The Expanding Role of the Compensation Committee

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Rian and Alexander Yaffe co-authored a Monograph for the Center for Healthcare Goverenance focusing on the evolving role of the Compensation Committee.

Historically, CEO compensation often was set by the hospital board chair or a small group of board leaders, with little or no input from the rest of the board. Even as compensation committees started to perform their roles more thoroughly, the full board was not made aware of the committee’s work or results. In recent years, increased regulatory requirements, the revised Internal Revenue Service (IRS) Form 990, media attention and general public scrutiny have focused board attention on executive compensation. The Patient Protection and Affordable Care Act of 2010 (ACA), which links Medicare payments to clinical quality measures and the patient’s overall care experience, has further sharpened the focus on hospital, and therefore executive, performance. These trends and the introduction of performance-based variable pay plans have added goal-setting for and performance evaluation of the organization’s chief executive to the duties of the Compensation Committee. In this context, the role of the board’s Compensation Committee has expanded, in scope and importance, beyond setting top executive salaries. The committee has become responsible for clarifying a health care organization’s strategic goals and aligning their accomplishment with compensation.

Today, the committee’s role continues to expand, as it is being called upon to oversee succession planning and senior executive bench strength development. It now performs virtually all important human resource functions related to the organization’s top executives.

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