Santa Clara County (Calif.) Superior Court ruled the measure unconstitutional.
Such public and government scrutiny of executive salaries has continued to intensify nationwide. But so has the need for healthcare organizations to retain knowledgeable, talented healthcare executives in an increasingly complex operating environment, which observers say requires competitive compensation.
Executives' value outweighs any bottom-line advantages that might come from slashing salaries, says Deborah Bowen, president and CEO of the American College of Healthcare Executives. Even though trimming executive pay might be seen as an easy way for healthcare organizations to control expenses while facing the pressures from falling volumes and reimbursement, Bowen contends the downside isn't worth it.
“The salaries for healthcare executives, compared to their corporate counterparts in business—I don't think the increases are dramatic,” she says.
This year, according to Modern Healthcare's 33rd annual Executive Compensation Survey, the average base salary rose 3.3% overall for 25 healthcare executive and administrative titles that the survey tracks at hospitals—compared with 2012 raises considering inflation. Data for the survey were provided by Chicago-based compensation consultancy Sullivan, Cotter and Associates. Total cash compensation, which includes bonuses and incentives, rose 4% or twice the rate of inflation.
Experts view the larger increases in total cash compensation as another indicator of healthcare's shift toward a value-based reimbursement model where quality and better outcomes are rewarded based on performance.
Executives working at systems saw average base salaries rise by 3.4% for 2013, based on the 36 titles included in the survey. Average total cash compensation rose 4.8%.