The COVID-19 pandemic has pushed healthcare leaders to rethink just about every aspect of their operations—even how they pay people.
Several investor-owned healthcare companies have reformulated how they calculate their biggest category of executive compensation: long-term incentive plans. Compensation experts say the crisis has accelerated the shift toward a form of stock award that retains value even during volatility and only pays out if executives stick around. And with financial results more up in the air, some have eased up on the use of performance goals.
"The world has changed pretty quickly," said Michael Halloran, a senior partner with Mercer who specializes in executive compensation.
By the time the first COVID-19 spike hit the U.S. in March 2020, many publicly traded companies had already approved their 2020 executive compensation plans. The crisis was still in full force when they crafted their 2021 plans. Although those plans won't be made public until next year, compensation consultants said the pandemic had a definite influence on how they structured LTIPs.
Long-term incentives are a bigger deal in healthcare than other industries. They constituted almost 70% of healthcare executive officers' total direct compensation in 2019—75% for CEOs—compared with a median of 56% across 11 other industries, according to consultancy Gallagher.
This year, many companies decided to weight more heavily toward what are called restricted stock units, said James Reda, a managing director at Gallagher and leader of its executive compensation practice. In rarer cases, they shifted entirely to RSUs.
Restricted stock units are granted to executives in increments over a specified number of years. Executives only get the awards if they still work for the company. In that way, it's a retention tactic.
"People are going to start jumping jobs," Reda said, "so having restricted stock that's unvested is going to be a speed bump."
It doesn't always work, though. Tenet Healthcare's former chief human resources officer, Sandi Karrmann, gave up RSUs worth $975,000 at their February 2020 grant date when she resigned from the Dallas-based hospital chain in October 2020 to fill the same role at Kimberly-Clark. In cases like that, the company doing the poaching often agrees to pay their new employee the value of the RSUs they were scheduled to receive.