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Description

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.

Having the right people in place, seeing to their development and aligning their compensation with strategic goals are central to mission success. Ensuring that the organization advances strategically requires not only effective compensation programs, goal setting and performance evaluation, but also the development of a pipeline of key talent to provide bench strength and mitigate disruptive transitions.

Thus, the Compensation Committee has become the center of three critical board responsibilities: executive compensation, goal-setting and performance evaluation, and succession planning. This monograph discusses each of these functions, describes related best practices and provides examples and tools to help tax-exempt hospital boards effectively fulfill these important responsibilities.

About the Authors:
Rian M. Yaffe
is CEO and chairman and Alexander C. Yaffe is president of Yaffe & Company, which provides non-profit boards and Compensation Committees with independent advice regarding regulatory compliance, governance and other critical board responsibilities, including: executive compensation and contracts, goal-setting and performance evaluation, succession planning, leadership development and CEO transition. Yaffe & Company combines the technical knowledge and expertise of its career consultants with the management and governance experience of the former hospital/health system CEOs it employs.
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