Executive compensation in health care

Abstract

BACKGROUND: Despite continued scrutiny over executive earnings in the health care industry, the evidence for executive pay determinants is uncertain and inconclusive. Theoretical motivations for executive compensation practices have been debated, and questions remain about the explanatory power of previously applied theoretical models. PURPOSES: Our systematic review considered evidence of executive compensation determinants among health care organizations and sought to identify factors affecting executive pay that are commonly supported by previous studies. We also aimed to survey the theoretical perspectives employed in health care executive compensation studies to address how organization theory may explain executive remuneration practices at health care organizations. METHODOLOGY/APPROACH: Twenty-one eligible studies were identified after a search of the MEDLINE/PubMed and CINAHL electronic reference databases and the reference lists of relevant studies. Eligible studies included those examining health care organizations and providing empirical, regression-based outcomes regarding the determinants of executive compensation. Each eligible study was coded to identify pertinent information, including study settings, executive compensation measures, executive compensation determinants and their measures (e.g., financial performance measured as profit margin), outcomes (direction and level of statistical significance of regression model coefficients), and theoretical applications. FINDINGS: Studies are mixed in their findings regarding the statistical significance of various determinants of executive compensation. Many studies indicate that, in addition to firm financial performance, other factors may influence health care executive compensation, including organizational size and human capital attributes. Agency theory was the predominant framework applied, yet the findings suggest a complementary theoretical perspective may better explain health care executive compensation. PRACTICE IMPLICATIONS: To address critics who assert health care executive compensation levels are not consistent with organizational performance, health care organization CEOs, board members, and consultants would benefit to carefully consider and effectively communicate the numerous factors influencing executive compensation beyond firm financial performance.

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