HFMA 2007 Compensation Survey

It All Adds Up

The father of modern management. Peter Drucker, said, "People are a resource, not just a cost." With aggressive compensation packages that often include salary, bonuses, and profit-sharing plans, hospitals and health systems are apparently taking Drucker's advice to heart, treating

Such is seen as HFMA has again compiled a detailed profile of compensation for healthcare finance executives, managers, and staff (based on their reported compensation as of Jan. 1, 2007).

Good Times for Healthcare CFOs

Continuing the upward trend established early this decade, average (mean) cash compensation rose 14.1 percent between January 3005 and January 3007 (6.8 percent annually), swelling to $196,300, according to the responses of 840 HFMA-member CFOs. The increase was consistent with the previous twoyear period, in which overall compensation rose 6.7 percent annually.

Meanwhile, relatively low inflation rates ensured CFOs' real earnings were a strong 8.7 percent during the last two-year period. From January 3005 to January 3007, inflation measured by the Consumer Price Index increased a reasonable 3.? percent, which was a 0.06 percent increase over the 3003-05 period.

Median compensation (mid-point of the distribution) rose from $146,300 in January 3005 to $167,300 in January 3007, an increase of 14.4 percent, or 6.9 percent annually, with compensation in the middle increasing at about the same rate as the extremes for the past two years. High and low compensation amounts reported in the 2007 survey were $1.3 million and $36,ooo, respectively, with the highest salary more than $400,000 greater than the highest salary reported in 3005.

Both salary and variable compensation levels moved upward between 2005 and 3007. CFOs reported an average salary boost of $18,200 (11.9 percent) and an average rise invariable compensation of $4,500, or 28.4 percent. Sixty-nine percent of CFOs were eligible for bonuses or profit-sharing plans in 2007, compared with 65 percent in 2005. And among those eligible, the average annual bonus/ profit sharing was $84,400, up from $39,600 in 2005 and $25,500 in 2008. Only 14 percent of responding CFOs who were bonus-eligible received no extra payout. Interestingly, this is the same percentage reported in 2005, possibility reflecting financial stability in the healthcare sector.

No Substitute for Education, Experience

CFOs are an experienced group, averaging 49 years of age, 10 years in their current job, 17 years in HFMA, and 28 years in health care. Not surprisingly, there is a direct correlation between education and GFO pay. What may raise eyebrows, however, is the disparity between CFOs with graduate degrees versus those with only a bachelor's degree-to the tune of nearly $50,000 on average.

Similarly, CPAs, representing 4,8 percent of survey respondents, earned more than their counterparts without certification ($215,200 compared with $183,100). Even HFMA-certified CFOs enjoyed a higher compensation, with the 15 percent of respondents who indicated they have HFMA certification averaging $203,800 versus $194,900 for those GFOs without HFMA certification.

Tenure is also a telling statistic in regard to compensation, but not necessarily how one might expect. In fact, the data make it appear that those in their current position for more than 15 years earn less ($172,700) than those with tenure between 7.5 and 14 years ($222,400), four and seven years ($203,300), and even 3.3 years or less ($191,000).

Perhaps a better indicator of how experience relates to CFO compensation is total years in health care. Those in the top quartilewith 30 years or more industry experiencemake 7.5 percent more on average that their counterparts with 24 to 29 years of experience and nearly 50 percent more than those with 17 years or less experience in health care.

Years spent as a member of HFMA correlates with the number of years spent in health care. Divided by quartiles, those who have been members for the longest period earn 58 percent more than the group with the shortest membership ($248,900 versus $157,800). And highlighting an even more substantial upward trend, the median earner in the top quartile earned more than double what the median earner in the bottom quartile earns.

Bigger Is Better (and Certain Locations)

As one would expect, CFOs in larger organizations make substantially more money than their counterparts in smaller organizations. Those in system-headquarter settings earn more than twice what the average hospital CFO takes in, but the organizations they work for generate four times more revenue than the average hospital.

Other factors also play into how much money system CFOs make versus hospital CFOs, such as experience and number of years in health care. The chart at left illustrates some of the many differences between health system and hospital CFOs.

In addition, location makes a big difference in CFO compensation, in large part due to varying wage levels. Northeastern states lead the pack with the highest compensation, as they did in 2001, 2003, and 2005. Such high-cost states as New York, New Jersey, and Massachusetts pushed the regional average higher.

