How Much Should Nonprofit Hospital CEOs Make?

As health care costs continue to rise, the executives of North Carolina’s nine largest nonprofit hospital systems have received double- and triple-digit percentage raises over the past decade, according to a report released last week by the State Treasurer’s Office.

Hospitals argue they have to pay competitively to attract and retain top talent, and while they make less than their private sector counterparts, hospital executive pay tends to far exceed that of executives at other types of nonprofits.

Alexander Yaffe, a consultant who focuses on healthcare at executive compensation consultancy Pearl Meyer, said there’s no question that salaries for hospital executives have accelerated in recent years. That has partly been driven by high turnover among hospital executives, he said. One report found that 62 hospital CEOs left their roles in the first half of 2022, a 48 percent increase from the same period in 2021.

But the increasing consolidation of hospital systems is also an important factor, Yaffe said. The larger the system, the more executives expect to be paid.

“Even if a board is saying, we will pay you at the 50th percentile of the market, that number for a $2 billion system is very different than for a $5 billion one,” Yaffe said. “When you talk about someone whose compensation has increased 473 percent, the fact that the health system has grown over that period is a significant factor.”

“An executive looks at that and says, ‘I’m now running a $27 billion system, so you should pay me for the job I’m doing,’” Yaffe said. “The board is faced with: How quickly do we close a gap in compensation?”

Yaffe said the cost to replace an effective executive is much more expensive than boosting that person’s pay to make it competitive.

“If someone thinks they are going to be able to let someone go because he’s making too much and bring someone in and pay them a third as much, that’s just not reality,” he said.