The Politics of Pay
Why nonprofit hospitals boards must be prepared to defend their executive compensation
Competition for healthcare executive talent is on the rise. This is evidenced by reports that the average tenure of a hospital CEO is only 5.6 years and that 67% of executives who leave their organizations are recruited away by competing hospitals. As competition escalates, more money is invested in recruitment and rewards packages. Imagine the financial impact this has on non-profit, community hospitals that are competing with large-market facilities for the same professionals. Smaller hospitals are oftentimes more dependent on their leadership for day-to-day operational tasks, which means that the disruption of turnover is particularly detrimental to their success. In other words, they can’t sit on the sidelines. They have to find a way to stay in the game.
Competing under increased scrutiny
One strategy that’s certain to fail is to continuously offer executives more compensation. Beyond the matter of financial constraints, nonprofits must attend to the politics of pay. Today, the financial practices of nonprofit organizations are under more scrutiny than ever. This issue can affect an organization’s community relationships, medical staff alignment, and fundraising efforts. Board members need to be armed with better pay strategies that deliver long-term value while remaining financially sustainable and responsible.
A strategy for finding the balance
We designed our Healthcare Executive Advantage Plan (HEAP) to be one possible strategy for achieving these two imperatives. The program uses financial vehicles to create benefits that incentivize executives to remain with the organization until retirement. Reduced turnover helps organizations avoid the cost of replacing its executives, which can be quite substantial. Some industry experts say the cost of losing a CEO, for example, can be “anywhere between four and eight times the amount of the CEO salary.” To ensure that the program is sustainable, HEAP incorporates a cost-recovery vehicle that allows organizations to recoup a portion of the cost of the program.
By creating these financial advantages, HEAP can help nonprofit organizations hold on to their executives in an increasingly competitive environment without putting them at risk of being criticized for excessive compensation.
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