Hospital executives take home bigger paychecks in 2006

A survey finds an increasing use of incentive-based pay.

By Katherine Vogt — Posted Oct. 2, 2006

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Hospital leaders' pay is going up, in part because of the increasing number of systems that use bonuses and other incentives to reward executives.

A survey found that base salaries for executives increased 5.3% in 2006 from 2005. But total cash compensation -- including salaries, bonuses, annual incentives plans and more -- jumped 7.2% during the same period.

Authors of the survey, which was conducted by Chicago-based Sullivan, Cotter and Associates, and industry observers said the findings reflected hospitals' growing use of sophisticated compensation packages.

They also said competition for what is believed to be a small pool of top talent has forced hospitals to offer more overall compensation to lure or retain their leaders.

The survey was based on data from 874 for-profit and nonprofit hospitals and health systems.

It found that the presidents and chief executive officers of freestanding hospitals received average total cash compensation of $463,300 in 2006, up 3.8% from $446,600 the year before. Health system CEOs and presidents saw a 9.6% jump in their average total cash compensation to $870,800 this year from $794,200 in 2005.

Other executives saw their average total compensation increase anywhere from slightly less than 4% to nearly 11%. All these totals include base salary and other cash rewards.

Tom Pavlik, managing principal with Sullivan, said he had seen an increase in the number of hospitals and health systems that are using incentive plans for their executives. Five years ago, about 65% of the survey participants used such plans. Now, roughly 75% to 78% offer some sort of incentive plan, he said.

The plans are most commonly tied to the financial performance of the hospital or health system. But they also can link incentives to quality, physician or patient satisfaction, patient outcomes and more. Pavlik said that recently he had seen more plans using a combination of different types of targets or goals.

Sandy Williams, vice president of the Oak Brook, Ill.-based executive recruitment firm Witt Kieffer, said employers increasingly are finding more sophisticated ways to reward their leaders, so it's not surprising that they would use other forms of compensation than salaries.

Though some critics argue that leaders in an industry where costs have grown out of control shouldn't be making hundreds of thousands of dollars, Williams said hospital and health system executives have a lot of responsibilities and that significant compensation is needed to attract top-tier talent. "There are many people who believe that being a hospital CEO is one of the hardest management jobs," he said. "And as institutions are more competitive with each other, they are more competitive for top talent, and that drives the price up."

Rick Wade, spokesman for the American Hospital Assn., said competition for hospital executives had been heating up for several years. "For a long time now, the market for executive talent for hospitals has become a national market," he said. That has translated into nationally competitive prices for executives, he said.

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Executive rewards

Sullivan, Cotter and Associates' 2006 compensation survey shows CEOs and COOs having the largest increases in average total cash compensation.

2005 2006 Change
President and CEO freestanding hospital $446,600 $463,300 3.8%
President and CEO system hospital $339,300 $374,300 10.3%
Chief operating officer $249,000 $274,900 10.4%
Chief medical officer $289,300 $305,600 5.6%
Chief financial officer $203,600 $222,900 9.5%
Chief information officer $207,100 $220,400 6.4%
Health Systems
President and CEO $794,200 $870,800 9.6%
Chief operating officer $525,100 $565,400 7.7%
Chief medical officer $432,200 $453,300 4.9%
Chief financial officer $415,400 $438,100 5.5%
Chief information officer $275,600 $300,000 8.8%

Source: Sullivan, Cotter and Associates' 2006 survey of manager and executive average total cash compensation in hospitals and health systems

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