Health systems increase executives' base pay, incentives in a competitive market

Health systems are boosting executives' base salaries and incentives to attract more talent in an increasing competitive market.

Healthcare executives saw a 4.5% increase in median base salaries in 2021, according to the independent consulting firm SullivanCotter. The return to normal following a pandemic slump reflects an increasingly competitive labor market.

A normalization of incentive award payouts show a marked improvement from 2021 when payouts for performance fell below historic levels, according to SullivanCotter, which examines total rewards programs, workforce solutions and data products for healthcare and not-for-profits. With an increase in salary and incentive pay, median total cash compensation has risen by 9.7% in the last year, according to the firm’s annual Health Care Management and Executive Compensation Survey.

"Although total cash compensation for executives grew year over year, it is important to note that there were no shifts in annual incentive plan prevalence or award opportunity levels,” said Bruce Greenblatt, managing director at SullivanCotter, in a press release. “The growth in reported total cash compensation is being driven by higher incentive awards that reflect improved organizational performance after a particularly challenging year. Thus, it shows that the performance-based incentive programs are operating as designed by tempering awards in challenging years and increasing them when performance improves.­"

The survey includes information from more than 3,000 organizations representing roughly 42,300 individual incumbents.

The analysis revealed that health system executives earned on average 1% more than subsidiary hospital executives­­; a discrepancy the firm said is reflective of the complex demands of health system executives. All executive pay growth showed a distinct increase after many organizations froze executive compensation following the onset of the pandemic. In addition to compensation growth, the firm saw a shift in how incentives are calculated.

“We tracked the percentage of organizations that have used people-related measures in their annual incentive plans,” Greenblatt said in an interview with Fierce Healthcare. “If you compare where things were pre-pandemic in 2019 to where they are today, the proportion of plans that have used people-related measures as one of the indicators that drive incentive payouts have increased from 59% to 69% in these organizations. People-related measures include things like employee engagement within the organization: So, are employees feeling satisfied with their jobs? Do they feel like they have managers that care about them? Those are the types of indicators that are included as part of people measures, as are things like employee wellness, which is an emerging indicator.”

Greenblatt also revealed that people-related measures around patient safety increased from 35% in 2019 to 58% used now in incentive plans. He said this change is largely indicative of the fact that patient safety means staff safety, and for those on the front lines against the ongoing threat of COVID-19, like clinician staff, safety is a top priority.

The daily threat to clinician staff is one of the reasons that while executive pay raises froze in 2021 as frontline clinical workers saw their pay increase by 2%-3%, according to Greenblatt.

In the last year, these salary increases have continued to outpace those of executive roles. Clinicians saw their salaries increasing 5% or higher, with registered nurses bringing home on average 8% more than the year before. The firm stated that the expansion of compensation for clinicians reflects organizations’ strategy to reward staff for the daily grind of being on the front lines of the pandemic. As burnout, labor strikes and early retirement have increased, the demand for related positions has outpaced the supply of qualified workers. An increased focus on employee satisfaction is also present in the types of positions at the executive level.

“We track increases in emerging leadership roles, and we also track if there are any hot jobs in the marketplace,” Greenblatt said. “Now, these are Diversity, Equity and Inclusion leaders, so these would be the executive leaders within organizations whose focus is on not only equity but also inclusion and diversity. We’ve seen an increase in the number of those positions in our database. We’ve also seen an increase in those individuals' pay levels. We’ve seen the DE&I role move from a department within HR to in many cases reporting directly to a CEO.”

In the face of these continued obstacles, expanding inflation and labor costs, the firm emphasized that while pay equity was a priority for many institutions, executive pay demands also remain competitive. Highly qualified leaders are in demand during increasingly challenging times.

"While these are industry-wide issues affecting the clinical workforce and staff-level positions as well, organizations must be acutely aware of the impact these challenges may have on executive compensation programs and recruiting and retention strategies,” said Ted Chien, president and chief executive officer at SullivanCotter in a press release. “This is particularly important as they look to limit disruption and remain focused on providing the highest-quality patient care, improving employee engagement and advancing other important initiatives designed to support DE&I and ESG (Environmental, Social and Governance)."

In light of talent shortages and inflation, the firm advised that organizations increase salary budgets by more than 3% annually, establish incentive plans and focus on internal talent development. In the name of retention, they emphasized the importance of employees’ well-being, including mental health benefits.