originally published in the Pearl Meyer Advisor Blog
In February 2020 Pearl Meyer published an article outlining what we felt at that time to be the top five emerging trends related to the compensation committee’s responsibilities in healthcare companies. While the world has changed dramatically in so many ways since that time, several of our trends—discretion, mission-based metrics, and leadership assessment—are just as relevant, if not even more so, today given the significant challenges facing the healthcare industry in the midst of the COVID-19 pandemic.
In our February article we discussed the need for healthcare organization compensation committees to have the flexibility to use discretion in determining appropriate executive incentive payouts in light of industry uncertainties as healthcare systems transitioned from a traditional inpatient, fee-for-service model to one focused on patient outcomes/satisfaction and population health. In this transition context, healthcare boards have been adopting structured and balanced annual and long-term incentive plans to facilitate the recruitment and retention of high performing executive teams and to drive higher levels of financial and nonfinancial performance. The profound impact of the pandemic on the financials of most providers undoubtedly will disqualify their leaders from the opportunity to earn incentives based on financial results, and will require boards to exercise some level of discretion in order to achieve that desired balance between performance-based compensation and executive retention.
As the US economy transitions through the COVID-19 pandemic and businesses start to gradually reopen, direct healthcare delivery will undoubtedly look different, and system performance outcomes will continue to be exceedingly difficult to predict. It is quite likely that healthcare leaders will need to continue to make the types of proactive but difficult decisions observed during the current pandemic such as cutting executive pay and furloughing and laying off significant numbers of employees. At the end of 2020, compensation committees seeking to exercise prudent discretion in identifying appropriate incentive awards in the absence of expected results may well be establishing a hybrid approach for the future.
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