Compensation and Retention Strategies for Healthcare Executives

To thrive today, healthcare organizations must provide competitive compensation and implement strategies to recruit and retain talented executives. Short- and long-term incentive plans – along with retention arrangements – are increasingly being tied to successfully vying for healthcare’s top talent.

Healthcare organizations compete for the best leadership talent by offering a unique and compelling value proposition that includes a balance of mission served, performance challenges, engagement of diverse stakeholders, and competitive compensation.

It’s essential that these organizations use total rewards strategies to successfully guide the design, administration and governance of their pay and benefit programs. The strategy should be developed and designed to support the organization’s strategy (i.e. incent growth and performance, utilize the financial resources of the organization, etc.) and culture. Top-performing health systems have written strategy statements that are board-approved and shared with existing and potential employees.

Compensation and Retention Strategies for Healthcare Executives

The value of benefits and perquisites make up a smaller percentage of executive total rewards. There are fewer executive benefits (i.e. executive medical insurance, supplemental disability plan, etc.) and many organizations are offering executives the same benefits offered to other employees. Limited executive perquisites are the new norm and any enhanced benefits and/or perks must be justified as having a legitimate business purpose.

Establish a Compensation Strategy for Executive Talent

Compensation is a key element of the total rewards strategy to attract and retain the best leadership, and healthcare systems should develop a compensation framework that includes:

  • Base salary
  • Short-term incentives
  • Long-term incentives
  • Retention incentives

Base Salary

Base salary is fixed compensation that typically does not vary according to performance or organizational results. It pays for experience, knowledge and individual performance. It is common practice to establish and maintain a salary administration program with two objectives: providing base compensation that is competitive with the market, and controlling fixed costs. In addition, the program should ensure that pay is internally equitable when compared to similar positions within the organization.

The majority of organizations target base salaries at the market median, which is the 50th percentile. Likewise, recent surveys and Findley’s industry experience indicates 65% of healthcare organizations target leadership base salaries at the market median. The next most popular target, used by 15% of organizations, is to set the range at the 60th or 65th percentile of market.

In practice, not all salaries will be equal to the target and there are a number of valid reasons why salaries may vary from the target. The salary administration program has pay ranges that allow management and the board flexibility to determine salaries by evaluating factors that include individual experience, market rates, length of service and business needs.

Short-Term Incentives

Top-performing organizations design short-term incentive plans, (also know as annual incentive plans), to award incentives using an objective and disciplined approach. The plan should reinforce the philosophy that executives are connected to organizational results; it should motivate and drive appropriate behaviors and deliver rewards that are in alignment with organizational success and growth.

“Recent research and Findley’s industry experience, indicate formal short-term incentive plans are used in more than 75% of healthcare organizations.”

Compensation and Retention Strategies for Healthcare Executives Guide

Long-Term Incentives

Long-term incentive plans are emerging as important components in compensation strategies for healthcare systems as the plans prove valuable in retaining and recruiting top talent. Based on market studies and Findley’s experience, offering long-term incentive plans varies by the size of the organization, with more than 40% of organizations with net revenue greater than $2 billion featuring long-term incentive plans in their compensation programs.

As organizations look for long-term performance-based compensation solutions, there are a variety of options to consider. One solution that is growing in popularity is a performance-based long-term incentive plan that awards cash at the end of a multi-year performance period based on the achievement of predetermined goals.

“Boards of directors in this pay-for-performance era are seeking alternatives to deliver long-term performance-based compensation.”

Compensation and Retention Strategies for Healthcare Executives Guide

Another approach that is becoming more common is the “performance-based” SERP. This combines the planning and techniques used for defined contribution SERPs, along with the performance measurements of an annual incentive pay plan. This option offers competitive long-term compensation, assuming adequate levels of sustained annual performance.

Long-term incentive plan options vary, too, between for-profit and non-profit healthcare organizations. For-profit healthcare systems are able to include some type of “equity” award in the total compensation package for executives. Executives in the non-profit, tax-exempt healthcare environment lack the opportunity of real “ownership.” Measuring long-term value is even more important with a tax-exempt organization because the “shareholders” are taxpayers and members of the community.

Historically, long-term plans have been merely an accumulation of short-term metrics over a multi-year period. The trend has shifted and long-term or value-focused metrics force a more strategic or visionary view of future guideposts for success. While financial results remain important, organizations are including more measures that focus on growth, market share, community impact, and employer brand.

Retention Incentives

One component that has seen significant growth over the last several years is the implementation of retention compensation. The healthcare industry in particular has been on the forefront due to the recent and expected future consolidation of hospitals and healthcare systems.

