Where We’ve Been; Where We’re Headed Presented to:

1. Where We’ve Been; Where We’re Headed • Presented to: • NORTH CAROLINA HEALTHCARE HUMAN RESOURCES ASSOCIATION • Presented by: • Craig Strom, Vice President • MSA HR Capital Practice

2. 2010 Survey Changes • Layout: Rather than being reported in straight alphabetical order -- positions were first grouped and then listed alphabetically • Leadership: Top Executives, Department Heads, Managers • Staff: Administrative Services, Cardiology Services, Finance, Food Services, HR, IS, Lab, Long-Term Care/Skilled Nursing, Medical Records, Nursing, Patient Care, Pharmacy, Physician Practice, Radiology, Rehabilitation, and Support Services • Eight positions added to the 2010 survey: Payroll Clerk, Compensation/Benefits Supervisor, Employee Relations Specialist, Lactation Consultant RN, Counselor, Ophthalmic Assistant, Ophthalmic Technologist (Certified), and Chargemaster Coordinator

3. 2011 Wish List - Participants • Suggestions from participations regarding the 2011 survey include: • Add “average years of service” question to the staff positions • “Add Exempt/Non-Exempt/Mixed question for staff positions” • Ask the question "Do you establish Lead positions for certain positions" and if “yes,” ask “what amount or % above the base range for a position do you provide for a lead?” • Anecdotal rule of thumb: Professional 5% -15% higher; Support 3% -10% higher • Answer depends also on whether organizations use career ladders or steps • Will survey again for additional positions of interest by multiple organizations

4. 2011 Wish List – A Note From Shannon (Plagiarized) • “The biggest issue with reporting well rounded data for all the questions in the survey is the lack of full participation (filling out ALL question in the survey) by members. • For example, 61 organizations responded “Yes” to the ‘Do you provide a market increase’ question; however, then when asked to actually fill in the projected market increase amount for four job families- only 30 organizations responded. This type of response rate is the norm for the special pay section and not the exception. On the yes/no questions we typically have good response rates but when actually asked to provide a figure or amount the response rates are severely reduced. • Also, it is imperative that organizations fill out the demographics section in its entirety. For example, if a net revenue is not given then none of that organizations position data can be used in the net revenue breakouts- because we don’t know what grouping that organization falls under. (FYI- I follow up to get the missing data but that then cuts into our analysis time.)”

5. Hot Jobs? • From the Headlines: • “More Jobs, but no rush to hire…” Star Tribune • “New RN grads feel squeeze for jobs” USA Today • “Hospital Layoffs Creep Back into the Headlines” HealthLeaders Media

6. “New Norm” or “Calm Before The Storm” • Experienced workers: • Returning to the workforce • Delaying retirement • Moving from part-time to full-time status NCHHRA survey facts: • Median vacancy rate for RNs in 2008 was over 5% -- now under 3% • Median separation rate for RNs in 2008 was over 16% -- now approximately 2% • Healthcare providers facing: • Flat or reduced volumes • Limited investment earnings • Reduced charitable giving • Uncertain reimbursement (Federal, State, Insurers) • Increased uncompensated care • Increasing capital costs (decreased access to funding) • Increasing labor costs

7. Hot Jobs • Current: • Experienced, talented senior executives • Service line leaders • Physicians • Mid-level providers • Rehabilitation • Pharmacy • Future: • All of the above • Nursing, nursing, nursing • Quality • Practice administrators

8. In the spring of 2010, Integrated Healthcare Strategies surveyed health care organizations about changes to their compensation and benefit programs since the economic downturn began. This is the fourth in this series of surveys on this topic in which we received responses from 151 health care organizations from all regions of the country.

9. Characteristics of Participants • Participating organizations range in size from under $50 million in net revenue to over $1 billion • Most (78.8%) are private tax-exempt organizations • Most are either independent hospitals (48.0%) or healthcare systems (33.3%)

10. 2010 Salary Budget Compared to 2009 • When asked to compare the 2010 salary budget to the previous year, organizations responded that the budget:

11. Median Salary Increase Percentages Staff Executives Middle Managers * * * * Includes preliminary and approved 2010 budget numbers

12. Factors Impacting 2010 Salary Increase Budget Decisions Expected financial performance in 2010 Actual financial performance in 2009 Regional or local salary trends Industry salary trends Recruitment/retention concerns Current employee compensation lags market Contractual obligations Public perception of providing salary increases in difficult economic times

13. Other Changes to Compensation Programs • Delayed Increases • For organizations expecting a delay in salary increases, the following median delays were foreseen: • Staff Salary Increase Budgets • Approximately 15% of organizations intend to reduce 2010 staff salary increase budgets • 16% have salary freezes in place

