Three Ways Providers Can Develop a Winning Compensation Philosophy: Expert

NASHVILLE, TN – Skilled nursing facilities face a complicated relationship with the volatile talent market. Today, providers will have to get creative with how they structure their compensation philosophies to attract and retain the highly qualified leaders they so desperately need.

For the 84% of operators who review their incentive offerings annually, and the 12% who review them twice a year, one rewards expert says there are three ways a package can be put together to be competitive and reflect the organization’s goals.

The right base salary is the basis of it all.

“If you have a low base salary, you’re going to be low relative to everything else,” Matt Leach, senior consultant at Total Compensation Solutions, said during his LeadingAge session on Tuesday. “During COVID we saw much lower increases for executives because the money was going to staff. I think there has been a catch-up at executive and senior management level.”

Most operators (70%) start with base salaries at the 50th percentile, a great strategy for competing with the outside market, Leach said. But those who start here almost always offer additional incentives, such as total annual cash (30%) and robust benefits (65%).

One of the fastest growing compensation elements in LTC is one that providers use to retain great leaders for the long term.

“A deferred compensation plan is more often than not offered on the first day. “If the board says we want to move forward with the CEO, and we want to make sure we retain him, then the personalization plan (of this) comes up,” Leach said.

It’s a two-way street. Seasoned executives are often lured by one of two types of deferred compensation plans because they are more likely to have their sights set on retirement.

“The 457(b) and 457(f) plans are great vehicles to take advantage of. If the CEO cannot take full advantage of (their) defined contribution retirement plan due to the IRS cap, the first thing you can do is offer that (extra) amount as part of a deferred compensation plan,” Leach said.

But some C-suite executives with outstanding financial obligations or small children, for example, are looking for faster payouts, Leach noted.

That’s why traditional short-term incentives and bonuses are an attractive, performance-based approach where providers can protect themselves while allowing executives to benefit from success.

Short-term incentives are divided into four metrics.

“There are financial metrics and operational metrics, although sometimes there is an intersection between the two when it comes to things like population,” Leach said. “Then there are expansion metrics for those who are in the process of adding a new facility or wing. Finally, there are divisional/individual stats, which we don’t see that often.”

Ninety-three percent of providers use operational metrics as a driver of near-term rewards, while 86% use financial metrics. Divisional/individual metrics and expansion metrics have not fully caught up and are used by only 29% and 21% of operators, respectively.