SullivanCotter Research: Health Care Executive Pay Increases and Incentive Design Reflect Increasingly Competitive Talent Market

Barchart · 10/17 08:07

SullivanCotter, the nation’s leading independent consulting firm in the assessment and development of total rewards programs, workforce solutions, and data products for health care and not-for-profits, has released the results from its 2024 Health Care Management and Executive Compensation Survey. This includes data from nearly 3,300 organizations representing more than 45,000 incumbent managers and executives – making it one of the industry’s most comprehensive compensation benchmarking resources for this workforce.

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Base Salaries

The report details year-over-year changes in median base salaries – including across-the-board, merit, and market adjustments – for health care leaders. This year’s 4.6% increase for all executives is on par with the 4.4% growth seen in 2023. As has been the case for the past several years due to the increasing complexity of operations, organization size, and scope of responsibility, median increases for executives at the system level (5.2%) continue to outpace those for executives at subsidiary hospitals (3.5%).

“The industry is experiencing a critical gap in expertise as operations grow more complex and leaders retire or continue to step away. The pool of qualified executive talent is increasingly limited, and this is placing upward pressure on total compensation – particularly via higher base salaries,” said Bruce Greenblatt, Executive Workforce Practice Leader, SullivanCotter.

Health system positions with median base salary increases of 5.0% or greater tend to be those focusing on business strategy, information technology and security, integration, care delivery excellence and legal/regulatory compliance:

  • Top Leadership Roles: Chief Executive Officer, Chief Administrative Officer
  • Information/Digital Technology and Strategy Roles: Top Information Security Executive, Chief Strategy Officer, Top Population Health Executive, Top Managed Care Executive
  • Business/Operating Roles: Top Professional Services Executive, Top Quality Executive (Non-MD)
  • Regulatory/Compliance Roles: Top Legal Services Executive, Top Compliance Executive, Top Internal Audit Executive

Despite some improvements in operating margin performance, health systems continue to confront several challenges. Pressures such as ever-increasing labor costs combined with a tight market for talent, high inflation, and threats to cybersecurity are ongoing. The demand for skilled executive talent remains high given the complexity of managing care in the current climate, and the heightened scrutiny and regulatory activity surrounding executive compensation is affecting how compensation committees achieve balance across financial, operational and talent risks.

Incentive Awards

Incentive awards were greater for 2023 performance as compared with 2022, reflecting an overall improvement in the operating environment. As a result, total cash compensation (TCC, equal to base salary + annual incentives) increased at a higher rate than base salaries in 2024. Median TCC for system-level executives increased by 8.3% while their base salaries rose by 5.2%. This trend is the same for subsidiary hospital executives as incentive awards were achieved at or near target levels.

Median annual incentive payouts for 2023 performance were closer to target than those provided for 2022 performance, when they were moderately below target. Given that there were no shifts in annual incentive plan prevalence or award opportunity levels, year-over-year changes in TCC can be attributed to higher levels of performance.

“Although performance is improving year-over-year and payouts approximate target, we still saw about half of organizations change their annual incentive plans for the 2024 fiscal year. This included a refined approach to goal calibration and increased weighting of financial and system-wide performance metrics – highlighting the need to focus on financial sustainability, integration, and refined care delivery models to move forward in a post-COVID environment,” said Tom Pavlik, Managing Principal, SullivanCotter.

Planning for 2025 and Beyond

While cautiously optimistic, each organization is managing circumstances unique to their region, market segment, operating model and current stage of post-pandemic recovery. Health systems and their boards should consider the following as they weigh future actions:

  • Prepare for a competitive talent market by anticipating the need to provide more robust compensation offers for external recruits and market adjustments to current leaders who are critical and in demand.
  • Review and update executive compensation programs to meet evolving needs by differentiating competitive pay positioning based on role criticality, impact, and performance and ensuring peer groups represent the most relevant talent markets (even those outside of health care). For incentive compensation, it’s important to assess these plans in the context of the organization’s near and long-term strategy when setting performance metrics and objectives to ensure ongoing effectiveness.
  • Prioritize the talent strategy by defining a clear process for assessing and developing leadership and ensuring that action plans (including compensation adjustments where needed) are in place to retain high-risk executives.
  • Optimize the leadership structure and career architecture by evaluating headcount, distribution, span of control, and more to enhance overall efficiency. Refining executive job titles and leveling guidelines enables organizations to align leadership positions with the appropriate rewards structure, performance management programs, and career progression pathways.

About SullivanCotter

SullivanCotter partners with health care and other not-for-profit organizations to understand what drives performance and improves outcomes through the development and implementation of integrated workforce strategies. Using our time-tested methodologies and industry-leading research and information, we provide data-driven insights, expertise, and data products to help organizations align business strategy and performance objectives – enabling our clients to deliver on their mission, vision, and values.

For more information on SullivanCotter’s surveys, please visit our website at www.sullivancotter.com or contact us via email or by phone at 888.739.7039.

Note to media: Additional data and interviews are available on request.