More incentives offered to rank and file

February 1, 2011

Base salaries for top health plan executives increased at the lowest rate in more than a decade

BASE SALARIES FOR top health plan executives increased at the lowest rate in more than a decade this year, and next year is likely to bring more of the same, according to a recent national survey. But that won't send the C-suite packing.

On the contrary, "it was a very good year," says C.J. Bolster, national director of healthcare consulting for the Hay Group.

But many executives, particularly those at large publicly traded companies, realized long-term incentives (LTIs), typically earned for performance over a period of at least three years.

Of the 66 organizations that responded to the survey, 68% have an active long-term compensation plan, compared with 63% during the previous year.

While large organizations are the most likely to offer LTIs-83% of companies with $1.5 billion or more in annual revenue offer such a plan-smaller organizations and not-for-profits are following suit. The number of smaller organizations (with less than $1.5 billion in revenue) offering LTIs grew from one in four to nearly half last year and LTIs are now nearly as common among not-for-profit (63% offer them) as for-profit (77%) entities.

As a result, compensation in the insurance industry-regardless of an organization's size or governance model-is looking "like what you'd see in a large corporate enterprise because everyone's competing for the same talent pool," Bolster says.

What distinguishes the large publicly traded plans is the size of the compensation package. Thanks to lucrative stock options, their LTIs dwarf those of their not-for-profit and smaller competitors.

Last year, total direct compensation, which includes base salary, annual incentives and LTIs, averaged more than $4.86 million among the top-earning CEOs. That's more than five times the $929,500 earned by CEOs in the bottom compensation quartile.

The strategy of putting compensation at risk has become so popular a growing number of insurers are offering such deals to the rank and file. The survey found nearly a quarter of organizations use team incentives and bonuses, 10% offer stock-based awards, three-quarters use "spot" cash awards and another 63% use non-cash recognition rewards.

While incentives are most likely to take the form of annual bonuses and stock-based awards for senior management, perks for lower level professionals tend to take the form of spot cash and non-cash recognition awards, such as gift cards.

Although the recession has most likely accelerated the use of incentives, Bolster says the trend is here to stay.

"Insurance is an industry that is going through dramatic change," he says. "We're going to see more and more organizations trying to connect the dots around customer service and quality and they're going to find more ways to include more people in achieving that goal. Changing the relationship between fixed pay and variable pay is one way to do that."

-Shelly ReeseCommentary is independent of source data.