Economic value added--a framework for health care executive compensation

Health care executive compensation has come under recent scrutiny, partly because of efforts to contain health care costs in general and partly because of negative press given to executive compensation in the corporate world. This article extends beyond speculating what the basis of health care executive compensation should be and beyond presenting comparative compensation data often used to support compensation levels. It presents a sound economic framework on which executive compensation may be determined and evaluated--a framework to be used to supplement traditional bases of executive compensation in voluntary and investor-owned hospitals. The economic value added (EVA) framework is built on the premise that levels of health care executive compensation should at least in part be based on the economic value that the executives themselves create for the organization. EVA is both a measure of value and measure of performance and offers a base for annual executive incentive compensation in addition to those traditionally used by hospital boards.