Three Critical Factors to Consider When Crafting Competitive Leadership Compensation Plans

Three Critical Factors to Consider When Crafting Competitive Leadership Compensation Plans
Rebecca Kapphahn
February 04, 2020 02:08 AM (GMT-04:00)
Thought Leadership

By: Rebecca Kapphahn

Part one of the 3-Part Series: Optimizing Key Operational Practices of Medical Group Practices

One of the more perplexing aspects of medical group practice management is determining appropriate compensation plans for recruitment. The fact is, in today’s healthcare labor market, the already-complex task of determining compensation packages has become even more so given the shift from volume to value, competition for talent, and market nuances.

Yet, many organizations continue to rely solely on a single set of national data or criteria to determine a compensation package for medical group leadership roles. While consulting published compensation guidelines is a valuable standard practice, the data alone doesn’t take into account the many complex factors that influence compensation levels of healthcare leaders in today’s market – including local or regional market variables, clinician or non-clinician recruitment, supply and demand, or position scope.

These factors, among others, mean not all medical groups can afford to pay at the median level. Furthermore, practices grappling with their executive compensation plans often face more challenges with recruitment and retention.

To help medical groups determine a compensation plan that is attractive to the right leadership talent, but not beyond the realistic means of the practice and/or market, consider these three factors when setting your next compensation offer:

Local/Regional Market Supply and Demand

Most medical groups are facing greater competition in recruiting leadership talent as more candidates are opting for hospitals or hospital-owned practices. In fact, the percentage of medical professionals doing so rose from 58% in 2017 to 64% in 2018. However, beyond the national supply and demand challenges, where your medical practice is located can be a key factor in what a competitive compensation offer may look like for candidates.

For example, in metro areas such as Boston or San Francisco, the demand for clinical leadership is high and the competition is tight; however, the supply of talent is in your favor. If your facility is located in one of the more than 7,200 designated Health Professional Shortage Areas, the supply of clinical leaders is significantly smaller compared to an urban setting. This means you need to consider either allocating more budget to base salaries or getting creative with sign-on or retention bonuses, equity ownership opportunities, or production and quality-based incentives.

Finally, consider the cost of living for the geographic region where the services are delivered. Unlike clinical services, where the impact of the cost of living may not be apparent due to the impact of the payer mix, leadership compensation is more heavily influenced by cost of living.

Physician or Non-Physician Leader?

While less mature practices may find they need a physician leader who can more directly drive the operation, perform clinical services and recruit other physicians on board, more mature practices may require a non-physician leader to handle more administrative duties, report to the board of directors, or serve in an advisory capacity more than a clinical capacity.

Recruiting for each of these types of candidates can look vastly different, as will their compensation packages. There is a general increase in demand for physician leadership in today’s labor market, so competition is high. You can expect to generally have higher compensation packages when recruiting for a physician leader, particularly for those who have earned a post-graduate degree in applicable management or business areas.

Scope and Substance of Responsibilities

In general, executives positioned to influence the performance of a diverse group of stakeholders, or to drive outcomes from multiple enterprises in a system, should have higher compensation potential. The compensation is less about the specific title and more about the scope of responsibility the executive is willing to assume. Responsibilities that are more complex and broader are generally more highly compensated, as are positions within larger practices.

The scope of responsibilities will also determine the earning power of executives. For example, if the executive position requires generating market growth and clinical outcomes, the “reward” should be higher. The same holds true for physician leaders willing to risk a significant part of his or her total compensation on meeting specific outcomes and goals.

Case Study: Landing the Right Leader with the Right Compensation

Working with clients to recruit top leadership talent to their medical group, we’ve seen how truly competitive compensation packages – and smart negotiation – make the difference in engaging the best candidate for the job.

Cejka Search recently completed a search engagement for a medium-sized physician group, replacing a long-standing Chief Executive Officer. This was a time of transition for the group, which made it the ideal time to truly reassess goals for the future and the added skill sets that would be required in the new CEO to achieve those goals. The outcome of this assessment indicated that the right candidate would need to possess a number of additional leadership competencies – for example, more refined change management skills, experience with risk-based contracting, and strategic planning related to value-based care and the changing dynamics of the healthcare industry.

Once those needs were defined, we were able to deliver an exceptional candidate, and at the same time – looking at all critical factors, including the higher-level skills and experience – advise on a compensation package that was truly competitive and ultimately led the candidate to accept the position. Were the medical group leadership not open to considering multiple factors in the creation of the compensation package, there’s a good chance they would not have been able to recruit the leader that they truly needed.

Build Effective Compensation Plans and They Will Come.

If your practice continues to face difficulties in recruiting and securing qualified leadership talent, it may be time to revisit your compensation plans. Cejka Search has helped hundreds of medical groups craft compensation packages that are aligned with candidate expectations and the objectives of the practice. To learn more, contact us today.

For more advice from Rebecca Kapphahn, a thought leader on best practices in healthcare executive search, follow her on LinkedIn.

Bookmark and Share