Healthcare executive compensation is rising amid a race for scarce talent as the nonprofit health care sector — which includes giants such as Kaiser Permanente, CommonSpirit Health and the Mayo Clinic — experiences massive turnover and financial troubles due to the global health crisis.
Organizations are finding new and innovative ways to attract talent, including providing mental health support and housing for top talent in an industry that has been under pressure since the onset of the Covid-19 pandemic. Boards in the hard-hit industry are keeping a close eye on talent trends as a new normal for recruitment and retention emerges.
Executives at nonprofit healthcare organizations got a 4.5% median base pay increase this year, according to an August study by SullivanCotter, a consulting company that specializes in compensation in the healthcare industry. The figure is an improvement from historically low salary increases in 2021, when many organizations opted to freeze executive compensation or offer very modest hikes due to the pandemic, which pummeled the healthcare system and has caused over 1 million U.S. casualties.
Healthcare leaders got a 9.7%-plus median total cash compensation increase when their yearly incentives were taken into consideration.
The overall upward movement in compensation is being driven by a healthcare market in flux, with executive talent citing burnout and retiring while others are looking for new challenges, say experts such as Bruce Greenblatt, a managing director at SullivanCotter. This year’s healthcare management and executive compensation survey looked at more than 3,000 organizations and more than 42,300 executives and managers.
“For executives over the last two years, the pandemic has meant an extraordinary amount of stress and created a need for executives to operate in a very volatile and uncertain environment,” said Greenblatt. “So that has resulted in a tremendous pressure on executives as well as the broader workforce. A number of individuals have left with accelerated retirements, and some have opted to go into other industries. At the same time, the health care industry continues to face extraordinary complexity and challenges.”
Healthcare executive compensation has risen at a modest pace this year compared with executive pay in other sectors, such as the life sciences, energy or technology. Some investors have voiced their discontent with skyrocketing CEO pay driven by large bonuses among S&P 500 companies, as previously reported by Agenda. Investors have become sensitive to matters regarding how much pay executives received at a time when the broader economy and many people were suffering due to the pandemic.
Executives in the larger life science sector have gained the most, according to Michael Klingler, a partner in the Healthcare & Life Sciences practice of the executive search firm Acertitude.
Executive compensation has increased considerably in the pharmaceutical and biotechnology sectors as organizations grapple with a pandemic combined with a talent shortage. Those that succeeded because of Covid-19 have attracted many of the best executives and specialists in the market, leaving others to increase bonus and equity to compete.Michael Klingler
Meanwhile, in the nonprofit healthcare sector, executives took home smaller increases as a percentage of overall pay compared with frontline healthcare workers, as organizations attempted to reward and retain staff who bore the brunt of the pain from the pandemic.
Many clinical workers received a 5% or higher base pay increase. Meanwhile, registered nurses received a more than 8% pay hike, according to data from SullivanCotter.
Healthcare executives received more modest pay hikes because health care organizations are operating in a tough business climate fueled by the effects of the pandemic and an unwinding of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The events have left healthcare organizations strapped for cash, short-staffed and struggling to provide the range of services readily available before the pandemic, according to Paul Bohne, a managing partner and healthcare practice leader at the consultancy WittKieffer.
Data from more than 900 hospitals in the country shows a grim picture of healthcare system finances, according to the strategic financial planning consultancy Kaufman Hall. “Hospital margins declined dramatically as many providers temporarily halted nonurgent procedures, the numbers of inpatients requiring longer hospital stays rose, and expenses continued to climb due to widespread staffing and supply chain issues,” reads the firm's report.
Additionally, the Health Management Academy, an umbrella organization of healthcare systems, which includes about 150 organizations with over $2 billion in total operating revenue, released its survey of the top concerns among chief financial officers in the industry. Most (75%) said they plan to tighten their budget this year to take control of runaway costs, compared with 27% of CFOs who voiced similar concerns in 2021. Moreover, 94% of healthcare CFOs said rising labor costs were driving tight operating budgets.
“The level of cost pressures not-for-profit health systems are experiencing is absolutely unprecedented,” said Bohne. “The unexpected cost from a workforce standpoint, the strains on staffing capacities and having to curb elective procedures, all of those factors are creating some moderation of executive compensation increases.”
The bump in salaries for healthcare executives is barely enough to cover rising inflation, so healthcare systems are looking at other benefits, such as providing wellness support to executives to help alleviate stress and providing a housing stipend or purchasing housing for top executives who are relocating just as housing prices have hit record highs in some metropolitan areas, according to Chicago-based Thomas Giella, chairman of healthcare services at executive search firm Korn Ferry. In recent months he has increasingly advised clients to offer housing to new executives.
“To relocate to some of these markets has just gotten crazy expensive in terms of living there,” said Giella. “So [healthcare systems sometimes offer] some sort of housing stipend, sometimes the health system buys property, and the person can live there. They pay a fair market value, and maybe over time they can buy it from the hospital. They’re trying to get creative in ways to get executives to these communities because you can’t afford to live there. It makes it really tough to recruit people.”
Overall, the U.S. healthcare system has a staffing crisis that is threatening the sector's ability to deliver cost-competitive, timely, quality care to Americans in the coming years, according to experts. In the past, the health care sector pursued several avenues to find workers, such as trying to attract foreign medical professionals, but the pandemic has put pressure on the pipeline for medical staff across the globe. Americans may have to make a decision in the near future in order to reap the benefits of a functioning system that is also price-competitive, said Giella, who has been with Korn Ferry for over three decades.
“There are four basic things: We want high-quality care, we want to have our choice of procedures, we want to have procedures done in a timely fashion, and we don’t want to pay much for it. But you really can’t do all four,” said Giella. “You’ve got some other systems in Europe or Canada where they have high-quality care. They may not have the choice, they may not get their procedure instantly, but it’s free or low-cost. We’re Americans, we want it now, but the system can’t do it all. So, there’s got to be some sacrifices and some bending where we either sacrifice on choice or timing, because the prices are continuing to go up.”
Copyright 2022, Money-Media Inc. All rights reserved. Redistributed with permission. Unauthorized copying or redistribution prohibited by law.
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