The Medicare Wage Index, which highlights regional labor costs, is perhaps a more accurate measure of CFO compensation relative to area of the country. For instance, the Medicare Wage Index has reliably indicated over the past several years that CFOs in high-wage regions make more than those in the low-wage areas. In 2007. the wage index accounted for an astounding $115,000 swing from the bottom quartile to the top quartile.

The graph beneath the map details the Medicare Wage Index of survey respondents and correlating average compensation. (An area with exactly average wage costs in health care has a wage index of i.oooo, while an area with wage costs 2 percent above the national average would have a wage index of 1.0200. and so forth.) Interestingly, more CFOs responding to the HFMA survey are from areas with below-average wage indexes than above-average indexes, perhaps indicating that the bulk of hospitals are located in rural areas and small cities with lower wage indexes.

Still a Gender Gap

The gap in compensation between men and women who are CFOs grew by 20.2 percent between 2005 and 2007 after declining slightly from 2008 to 2005. Male CFOs averaged $210,900, while women averaged $145,400 in compensation. Median compensation levels for men and women were $178,000 and $115,000 respectively. Note the fluctuation in gender gap compensation since 1999 in the chart at right, which makes trending the statistics particularly difficult.

Men, 2007 data indicate, continue to hold positions within the largest and highest paying organizations, due in large part to reporting greater qualifications on average than women. These include obtaining a graduate degree; having higher levels of responsibility, including a larger number of reporting employees; and collecting more years of experience in health care.

Within the group of CFOs at organizations under $140 million in revenue, the gender gap shrinks to $42.800: and within the group of CFOs at organizations with revenue of $140 million and over, the compensation gap between men and women falls to $33,800. If one examines CFO compensation while accounting for differences in the organizations' revenue, the gender gap dramatically shrinks-for the larger revenue group, the gap is cut nearly in half.

In past years, a regression analysis had singled out gender as a variable and had assigned up to $15,000 of compensation only to this factor, meaning that $15,000 of the gender gap was not explained by other variables in the model. This year (as well as in 3005), however, the regression model did not include gender as a variable, indicating that all of the gender gap was assigned to other variables.

The data do not seem to indicate an unequal pay for equal work issue, where women are paid less than men in similar roles at like-size organizations. Rather, many of the higher paying (and presumably higher responsibility) positions at the largest institutions are filled by men.

Of course, other explanations for differences in compensation between the genders may well include dynamic career path issues. For example, men may have advanced to higher paid positions in larger institutions disproportionately more than women because they have a five-year edge in healthcare experience. Also, there may be systematic differences in how men and women's careers have advanced over time not addressed by the survey, such as willingness to move in order to take advantage of a new opportunity or time out of the workforce for child care or elder care issues.

For the 2007, 2005, 2003. 2001, and 1999 surveys, HFMA used only individuals with "CFO" appearing in their titles to create the sample for CFO compensation research. The "vice president" title not used in conjunction with the "CFO" title was included separately in the 2007, 3005, and 2003 surveys. Individuals with the title of finance vice president are widely helievecl to have similar responsibilities as those with the CFO title, with some nuances:

* VPs earn more, and more of them are eligible for bonuses or profit-sharing plans.

* VPs work in larger organizations as measured either by revenue or by beds (for hospitals).

* VPs are more likely to work in the health-system headquarters.

* CFOs virtually always (98 percent of the time) report to the top administrator of the organization, whereas VPs report to the top administrator about 69 percent of the time.

What's in a Name?

HFMA's compensation surveys defines these positions as follows:

CFOs. All respondents with titles including the words chief financial officer or CFO1 including joint titles such as CFO/VP and CFO/controller, are recorded as CFOs. Titles recorded as vice president of finance (not including CFO in the title) were reported as finance vice presidents. All respondents included in the survey results are believed to be employed in hospitals or Healthcare systems.

Middle management. Middle management titles included in the survey are compliance officer; controller; and director/manager of finance, accounting, managed care, reimbursement, decision support, patient financial services, or patient access. Manager/director of patient access and decision support are new to the 2007 compensation survey.

Like titles were grouped together. For example, all those reporting titles such as patient financial services manager or business office director were grouped together under the title director/manager patient financial services. Those with joint titles, such as director of finance and accounting, were assigned to a group according to the respondent's indication of their primary function. Likewise, analysts and accountants were grouped together by title.

