ACHE 2017: Key considerations for healthcare executive compensation packages

Table with chairs around it
Public pressure may cause hospital board members to start questioning the packages and the formulas used to determine stock options, retirement plans and bonuses.

CHICAGO—It’s no surprise that the public thinks executive pay is too high. 

Kevin C. Talbot,

So executives should be prepared that public pressure may cause board members to start questioning the packages and the formulas used to determine stock options, retirement plans and bonuses.

These questions will come sooner rather than later if your organization is getting bigger through mergers and acquisitions and more service line leaders are added to the executive team, according to Kevin C. Talbot, managing director of Integrated Healthcare Strategies, one of the speakers at a session on executive compensation at last week’s American College of Healthcare Executives’ 2017 Congress on Healthcare Leadership.

High CEO turnover also lead to new questions about compensation policy, he said. And if there is high turnover of board members the CEO will be spending time re-educating new members about compensation policies for the C-suite.

Christine Schuster

Panel member Christine Schuster, R.N., president and CEO of Emerson Hospital in Concord, Massachusetts, said its essential that the chairman of the compensation commission is someone who has the respect of the board.

“Several years ago we had a compensation committee chair who didn’t have the respect of the board…We struggled in those years to get paid. The numbers were always being questioned. Who you put in that role in collaboration with the board chair can make a difference,” she said.

When boards don’t trust the compensation committee to do their work it’s a recipe for trouble, Talbot said. Therefore, it’s important that the committee has the authority to approve salaries and has a good transparent process in place to report to the board.

Chris Van Gorder

Chris Van Gorder, president and CEO of Scripps Health in San Diego, agreed that transparency about the process is critical. At one of his previous jobs, he recalled one board member who always voted no when it came to salaries because the compensation committee wouldn’t share the figures with the full board. The board member always felt there was something sinister happening behind the scenes.

“Open dialogue is critical,” Van Gorder said.

Talbot also suggests that hospital and system CEOs spend time with the compensation chair prior to the board meetings to review and prepare for the meeting. You both can then ask hard questions and go over any objections that the board may raise.

And during the board meeting, Talbot suggests the CEO take time to discuss the rationale behind the compensation packages. “I find committees enjoy the opportunity to hear your thinking on what you are recommending for approval,” he said.

And it may be helpful to hire a consultant to work with the compensation committee so it doesn’t appear as if the CEO is advocating in what appears to be his or her best interest, said John J. “Jack” Lynch, president and CEO or Maine Line Health in Radnor, Pennsylvania.

John J. (Jack) Lynch

Van Gorder agreed, noting that the hospital’s general counsel is always in meetings regarding compensation.

“I only engage if the board really starts asking me questions. My most important work is done behind the scenes,” he said.

Other tips the panel recommended: Hold several committee meetings throughout the year and bring proposed goals as drafts to get feedback before asking for approval.