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Economic value added--a framework for health care executive compensation
1Hospital and Health Services Administration Program, Ohio State University, Columbus 43210.
Hospital & Health Services Administration
|July 1, 1993
Summary
This study introduces the economic value added (EVA) framework to determine health care executive compensation. EVA links executive pay to the economic value they create, offering a performance-based supplement to traditional methods.
Area of Science:
- Health Services Management
- Healthcare Economics
- Organizational Behavior
Background:
- Healthcare executive compensation faces scrutiny due to cost containment efforts and negative corporate compensation press.
- Traditional methods for determining healthcare executive pay often rely on speculation or comparative data.
- Existing compensation structures may not adequately reflect the value generated by executives.
Purpose of the Study:
- To propose a sound economic framework for determining and evaluating healthcare executive compensation.
- To supplement traditional compensation bases in voluntary and investor-owned hospitals.
- To align executive compensation with the economic value created for the organization.
Main Methods:
- Introduction of the Economic Value Added (EVA) framework.
- Application of EVA as a measure of both organizational value and performance.
- Utilizing EVA to establish a basis for annual executive incentive compensation.
Main Results:
- The EVA framework provides a performance-based approach to executive compensation.
- EVA quantifies the economic value generated by healthcare executives.
- This framework can supplement traditional compensation models used by hospital boards.
Conclusions:
- Healthcare executive compensation should be partly based on the economic value executives create.
- The EVA framework offers a robust and objective method for assessing executive performance and compensation.
- Implementing EVA can lead to more equitable and performance-driven executive pay in hospitals.
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