By Thomas P. Flannery, Senior Client Partner, Executive Pay & Governance, and Bill Dixon, Senior Client Partner, Executive Pay & Governance Practice, Korn Ferry Hay Group
It looks like a time to just cool their heels—waiting and waiting while Washington debates the next move on healthcare reform. But savvy organizations are learning to turn the microscope on themselves—giving themselves a checkup on internal changes that should work no matter what the lawmakers decide.
This process, we believe, should have one main objective: to provide quality, patient-focused care that is affordable and aligns with the mission and values of the organization.
Self-reflection should start with such fundamental objectives as defining a purpose when it comes to compensation and executive performance. Ultimately, the goal is to move beyond designing and managing executive compensation strategies, toward creating a culture of sustainable performance.
Healthcare boards are increasingly in the midst of a serious identity crisis. In simpler times, a board would be able to periodically review—usually through its compensation committee—the executive comp plan, and feel it was doing its job in terms of driving the organization’s performance.
Today, boards are finding that to be effective, their “reward only” performance remit must be expanded to include the entire executive life cycle, from defining roles to assessing and selecting leadership talent, to onboarding and developing that talent. Boards need to address not only rewards for strong performance but also responses to performance deficits. Completing the cycle, they also must continually address succession planning.
This evolution, which parallels what is happening in the for-profit sector, is driven by a recognition that governing boards have a responsibility for the long-term success of the organization’s constantly changing portfolio of leadership assets. Such an approach is doubly critical in healthcare, where discontinuous change is rampant and the ability to navigate that change is critical in driving the long-term success of what are often key community assets.
To achieve this, healthcare boards should become strategic advisors to the chief executive officer on shaping, developing, and rewarding the senior leadership team. At a minimum, these expanded efforts should include meeting quarterly with the CEO to review and discuss each member of the leadership team. More proactive boards, however, are taking a comprehensive approach, working with their CEOs to:
- Shape key executive leadership roles, including that of the CEO and his or her team, to better drive the organization’s overall strategy and performance;
- Assess, recruit, select, and onboard executives for those roles, to minimize risk and increase the odds for success;
- Help define performance measures and management processes that are aligned with the organization’s strategy and designed to support ongoing executive growth and development, and more effectively identify performance issues and outliers;
- Develop and manage a comprehensive succession plan for maintaining leadership continuity; and finally
- Continue to provide a rigorous compensation plan—going beyond the traditional role of ensuring compliance—and strategically reward executives for both individual and team results aligned with the organization’s short- and long-term goals.
Treating executive assessment, selection, development, and compensation as separate and discrete activities leaves the board vulnerable to significant risk. By integrating the above elements, a board can more effectively help its CEO create a more impactful senior team that drives the organization’s strategy both as individuals and as a group.
Of equal if not added value, such an approach (if managed well) generates much-needed clarity, understanding, and trust among the board and executive team, which in turn leads to a much more productive environment for both—an important advantage, given their limited face time.
For the healthcare organization and the community it serves, taking this approach means not only better outcomes regarding patient satisfaction and quality of care, but also financial sustainability and growth in a continually changing and challenging environment.
Healthcare organizations will no doubt feel the impact of change filtering down from Washington, and be forced to adapt. As they wait for the smoke to clear, their boards can make positive changes to their own governance objectives that should serve their organizations well, regardless of externally imposed changes to the overall system.