Industry Insights

10 June, 2012

In the wake of healthcare reform legislation and changing regulatory requirements in the U.S., a variety of executive compensation trends have emerged in the healthcare sector. According to a recent article in Becker's Hospital Review, these high-level workers are seeing changes to their compensation as well as their treatment by boards.

A recent survey from healthcare consultancy Integrated Healthcare Strategies, cited in the article, found that total compensation for hospital executives is increasing slightly, at an annual rate of approximately 3%. The data showed that this trend will continue in 2012, as the average budgeted salary increase for hospital and health system executives is 2.5%.

In a trend continuing from previous years, the healthcare industry is seeing more significant pay increases for new leaders brought in through executive recruitment efforts. Typically new executives recruited from other organisations are compensated at a higher level than their predecessors, since a substantial increase is necessary to persuade experienced executives to change jobs.

These types of increases often lead to significant payouts. For example, the New Haven Register recently reported that 18 executives at Connecticut hospitals received more than $1 million in compensation in 2010. The highest-paid of these were executives recruited from another job.

One new trend could alter this scenario. Hospital boards, motivated by lower reimbursements, pressure to reduce costs and negative public perceptions of executive compensation, are being more conservative. As David A. Bjork, PhD, of Integrated Healthcare Strategies notes, “The pressure to reduce costs in healthcare has caused many hospital and health system boards to be more conservative in adding new components to an executive's compensation package.”

Furthermore, some healthcare executives are refusing compensation increases or bonuses. “Despite the odds against many of the C-suite executives and the fact that they are leading their organisations through unparalleled economic times, we are seeing more and more of these executives take a voluntary pay cut," says David Gillan, V.P. of Purchased Services at Texas-based healthcare supply chain company Novation. "These executives want to lessen the burden on the organisations they are leading and realize the cuts are being felt by all staff."