Executive compensation packages are often complex because they reflect much more than just a person’s salary. Many of these packages include performance bonuses, deferred compensation, retention awards, long-term incentives, severance rights and restrictive covenant obligations.
In hospitals and other healthcare organizations, these arrangements are often shaped by many factors. Some of these include regulatory concerns, tax rules, business goals and board oversight. Individuals who are reviewing an executive compensation package in the healthcare industry should consider these important factors.
David Nacht has been negotiating contracts for health care executives, physicians and midlevel professionals for 30 years.
Compensation structure in administrative healthcare packages
For healthcare leaders, compensation terms can affect financial security, as well as career mobility. In some cases, packages that appear competitive on the surface may include conditions that limit payment, create a repayment risk or delay vesting if employment doesn’t last beyond a specific date.
Many healthcare organizations tie executive pay to specific criteria, including compliance measures, quality metrics, patient access, growth goals, financial performance and leadership milestones. While these can be useful, they should be stated clearly so both parties have a full understanding of how performance will be measured and when compensation will be earned.
Another consideration to review is deferred compensation. Payment timing, forfeiture provisions and tax treatment can all affect the actual value of this benefit. It’s also critical to check the severance provisions to determine how being terminated with cause or without cause, resignation, retirement and nonrenewal impact the provisions.
Restrictive covenants are also a consideration because they can negatively impact future career moves. These include things like confidentiality, noncompete and no disparagement clauses.
Clawback provisions allow healthcare organizations to recover bonuses or incentives if there are issues that are found out after the payment is made. These provisions are common, but they shouldn’t be overly broad.
Healthcare executive compensation packages are typically negotiated in a highly regulated setting. Having the agreed-upon terms clearly stated in the contract benefits both the medical organization and the executive. It may be beneficial for the executive to have someone on their side who can review the contract and determine if the terms are legally stated.