Hospitals in certain Mid-Atlantic/New England states had especially high rates of executive compensation compared to average worker wage. In Connecticut and Maryland, CEOs made 13 times the average hourly worker’s wage, while in Delaware, New York, and New Jersey, CEOs made 12, 11, and 10 times average hourly wages, respectively. By comparison, hospitals in some Midwestern and Great Plains states had much lower rates. In Idaho, Mississippi, and North Dakota, CEOs made about five times the average hourly worker’s wage. Hospitals in Nebraska, South Dakota, Wyoming, Kentucky, Washington State, and Arkansas also had average ratios below six.

The History Of Hospital CEO Compensation

Although COVID-19 brought hospital finances and pay scales to greater public awareness, the rise of nonprofit hospital CEO pay has been decades in the making. Hospital revenue began to climb in the 1960s with the advent of Medicare and increasing insurance coverage. With increased revenue came a shift in attitude that helped transform many hospitals from community-focused nonprofits into big businesses. Hospitals began hiring more administrative staff, restructured their boards to include more leaders from the corporate sector, and even changed their mission statements to reflect the increasing importance of financial considerations.

Naturally, the new corporate members of hospital boards brought their values and experience from the for-profit world into the governance culture of the hospital. Today, hospital boards compare the compensation of their CEOs not to other community-based nonprofits but to their for-profit publicly traded hospital CEO peers, who themselves are compared to leaders in the largest industrial and financial companies trading on Wall Street. Since many boards set CEO salaries by obtaining “comparable” salary data, this becomes an ever-spiraling upward cycle.

As hospital policies and culture have become more aligned with big businesses, hospital executive compensation has swelled, mirroring the climb in CEO wages across all of corporate America that began in the late 1970s and continued despite the Great Recession that began in 2008. According to the Economic Policy Institute, the average realized compensation of US CEOs, adjusted for inflation, grew by 105.0 percent from 2009 to 2019, while typical worker compensation increased by just 7.6 percent. Similarly, from 2005 to 2015, the average compensation of major nonprofit hospital CEOs rose by 93 percent, from $1.6 million to $3.1 million, while average hospital worker wages increased by a mere 8 percent in that decade.

How Should We Pay Hospital CEOs?

Our collective experience with the COVID-19 pandemic has provided an opportunity for the public, hospital boards, policymakers, and regulators to reflect on recent trends in hospital compensation and to rethink how we should pay nonprofit hospital CEOs. Hospital boards in particular, as the final arbiters of CEO pay, should consider the following questions:

• What should be the fundamental basis for CEO pay: size and complexity of the organization; organizational revenue; patient outcomes; community health; comparisons to for-profit corporate CEO pay?
• How should complexity or the degree of difficulty of the job be measured?
• Is there a maximum acceptable level of compensation? If bonuses are offered, what should they be based on?
• Should there be a norm established regarding the most equitable multiplier between CEO pay and general employee pay? Should there be a maximum?
• Should CEO pay and total compensation be reported and transparent for all individual hospitals as well as hospital systems?
• How much CEO pay is enough to ensure that hospitals are able to recruit effective leaders without further inflating the cost of health care, which is borne by all of us, or increasing wage disparities that harm communities?
• Revenue certainly places limits on what a hospital can pay. But when revenue is large, how much more should CEOs be rewarded for enhancing it further?

Our opinion is that as institutions dedicated to the public good and the health of their local communities, nonprofit hospitals should be measured by the value they create—both business value and social value. It is clear that size alone does not equal value. In the real world, a CEO of a 1,000-bed hospital is compensated more because more dollars are flowing through the institution, not because the job is that much harder than that of a CEO of a 500-bed hospital. They are rarely if ever compensated on the basis of their stewardship of the community’s health.

As a society, we need to develop a set of factors that gives CEOs incentives to fulfill the hospital’s social mission. For example, CEOs could be rewarded for improving clinical outcomes, patient safety, and racial health disparities. They could be rewarded for being good stewards of public monies by improving cost efficiency. The complexity of the job should also be considered, not only based on the size of the hospital or system but also the hospital’s patient mix and a financial cushion. Currently, hospitals with a wealthier and well-insured patient mix tend to pay their executives the most, although arguably hospitals that care for more publicly insured or uninsured patients and have chronically thin margins require more skill to manage successfully.

It’s time for a public discussion of these issues. In creating our pay equity metric, we sought to create a platform for this much-needed conversation. We hope it is the start of a long process that will engage all stakeholders in discussing the importance of aligning incentives to create real value in US health care.