According to Meeks (2015) an individual being the Chief Executive Officer (CEO) has the primary job of navigating the organization not only through external, but also internal changes and climates. A chief executive and their organization have often been criticized for their compensation, but one argument is the compensation is high because the chief executive must have a vast array of skills in order to succeed at their job.
While evaluating salary using an external equity method is important for staying competitive (Pynes & Lombardi, 2011), it cannot be the sole deciding factor in the decision of compensation and benefits for a chief executive. Jarque & Muth (2013) discuss how the compensation that is reported by other organizations are showing the “expected value of compensation […] and the realized value […].” (p. 252). This should lead a board of directors to evaluate other determinants into deciding what they will compensation package they will offer to their chief executive. Two of those determinants to consider would be education and experience. Although looking at a competitor who pays their chief executive $300,000 perhaps that individual has a doctorate degree, and the individual getting the offer from your board of directors has a masters degree. As it is typically understood, the more degrees an individual has, that pertain to their career choice, and the level of degrees they have equates to being paid higher salaries. What the degree(s) are in, is also an important factor for evaluation into the education differences. A board of directors needs to ensure the candidate has the correct skill set needed to perform the job and this can come from their educational background.
Experience can also lead to a difference in compensation packages, because typically the more experience someone has in their specified field, the more they will get paid because of the knowledge they have gained. The board will want to ensure the experience gained pertains to the responsibilities of being a chief executive for their specific organization, which will be reviewed in the next section, and what performance reviews they received. 1 Timothy 5:17 (NIV) states “the elders who direct the affairs of the church well are worthy of double honor, especially those whose work is preaching and teaching.” This shows that even God teaches us that if you are a good leader, and your performance led the organization well, then you are worthy of more. In the case of a chief executive, one who has multiple years of experience and high-performance reviews should be worth more, therefore, they should get compensated more than someone who does not have similar determinants.
Pynes & Lombardi (2011) discuss that chief executives, as well as other executives in healthcare are compensated differently than other healthcare providers, but does a difference in responsibilities play a significant role in that differentiation? While the amount of responsibilities may be similar between a chief executive and other healthcare employees, it is the specifics that differ. The chief executive is responsible for “planning, organizing, staffing, directing, coordinating, reporting, and budgeting.” (Meeks, 2015, p. 95). Within each of these seven categories of responsibilities are further subsets, but each of these also equals a significant time commitment, amount of communication with numerous people, and a significant amount of knowledge in numerous subjects. Looking at other healthcare employees, they may also have a responsibility to communicate and do administrative related tasks that take time, but their primary responsibilities could be to provide patient care. With this, they would focus on their patients, and any co-workers within their department or the occasional cross-over of departments, where as the chief executive must every day oversee evaluating and leading the entire organization. As Pynes & Lombardi (2011) mention, the amount of responsibility and public scrutiny that a chief executive officer must or could endure leads to their positions not being steady if they are not up to par on their responsibilities.
It is the shear volume of people that a chief executive officer is responsible for as well as their specific responsibilities that require significant amounts of time and specific knowledge, that can lead to the argument they should be paid more. As 1 Timothy 5:17 (NIV) taught us, that those that are doing their responsibilities and leading well, should be rewarded more. However, how much more they do or could be paid is a discussion for another time.
Jarque, A., & Muth, J. (2013). Evaluating executive compensation packages. Economic Quarterly (10697225), 99(4), 251-285.
Meeks, M. D. (2015). Strategic management and the disparate duties of the CEO. Academy of Strategic Management Journal, 14(2), 93-116.
Pynes, J. E., & Lombardi, D. N. (2011). Human Resources Management for Health Care Organizations. San Francisco: Jossey-Bass.
It is no secret that chief executive’s earnings are exceptionally generous, especially within a non-profit health care organization. Many community members, government officials and the press rave about the compensation rates. Individuals have different viewpoints about this matter, what is acceptable and what is not acceptable. For example, “since nonprofit hospitals, health systems, and nursing homes are organized as tax-exempt charities under federal tax law, Congress and other regulators think such organizations should pay their executives less than private organizations,” (Bjork, 2010, p.8). What determines the compensation earnings for the chief executive of a health care organization? For many years, board members of different health systems have evaluated and analyzed the salary and benefit earnings that are offered with this position to determine what an appropriate. When board members look at other chief executive earnings, most non-profit hospital systems will not use information from the “for-profit sector in determining executive pay levels;” if done so, “it is often limited to staff executive positions (e.g., finance, human resources, information technology, marketing) in organizations that have recruited staff executives from the for-profit sector,” (Bjork, 2010, p.13). Studies suggest looking at different determinants to get a clearer idea for what is reasonable. Some of these determinants include: “financial performance, organizational size, organization ownership, hospital type, market characteristics, human capital attributes, executive demographic characteristics, board attributes, job difficulty, and nonfinancial performance,” (Shay and White, 2014, p.259). Of these, one of the most important factors to look at is the organization’s size. It is true that bigger health care organizations may pay more than a smaller organization. Research shows that organization size is more important to determining executive pay than the organization’s financial performance. Job difficulty was marked as the next determinant that was most important. Other determinants that do not focus on the organization or position of chief executive, but on the candidate, are experience and education. “Executives are hired for their professional experience and expertise,” (Pynes and Lombardi, 2011, p.266). It is important for board members to know the possible candidate’s professional background experience. An important question to consider is how long has the incumbent worked in this job. Education is important, because it presents the skills and intellectual requirements the position expects. An important question to consider is what formal training, knowledge, and schooling does this position require.
The responsibilities are a greater demand for chief executives of a health care organization then other health care employees. “They must often make hard choices and unpopular decisions that run counter to the wishes of the policymaking and governing body,” (Pynes et al., 2011, p.266). The decisions, stress, complications, etc. that an executive must deal with on a day to day basis is unlike any other position in the organization. For this, their responsibilities warrant a higher salary. This can be explained by internal equity. Internal equity sets earnings based on the correspondence relative to internal value. “The internal value of each position to the organization is determined by a procedure known as job evaluation, which determines the worth of one job relative to another,” (Pynes et al., 2011, p.254). The number of employees and patients this position is over requires determination and strong dedication to the organization. It is the responsibility of the executive to ensure that everything is flowing correctly.
“Plans fail for lack of counsel, but with many advisers they succeed,” (Proverbs 15:22, NIV). This verse is important to individuals holding positions like a CEO of a hospital, because one person cannot run an organization on their own. Seeking help and counsel from others can help determine a person’s success or failure. God has given us all talents in which we should use. It is important to make sure we are using them for fulfillment and purpose.