Middle Managers Break the 100k Barrier

Six middle management positions broke into the six-digit compensation category as reported in the 2007 survey, compared with only one (director of managed care) in 2005. Compliance officers took the lead as highest paid specialty, earningan average of $11,3,400 including incentive pay.

Over the past eight years, during which time HFMA has collected data using similar methods, the director of patient financial services, director of accounting, and compliance officer positions have shown the largest annual increases in compensation among middlemanagement positions. Although growth in compensation slowed for directors of patient financial services between '4005 and 2007, their 6 percent average annual increase since 1999 leads all middle-management titles, reflecting the position's increasing importance within health care and their organizations greater focus on the revenue cycle.

The least-experienced title-director/manager of accounting-averaged a respectable 17 years in health care. Individuals in patient financial services, reimbursement, compliance, managed care, patient access, and decision support positions all boast an average of 30 or more years of experience in health care. The level of experience is increasing over time, suggesting that providers are successfully retaining experienced professionals.

Managed care and decision support directors are the most educated of all middle managers with more than half of individuals in both titles holding a graduate-level degree. Directors of managed care have been the most educated healthcare finance professional each time HFMA has conducted the survey.

Including all employees reporting to these managers either directly or indirectly, directors of patient access and directors of patient financial services have the largest number of subordinates, largely due to the staffing requirements for registration, billing, and other functions they typically oversee. Conversely, directors of managed care and reimbursement, as well as compliance officers, require fewer support staff. In fact, many holding these titles don't have any employees reporting to them.

Compensation for professional-level positions increased as well. Average compensation for analysts increased 2.5 percent annually between 2005 and 2007 and 4.5 percent for accountants, indicating a reversal from recent trends. Since 1999, analyst compensation has risen 3.6 percent annually, while accountant compensation has increased by 2.5 percent annually, with demographics remaining stable for both positions since 2005.

About HFMA's 2007 Compensation Survey

HFMA gathers and publishes information on healthcare financial executive compensation every two years based on a surveyed sample of HFMA's membership.

How We Did It

Respondents to HFMA's 2007 Compensation Survey were randomly drawn from among HFMA members with similar titles, and were contacted by e-mail in January and February of 2007 about their compensation as of Jan. 1, 2007.

To provide an incentive for participation, HFMA entered all respondents into a drawing for three online shopping gift certificates. The overall response rate was 56 percent.

What Did We See Last Time?

The 2007 survey sample compares with that of 2005 in several key ways:

* Methods used in both years are identical

* Average age remains stable at 49

* Average healthcare experience, years in HFMA, and average age in current position all increased by one year

* Years of total experience climbed from 22 to 23

* Years as an HFMA member increased from 16 to 17

* Years in current position rose from nine to 10

* Median revenue of employer increased from $114, million to $14,0 million

An advertising supplement to hfm.

A publication of the Healthcare Financial Management Association.

Robert Fromberg Editor-in-Chief

Sarah Loeffler Product Manager. Custom Publishing

Chris Burke Advertising Manager

Ellen Joyce B. Tarantino Advertising Production Specialist

For reprints of this section, please contact Dorothy Karmowski, publications associate, at (800) 253-4,362. ext. 387.

hfma

healthcare financial management association

Healthcare Financial Management Association

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Copyright 2007 Healthcare Financial Management Association

All rights reserved.

In addition to publishing its Healthcare executive compensation information in hfm. HFMA provides online access to the information for its members. Results of the 2001, 2003, and 2005 surveys as well as information about the surveys themselves are available at www. hfma.org/jobs/surveys.

Where to Look for Additional Information on Compensation

Other organizations provide select information on compensation for various healthcare professionals. The following are just a few examples.

* The Bureau of Labor Statistics publishes a large amount of information on wages by area and occupation, earning by industry, employment cost trends, and incidence of employee benefits.

* The Health Care Compliance Association publishes an annual profile of healthcare compliance professionals, which includes salary levels for healthcare compliance professionals.

* The Institute of Management Accountants publishes an annual survey of compensation by age, gender, years in the field, region, certification, and position.

* The Professional Association of Health Care Office Managers publishes an annual salary survey of medical office managers for its members.

* The Medical Group Management Association publishes three compensation surveys: The Academic Practice Compensation, and Production Surrey for Family and Management. The Management Compensation Survey, and The Physician Compensation Survey. The cost for each survey varies between $215 to $500.

Information on these resources and links to additional compensation resources and reports can be found on HFMA's web site at www.hfma.org/jobs/surveys.