In an era of population health and value-based payments, high-performance organizations intentionally develop cultures that celebrate teamwork to not only restore health but to protect and promote health of not just patients but the communities from which the patients come.
The American College of Healthcare Executives believes the board of a hospital or health system should evaluate the performance of its CEO annually using the following principles2:
- If the board determines compensation in association with the formal performance review, then changes in compensation should be based on an independent, fair market value assessment and should take into account the full range of objectives established as part of the review process and not be based solely on financial results.
- As an adjunct to the CEO evaluation process, a board self-evaluation process should be considered. Self-evaluations of the full board and individual members enhance the CEO performance evaluation process by assessing the extent to which board members perceive the board and provide clear expectations and effective guidance and feedback to the CEO throughout the year.
Dial 2: Employment Agreement
- Clearly defines expectations for performance
- Improves executive job security
- Improves employee retention
Dial 3: Performance Criteria
Performance criteria should be based on the factors that matter most to the board, such as:
- Leadership and vision
- Relations with the board
- Management skills and abilities
- Strategic planning
- Quality and patient safety
- Payer relations
- A realistic approach to problem-solving
- Philanthropic fund development
- Community relations
- Medical staff relations
- Fiscal management
- Operations management
- Personal and professional style and persona
Dial 4: Review Process
- Proactive goal setting
- Documented annual review with regular check-ins
- 360 degree feedback
Dial 5: Performance-Based Compensation
Best-in-class organizations establish a board-approved Executive Compensation Philosophy to guide CEO and other executive compensation decisions. High-performance boards work with their CEO, along with the staff support of their CHRO, to establish this philosophy and use it to guide the design and process of linking performance management with performance pay, as well as, to assure CEO development of strategic leadership competencies.
These executive compensation philosophy documents address such questions as determining peer group comparisons and competitive position-to-market, setting amount of pay at risk, outlining fixed verses variable components of reward and recognition, providing levels and standards for executive benefits and perquisites, and considering how to develop future executive capabilities.
The philosophy also clarifies the decision-making role of the board verses management, and outlines the use of outside experts to provide ongoing support, guide decision-making, and assist the board in overseeing these processes.
Factors to Consider in Setting Compensation
- Market position of the organization
- Scope and complexity of organization
- Special qualifications of the incumbent
- Risk or volatility of the position
- Political or community considerations
- Organization design/structure
- Recruitment Challenges
As the Board and CEO continuously look for ways to enhance their relationship, we encourage them to consider these top 10 factors for each to avoid.
TOP 10 BOARD FRUSTRATIONS TO AVOID BY CEO
1. Surprises at board meetings; e.g., a large deal or capital project that is suddenly put on the table.
2. CEOs who give speeches at board meetings that leave little time for quality discussion of future-oriented issues.
3. CEOs who overwhelm the board with management detail or too little information
4. CEOs who treat the board like figureheads, and not as valuable and respected colleagues from whom to invite counsel about strategic directions or community relations.
5. CEOs who don’t seek board counsel until a problem has reached crisis stage.
6. CEOs who are at odds with the physicians too much of the time.
7. Management that gets mired in too much process before acting.
8. Lack of clear performance criteria and difficulty measuring CEO performance.
9. Weak orientation; lack of ongoing education about the complexities of balancing money flows, achieving world class quality in the health sector.
10. Lack of clear expectations of board members and performance assessment
TOP 10 FRUSTRATIONS OF CEOS TO AVOID BY BOARD
1. Board members who don’t show up, show up late, or are unprepared.
2. Waffling on support of difficult and controversial decisions made previously.
3. Trustees who believe that healthcare is “just like any other business” and should be managed to achieve financial results without regard for vision and mission.
4. Board members who have direct or indirect conflicts of interest; boards that expect the CEO to enforce board policies.
5. Board members who get involved in operations decisions or allow senior administrators to communicate directly with them on substantive issues without the CEO’s knowledge.
6. Board members who allow physicians to use social or family relationships to lobby for specific decisions or actions.
7. Failure of the board to select new members who bring needed experience to the board, or whose talents complement (rather than duplicate) those of existing members; failure to select new members who are able to be objective.
8. Board members who are unwilling to devote the time needed to learn about health care as a business, or fail to keep up with changes in health care, financing, and governance.
9. Pressures to work with local vendors that are not competitive on price or service capabilities.
10. Board chair who does not establish priorities, set agendas for meetings, or require committees to complete priority work.
How is your Executive Team addressing these issues as you pursue accountable care and value-based payments?