How incentive-based pay drove a 20% pay bump for health care association CEOs

20 association heads now make at least $1 million

CEOs of health care associations saw their total pay grow by nearly 20% in 2013 compared with the previous year as more organizations turned to incentive-based compensation models, according to an analysis by Modern Healthcare.

Modern Healthcare collected salary data using the associations' IRS filings. Overall, the compensation for CEOs of health care associations increased 18.9%, while median earnings for executives who earned at least $1 million climbed 8.5%.

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The number of CEOs who made between $1 million and $5 million also increased to 20 from 17 in 2012. Scott Serota of the Blue Cross and Blue Shield Association was the highest paid CEO, earning more than $5.7 million in 2013.

Incentive-based compensation gaining favor

Bonuses often made up a large portion of increases in compensation. For instance, Serota's total compensation grew 9% between 2012 and 2013, driven in part by a 7.6% increase in his bonus and incentive pay.

Mark Graham, managing director at CEO Update, says incentive-based compensation is becoming more popular among not-for-profit organizations for two reasons: Many board members come from the corporate world—where such compensation is typical—and organizations are more comfortable increasing pay when it is tied to performance.

'Recession proof'

Some of the growth in executive compensation may be attributable to a stronger economy. But Graham notes that CEO pay continues to climb during tough economic times, just at a slower rate. "An organization can't go without a CEO," Graham says. "They are recession-proof."

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David Yermack, a professor of finance at New York University, says CEOs who are effective lobbyists can be particularly valuable in highly regulated markets like health care. Yermack expects average CEO pay to continue to increase going forward.

Not all CEOs of health care associations saw pay increases in 2013. For instance, Richard Umbdenstock, outgoing CEO of the American Hospital Association (AHA), earned $1.9 million in 2013—a 33.1% drop compared with the prior year. However, AHA spokesperson Marie Watteau says the drop reflected accrued retirement and other benefits Umbdenstock earned in 2012 (Sandler, Modern Healthcare, 6/6 [subscription required]).

The takeaway: Chief executives of health care associations saw their total compensation grow 18.9% between 2012 and 2013, according an analysis by Modern Healthcare.

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