14. Incentive Plan Modifications • Planned Modifications • 15.9% of responding organizations plan to modify their incentive programs • Modifications are being planned in the following areas: • Previous Modifications • 13.9% of responding organizations previously made adjustments to their incentive programs that they intend to restore • A majority are returning incentive opportunity levels to pre-2009 levels (9 organizations)

15. Other Changes to Compensation Programs • Out of 50 responses, organizations reported other pay plan element reductions as follows:

16. Changes to Benefit Programs in 2010 – Spring 2010 Survey • Of the respondents, 38 organizations (approximately 25%) plan to modify benefits or perquisites in 2010

17. Compensation Philosophy Market Trends • What influence, if any, is the shift in market trends having on compensation philosophies? • No empirical data indicating hospitals are making permanent changes in compensation philosophies • Evidence of the following • Temporary deviation from long-standing policies • For example, freezing salaries even if it means falling below target market levels, temporary reduction in incentive opportunities, etc. • Organizations are reviewing existing philosophies for appropriateness • Is it a good idea to pay incentives in the current environment? • Should we target pay above median pay • Are our leadership and staff philosophies consistent? • Boards and management are administering pay programs more carefully

18. What Are Other Healthcare Organizations Doing? • Executives • The most common (over half) is a “median” philosophy • Just under half intentionally position salaries above median • About one-quarter position salaries at the 60th or 65th percentiles • Another one-quarter position salaries at the 75th percentile • Almost one-third of target total cash compensation (salaries plus incentives) at the 75th percentile • Quite often, organizations which target total compensation at the 75th percentile also offer the opportunity to earn above the 75th percentile for exceptional performance • A few hospitals define pay targets that are below median due to financial constraints • Middle management and staff • Most target median (NCHHRA data indicates approximately 85%) • Pay is typically administered around median through either across-the-board market/ merit programs or variable merit programs

19. Compensation Philosophy The foundation of all compensation programs is a clearly stated, comprehensive philosophy statement Rationale: In the absence of a defined philosophy: • Employees will create their own based on their perceptions • Leadership will have difficulty defending or communicating the program (e.g., directors and managers sympathize with staff, rather than leading) • Pay decisions often lead to a patchwork of programs and policies designed to address specific issues at specific times (i.e., inherited, or jockeyed, or band-aided approaches that made sense at the time)

20. What is a Compensation Philosophy? The compensation philosophy is the framework that guides pay decisions • Support mission • Recruit, retain, reward • Alignment with organizational priorities • Role of the Board, CEO, HR, management, etc. Median, P65, P75, etc. • National, regional, local • For-profit, not-for-profit, private, public? • Hospitals, systems, IDS, etc? • Salary • Incentives • Basic Benefits • Executive Benefits • Perquisites • Severance

21. Changing Governance Landscape • “I’m ‘working’ more here than at my regular job, and the ‘pay’ doesn’t match the effort!” • - Trustee of a major health system • Governance reform - never ending • Boards under more scrutiny • IRS, congress, rating agencies, states attorneys general, media, public • Resulting in more Board oversight • Intermediate sanctions impose financial penalties on organization, executive, board members for “excessive” pay • Rebuttable Presumption shifts burden of proof to IRS • Not difficult … requires well defined process • Independence - no conflicts of interest • Peer comparators • Documentation

22. Executive Pay Transparency • Challenge remains: Recruit, Retain, and Reward • (While Motivating…) • Executive pay - Matter of public record! • New Form 990 - More transparent! • Defending pay - More challenging! • Boards - More cautious and concerned!

23. Improve Executive Compensation Communication Readiness Executive Compensation Communication Strategy Continuum • Considered how to respond to inquiries from public, media, and other constituencies, and explain process, philosophy, anomalies • Collaboration of Human Resources, Public Relations, Consultant, and Committee

24. Establishing Rebuttable Presumption of Reasonableness -Sample Findings Not Established Partially Established Clearly Established Gold Standard Established Committee Independence Committee Independence Documentation of Independence Comparative Data Utilization Comparability Data Total Compensation Review Access to Consultant Charter Documentation Minutes

25. Governance Best Practices - Sample Findings No Practice Follows some Best Practices Best Practice Definition of Committee / Board / CEO Roles Committee Calendarand Agenda Critical Compensation Philosophy CEO Performance Appraisal 990 Review Other Committee Self-Evaluation Identification of Disqualified Individuals

26. Questions & Answers • ???

27. About Integrated Healthcare Strategies