July 19 2023

A Breakdown of the Average Healthcare Executive Compensation

Introduction

In today's healthcare landscape, executive compensation is a topic of great interest and scrutiny. Understanding the breakdown of average healthcare executive compensation is crucial to comprehending the complexities of the industry.

Healthcare executives occupy positions of significant responsibility, necessitating a unique skill set and expertise that sets them apart from lower-level roles within the industry. Their roles involve complex and critical decision-making, requiring them to navigate a multitude of challenges and make crucial choices that impact the success and well-being of the organizations they lead.

The level of expertise and experience required of healthcare executives further justifies their higher compensation. These professionals often possess advanced degrees, extensive knowledge of the healthcare system, and a deep understanding of the complexities of managing healthcare organizations. Their years of dedication to their field and hands-on experience contribute to their ability to lead effectively in an ever-evolving industry.

Market forces and external benchmarking play a role in determining executive compensation. Organizations must consider the competitive landscape and industry standards when structuring compensation packages. It is essential to offer attractive incentives to secure top talent and align compensation with market expectations to maintain a competitive edge.

Overview of Compensation Trends

Market forces can have a very significant effect on the compensation of healthcare executives. These forces include supply and demand for talent, industry competition, organization size/type, geographical factors, investor expectations, and external benchmarking. Market forces can fluctuate over time and may be influenced by external factors like industry trends or economic conditions.

Gender Pay Gap in Healthcare Executive Compensation

For many years, the gender pay gap in healthcare leadership roles has been a topic of concern and has been studied by many experts. There are quite a few factors that are influencing the gender pay gap when it comes to the compensation of women healthcare leaders. On average, female physicians in leadership roles earn 87 cents for every dollar earned by their male counterparts. The gender pay gap in clinical roles can vary from specialty to specialty – a specialty that is male-dominated will have a larger pay gap than a specialty that is female-dominated.

Factors contributing to the gender pay gap in healthcare leadership roles include gender bias and discrimination, differences in negotiation skills, career interruption due to caregiving responsibilities, and the underrepresentation of women in high-paying specialties and leadership positions.

The gender pay gap in many organizations can also vary based on factors such as geographical location, organization size, and individual circumstances.

In order to address the gender pay gap, facilities have implemented policies to support work-life balance, promote pay transparency and salary increases, conduct salary equity audits, and provide mentorship and sponsorship programs for women.

Factors Influencing Compensation

Healthcare leaders have a lot of visibility in their roles, and as a result, it’s important for organizations to compensate them properly to reflect improved organizational performance. See below for factors that influence an executive’s compensation.

Organization size and complexity

Performance and financial metrics
Market competitiveness
Executive responsibilities and experience
Regulatory and legal consideration
Board of Directors and compensation committee
Public perception and scrutiny

Trends in Compensation Packages

Health systems are continuing to increase the base salaries of leaders in an effort to attract more talent in today’s competitive market. In 2021, there was an increase of 4.5% in median base salaries, and from 2021 to 2022, there was a total compensation increase of 9.7%. On average, subsidiary hospital executives earn an average base salary of 1% less than health system executives, which appears to be reflective of the demands of health system executives. In addition, median base salaries for healthcare executives increased by 4.5 percent for 2022 compared to 2021.

Generally, there are three types of incentives: short-term, medium-term, and long-term annual incentives. Medium-term incentives are based on how well the company accomplishes its goals, so this is based on company performance rather than individual performance. Long-term incentives, on the other hand, typically come in the form of stock options or performance shares, gaining value over time alongside the company.

Regulatory and Compliance Considerations

As of March 2023, there has been an increased focus on how healthcare executives are compensated in their roles.

Pay Practices for Different Healthcare Executive Roles

There are several factors you should take into consideration when hiring a healthcare executive that can help your organization be successful. See below for a comprehensive list.

