Despite operating losses, that didn't stop some chief executives from receiving nearly $1.4 million in annual bonus and incentive pay in 2022. This matches a national trend of nonprofits opting to provide incentive compensation even when financial performance fell short of targets, consultants say.
Nonprofit filings lump together bonuses and incentive pay, even though consultants say they're distinct. A bonus might be awarded for retention, they say, whereas overall pay packages assume a salary plus an incentive payment that varies with performance.
Across the country, health systems have drawn different conclusions on whether financial triggers with incentive pay should be suspended given the industry's challenges, consultants said. In some cases, consultants say boards have recoiled at the optics of paying incentives if workers aren't getting raises, or financial results are weak enough to upset bondholders.
But Alexander Yaffe, a managing director with Pearl Meyer, a compensation and leadership consulting firm, said he thinks boards have been right to provide incentives. These boards are saying, "We need to make money; we don't want to pay compensation out of red ink. But we don't exist to make money as a tax-exempt health care organization. If we have improved access and we have improved quality... [that] should be recognized."
While some boards have recoiled at the optics of paying incentives to healthcare executives if workers aren't getting raises, boards have done the right thing by saying, “‘We need to make money and we don't want to pay compensation out of red ink. If we have improved access and we have improved quality... [that] should be recognized,’” said Alexander Yaffe, managing director.