How Should We Handle Board Compensation?

Should hospital and health system trustees be compensated? Increasingly, organizations are asking this question as they recruit candidates with specific areas of expertise to address the complex financial and quality challenges that they face.

New Challenges, New Needs

The Affordable Care Act has changed the field’s thinking about the delivery of care and how it’s paid for. Providers know all too well that only top-performing organizations will have any advantage in the ACA era, as new benchmarks will determine public and private insurance rates, and outcome-driven performance will drive patient and payer preferences.

At forward-thinking hospitals, board appointments aren’t made to reward service or support, or to recognize local prestige. Instead, trustees with governance and health care expertise are recruited to guide organizations in meeting quality and cost targets. Hospitals also are seeking trustees with experience in risk management, insurance, philanthropy, architecture, information technology and supply chain. But because such candidates can be in short supply in many communities, hospitals are looking past city limits and even nationally for the necessary expertise, particularly in clinical and operational areas.

In our work, several organizations have recruited nurse executives to join their boards to enhance trustees’ expertise in care delivery and performance measurement. An organization recruited a physician with significant managed care experience to assist with the shift to population health management. Another organization added a human resources executive to help build a proper leadership succession plan. These carefully selected board members all have one thing in common: They were recruited nationally, not locally.

Rewarding Dedication

As hospitals begin to plan the transition from fee-for-service to value-based care, they need board members who are willing to tackle extremely complex problems and invest significant amounts of time. And to reward board members who make that commitment, some organizations have begun compensating trustees. According to Mercer’s Executive Compensation Policies and Practices Survey for Tax-Exempt Health Care Organizations, 25 percent of provider, health plan and managed care organization respondents reported paying their board members, and another 7 percent are considering doing so.

Some organizations reward board members with an annual stipend, while others are paid per meeting or based on workload or committee participation. The evidence is clear that compensation packages are important for recruiting and retaining qualified candidates whose expertise is sought by other institutions. Regardless of the payment structure, hospitals that decide to compensate their boards should brace themselves for scrutiny from their communities.

In the fiercely competitive landscape in which hospitals operate, bringing highly qualified, dedicated professionals to the boardroom is a must. Whether that calls for compensation is a conversation worth having. 

Thomas P. Flannery, Ph.D. (tom.flannery@mercer.com), and Deb Bilak (deb.bilak@mercer.com) are partners in Mercer’s talent business, Boston.