Leadership Skills
Industry Knowledge
Clinical Expertise (depending on the role)
Business Acumen
Communication/Relationship-building Skills

Change Management Ethical Compliance
Strategic Thinking
Cultural Competence and Diversity

Physician salaries continue to rise as time goes on and the healthcare shortage continues. Executives continue to see an increase in pay in an attempt to keep them around.

The Medicus Firm’s own Courtney Brown, Senior Executive Consultant, added this in regard to executive compensation.

“Given the current competitive Healthcare landscape, competition for top leaders is greater than ever. While compensation is not the only factor in attracting top talent, it is extremely important that organizations have competitive pay practices. A compensation package that has a mix of components, base, bonus, LTI, with realistic payouts is key to landing the best in the market. Competitive pay practices help not only with attraction, but with engagement and retention.”

Importance of Customized Compensation Strategies

When you’re creating compensation packages for your leaders, it’s important to keep your organization’s needs in mind. This includes your organization’s community footprint, the average number of patients treated annually, financial health/status, and staff size. If your facility isn’t as high-performing as one on the other side of town, for example, you might not need as many staff members, and as a result, you may be able to better financially compensate your executive(s).

Financials at a not-for-profit organization may vary greatly from those at a for-profit organization, and it is important that you consider this when customizing an executive's compensation package. In addition, not-for-profit organizations are operated differently than for-profit organizations. For example, for-profits spend more when it comes to marketing and advertising. Not-for-profits are generally seen as being more community-oriented, as most of the hospital staff are locals. This also means that they tend to provide higher quality healthcare.

At the end of the day, it can be difficult to maintain equity inside of your organization with such external competitiveness. It's important that you are able to balance this to maintain integrity with the staff inside of your organization.

Challenges and Opportunities

One of the most important things to remember when you're trying to maintain your talent is that ultimately, they should come first. If you're interested in keeping them around for a long period of time, it's imperative that you take their comments and concerns into account. One way that you can be sure you're listening to employees is by implementing a DE&I strategy in your health system.

In addition to implementing a DE&I strategy, it's important to acknowledge any pay disparities and income inequalities. A couple of ways that you can go about this are by conducting pay equity audits, implementing pay transparency policies, address any bias or unconscious discrimination, and promote equal opportunities for advancement. All of these solutions can help you properly address any pay disparities that are taking place.

Staying up to date with compensation trends and best practices is crucial for a hospital system's success. This can help improve patient outcomes, drive innovation, and enhance efficiency within your health system. To stay in the loop, you can collaborate with other health systems to share knowledge, engage in benchmarking activities to share metrics, evaluate and measure outcomes, and leverage your access to technology and data.

Comparative Analysis

Salary comparisons between genders and different executive roles can vary based on multiple factors, such as experience, education, location, organization size, and industry sector. Some factors that contribute to the pay gap include leadership positions and specialty and provider roles. Leadership positions show higher pay disparities between genders. Some reasons for disparities in pay include unconscious bias, differences in negotiation skills, and historical gender imbalances in leadership positions.

There are a lot of healthcare implications had by organizations. These implications include quality of care, patient experience, cost efficiency, workforce engagement, and strategic planning and innovation.

The Future of Executive Compensation

While changes will vary from one system to the next, it is expected that in the future, we will see more compensation packages revolving around performance, value-based care, increased retention strategies and succession planning, and a higher number of customized compensation packages to fit executives' preferences.

Healthcare reform will have different effects on different areas of compensation. For example, it will be good for value-based care in hospitals but could compress pay for executives.

Organizations should anticipate a need to adapt to future challenges and opportunities in the healthcare space. As was previously mentioned, this can be done by staying informed on compensation trends and communicating with their staff members.

Conclusion

It is crucial that healthcare organizations recognize the importance of equitable compensation strategies. This can be maintained by keeping an eye on executive compensation survey trends and addressing challenges. A comprehensive compensation strategy can help with attraction, motivation, and retention for top executive talent, which will lead to improved organizational performance and success and improved outcomes for patients.