Healthcare Salaries Show Modest Increase in 2012

September 18, 2012 - Healthcare employers report paying modest increases in base salary compensation in 2012, with integrated health systems planning increases of 2.9 percent and hospitals 2.4 percent, according to the 2012 Hay Group Healthcare Compensation Study.

“It’s confirming what we are seeing with clients and trends we have seen over the last several years,” said Jim Otto, senior principal in Hay Group’s healthcare practice in Atlanta. “There’s nothing dramatic, but the story continues.”

Increases in Healthcare Salaries
Jim Otto said 2012 changes in compensation were modest but he expects more change in the years ahead.

For instance in 2011, health systems planned a 3 percent median base salary increase and hospitals a 2.3 percent increase. Chief executive officers experienced the most significant shift downward, with those at not-for-profit health systems receiving a median 3.2 percent increase in base salary, compared with 4 percent in 2011. CEOs at hospitals were at 3 percent in 2012, down from 5 percent in 2011.

Otto reported that base salaries have picked up a little bit for senior executives over the last few years compared to when the country went into the recession, but the increases are still modest compared to five to 10 years ago.

“I think this level of modest increases for normal-course base salaries is fairly standard,” Otto said.

Uncertainty about the economy, the Affordable Care Act, and the upcoming presidential and Congressional elections were factors that led healthcare organizations to approach base salary adjustments with a certain amount of caution in 2012, Otto added.

“However, top-performing employees will always be in high demand,” he said.

Many boards and committees are looking at incentives as a way to increase executive pay if the organization does well and achieves its goals.

CEOs saw a 3.6 percent increase in total cash compensation (base salary plus annual incentives), compared to 3.1 percent in 2011. On the other hand, hospital CEOs only saw a 2.0 percent increase, compared to a 6.0 increase in 2011. Otto attributed this to volatility in the market and how well the organizations performed.

Executive benefits and perquisites are more common in integrated health systems than the general market, with 74 percent of systems offering long-term disability coverage vs. 33 percent of the general market, and executive severance pay offered by 76 percent of systems and 41 percent of the general market.

“Supplemental benefits have not gone away in the tax-exempt healthcare provider world, but when you start to pulling the onion back, you see the things for-profit, publicly traded companies have jettisoned,” Otto said. Those include spousal travel, tax gross-ups for benefits and severance. But benefits similar to those all employees receive--life insurance, disability insurance and retirement--remain strong.

Boards are evaluating whether the benefits are consistent with the organization’s mission and philosophy and whether it makes good business sense, including keeping the provider competitive in attracting and retaining employees.

At the broader employee level, hospitals increased total salaries at an average rate of 2.9 percent in 2012, compared to a 2.5 percent increase in 2011 and 2.4 percent in 2010. Hospital nurses saw a 2.5 percent pay increase in both base salary and total cash in 2012. This is up from a 2.0 percent increase in base salary and total cash in 2011.

“It’s a modest increase on a year-over-year basis, but you see it going north,” Otto said.

Changes in reimbursement and how the organization provides service could affect future increases, he said.

“You are going to see changes in how these systems and hospitals provide their services, which will have to be impacted by what they do with their workforce,” Otto said. “Conversely, you are going to see in these changes new skills people will have to have and will be desirable in the marketplace.”

That could affect pay. People who are extremely good at what they do will become hot commodities, he said. Some of the most desirable skills, at the executive level, include leading through facilitation and influence rather than command and control.

Other people in demand will be chief information officers experienced in implementing electronic medical records (EMR) systems and physicians with leadership abilities who can influence operations, standardize clinical protocols, drive quality improvement and convince the medical staff to embrace upcoming changes.

“It’s part of the recognition that getting your physicians on board with what you are trying to do strategically is critical to succeeding, and that includes both employed and community physicians,” Otto said.

Otto expects healthcare delivery will look different in five years as experiments with payment methods--such as value-based purchasing, accountable care organizations and other initiatives--get underway.

“Being just a bricks and mortar service provider for acute-care services is a little niche over the next several years,” Otto said. “You see healthcare systems spending time [figuring out] how to play in a space that will encompass the patient at home, in the outpatient setting, acute care, rehabilitation, long-term care, hospice.”

Jobs will change, particularly as major provisions of the Affordable Care Act come into effect in 2014 and play out for five years, he said, adding, “That will eventually shake out in surveys like this as to the type of jobs and how much they are paid.”