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CEO compensation and hospital financial performance
Kristin L Reiter1, Guillermo A Sandoval, Adalsteinn D Brown
1University of North Carolina at Chapel Hill, NC 27599-7411, USA. reiter@email.unc.edu
Medical Care Research and Review : MCRR
|July 17, 2009
Summary
Chief executive officer (CEO) compensation in Ontario hospitals showed little link to financial performance. Salaries increased over time regardless of hospital financial health, suggesting a disconnect in pay-for-performance incentives.
Area of Science:
- Health Services Management
- Organizational Economics
- Healthcare Finance
Background:
- Rising interest in pay-for-performance models within the healthcare sector.
- Questions surrounding the relationship between executive compensation and organizational financial outcomes.
- Need to examine CEO compensation practices in nonprofit hospitals.
Purpose of the Study:
- To investigate the association between chief executive officer (CEO) compensation and hospital financial performance.
- To analyze CEO pay trends in relation to financial metrics in Ontario's nonprofit hospitals.
- To test the assumption of a performance-compensation link in healthcare leadership.
Main Methods:
- Analysis of unbalanced panel data from 132 CEOs across 92 nonprofit hospitals in Ontario, Canada (1999-2006).
- Utilized fixed effects regression to examine the relationship between CEO compensation and financial performance indicators.
- Compared CEO salaries to three key hospital financial performance measures.
Main Results:
- CEO compensation demonstrated a weak correlation with hospital financial performance.
- Inflation-adjusted CEO salaries showed an upward trend independent of financial performance.
- Hospital size was positively associated with CEO compensation levels.
Conclusions:
- The study challenges the presumed link between financial performance and CEO compensation in Ontario's nonprofit hospitals.
- CEO compensation appears to be largely decoupled from financial outcomes, contrary to pay-for-performance principles.
- Further research is recommended to explore long-term incentive structures and their impact on CEO pay.
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