Often, retention incentives occur in instances of an anticipated transaction which requires continuity in order to execute transition plans and maintain the ongoing value of the enterprise. It can be essential to ensure that key talent is retained, operating functions are held intact, and relationships are maintained during a significant transition (i.e. pending sale, reorganization or new leadership).

The structure of retention arrangements varies as some organizations may choose to incorporate retention benefits within individual employment agreements, while others create standard agreements or policies for groups of executives.

Learn more about our findings and the solutions to implementing effective and creative strategies to recruit and retain talented executives in the healthcare industry in this guide below:

Compensation and Retention Strategies for Healthcare Executives Guide

Design and Implement an Effective Compensation Strategy

The healthcare industry is going through significant transformation and it is imperative for organizations to have well-designed executive compensation programs with retention strategies to recruit and retain top talent. Designing and implementing effective plans requires:

  • Taking a total rewards and total compensation planning perspective;
  • Aligning the compensation plan design with the mission and strategies of the organization;
  • Creating and maintaining conditions that are favorable to delivering competitive compensation and;
  • Designing retention strategies that align the interests of the executives with the stakeholders.

Questions or need advice on implementing an effective compensation strategy or successful incentive programs at your organization. Please contact Jen Givens or Tom Hurley by filling out the contact form below.

Published May 15, 2020

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Benefits Communications Shouldn’t Stop after Open Enrollment Ends

Open enrollment season is an opportunity to remind your associates about their benefits options and prepare them to maximize their choices for the year ahead. It is a unique opportunity where employees are expecting highly detailed information in a relatively short time span. During this annual event, employees probably read more articles, watch more videos, and hear more presentations about company benefits than they do at any other time.

The most experienced HR professionals would advise teaching and communicating about benefits all year round, not just during the open enrollment window. While that applies to many company messages, it’s particularly important with benefits because of the rapid pace of change and the investment that organizations make in benefits packages. With a broader approach to benefits communications, organizations can keep employees from feeling intimidated or confused when it actually comes time for them to select their benefits each year.

Prepare Targeted Communications

Sending the same message to every employee won’t allow you to create materials that are relevant and meaningful to your audience. It won’t be long until most employees start to tune out your messages. By segmenting communications— using the data that you have after open enrollment is complete— you can make your messages more applicable and valuable. For example, once you know who has enrolled in your High Deductible Health Plan, you can send highly technical pieces with instructions on setting up or accessing a Health Savings Account (HSA). You can also reinforce the tax advantages of the HSA as the deadline for filing tax returns approaches.

HR communicators can get creative in their targeted approach. One client used a lottery ticket communication to help employees who weren’t contributing to the 401(k) plan understand how much money they were leaving on the table. The personalized lottery ticket also showed projections, based on the individual’s salary, of retirement plan account balances in 5, 10, and 20 years if the employee started contributing and received matching contributions. This approach is high touch and requires extensive data testing and sophisticated fulfillment procedures, but the results can be worth it.

Circle Back on Any Outstanding Questions

During a typical open enrollment meeting, some employees will ask detailed personal questions that should be addressed one-on-one. While it’s important to address these questions in a private setting, other employees are disadvantaged by not learning about benefit issues through these scenarios. To solve this problem, document the questions that are raised outside the large group settings and reshape the language to fit a broader audience. For instance, an employee might want to discuss an unpaid claim from her daughter’s college campus clinic. This could easily translate to a broad Q&A about best practices for accessing care while traveling or attending school outside the state.

Publishing a post-enrollment Q&A can also reinforce the message that the HR team is listening. Employees want to be heard and sometimes their questions and ideas can help improve the company’s benefits package or streamline administration. By paying attention to trends that come through employee inquiries, the HR function can better meet the needs of the workforce.

Create Annual Personalized Statements that Promote Value

Most organizations strive to provide competitive pay and benefits through their total compensation program. Yet, the key to maximizing this significant investment is to communicate with employees in a way that gets noticed. This is particularly important if your organization is intensely competing for talent or struggling with turnover. Ensuring employees understand the competitiveness of pay and benefits is critical to retaining top talent.

To help every employee understand the value of their pay and benefits, top organizations provide an annual Total Rewards Statement to all benefits-eligible employees. The goals of a Total Rewards Statement often include that it’s cost-effective; it’s personalized with accurate information; and it’s tailored for the unique programs offered in each part of the organization. Most importantly, the communication must engage employees by helping them understand the competitiveness and value of their total rewards.

Questions? Please contact the Findley consultant you normally work with or Kimberlie England at  kimberlie.england@findley.com or 419.327.4109.

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