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While most hospital and health systems are reworking their executive incentive plans, only 16% eliminated bonus payouts entirely this year as COVID-19 roils the healthcare industry and the broader economy. COVID-19 has had varied impacts on providers based on their market, eligibility for relief funding, and structure. The aggregate toll on the industry is significant, drawing scrutiny on rising base salaries or incentive payouts.

Organizations that furlough, lay off, or reduce the pay or incentives for lower-level staff while keeping executive bonus payouts intact, could damage their reputation, executive pay experts said. “In my view, executives should not be receiving bonuses until some actions have been reversed for the broader workforce,” said Ed Steinhoff, a managing director at executive compensation consulting firm Pearl Meyer. “Some will argue that they have worked hard to achieve certain nonfinancial metrics and should award executives, but the optics of doing so are pretty poor.”

If an executive leaves an organization because they aren’t earning a $30,000 bonus this year, that may not be a person the company wants on the team, Steinhoff said.

A lot of hospital board members have called after work hours to discuss how to handle discretionary bonuses, said Steve Sullivan, a managing director at Pearl Meyer. If awards are doled out, they will likely be a fraction of the original target, he said.

“There has to be some sense of equity,” Sullivan said. “If there were a lot of furloughs and the organization isn’t hiring people back now—or from what I hear they are starting to furlough again—it is awfully tough to offer discretionary awards.”

Many of the providers that were cutting executive salaries were typically also furloughing staff, Sullivan said, demonstrating that they are sharing the burden.

Generally, executives seem to be sharing more of the burden via pay cuts than in past recessions, Steinhoff said.

“The healthcare industry has been moving a long time toward more pay being at risk; that may stabilize or plateau I suppose,” Steinhoff said. “COVID-19 makes it nearly impossible to set targets and administer variable pay, so we may see comp committees rely on base salaries and resort to having a discretionary rewards program.”

Looking ahead, providers should still track executives’ and company-wide performance against original incentive thresholds, Sullivan said. A lot of boards still want to offer some type of bonus, albeit a smaller one, and it will be good to have some benchmarks to see how executives and companies rose of to the occasion or fell short, he said.

“Then they can see how well they are doing on patient satisfaction, engagement, safety, clinical quality and other areas to help the committee come up with some type of variable pay,” Sullivan said.

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