Still, there is evidence that the methodology of linking executive pay to quality of care is not necessarily robust. A study by researchers at the Harvard School of Public Health and published in JAMA Internal Medicine in January found no correlation between CEO compensation and quality or financial performance at not-for-profit hospitals. “We found no association between CEO pay and hospitals' margins, liquidity, capitalization, occupancy rates, process-quality performance, mortality rates, readmission rates, or measures of community benefit,” the authors wrote, after analyzing the compensation and performance of nearly 2,000 CEOs at private, not-for-profit hospitals.
On the other hand, the methods of tying pay to performance may be improving. In the past, performance-based measurement was centered around absolute or internal measures without reference to other comparable hospitals or systems, experts say. But the trend now is on comparing hospitals and systems to their peers.
“We can measure how they're paying relative to a peer group, but also how they're performing relative to their peer group,” Flannery said. “It's going to give a tremendous boost to the credibility of total compensation programs.”
In helping healthcare organizations recruit for executives, Mark Madden, senior vice president of executive search at B.E. Smith, has also witnessed changes in the way boards discuss and design compensation. “It's becoming more of an important topic where boards have to always be evaluating it,” Madden said.
Following trends in other industries, not-for-profit hospital boards are turning more to variable-based pay. And as compensation in healthcare becomes more dependent on performance, the climb in salaries has slowed, Madden said.
The flattening effect on salaries is evident in this year's survey results. Last year, the average base salary for executives at hospitals rose 3.3%, and for executives working at systems, it rose 3.4%. This year, the weighted average base salary at the hospital level rose 2.3% overall for the 26 titles examined and 2.9% overall for the 54 system titles analyzed.
While hospitals and systems strive to pay competitive base salaries, “they don't typically look to optimize pay through base salary,” Perlmutter said. For one thing, every additional dollar of base salary creates a ripple effect, since insurance and other benefits are tied to that figure.
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