Linking For-Profit and Nonprofit Executive Compensation: Salary Composition and Incentive Structures in the U.S. Hospital Industry

Research concerning executive compensation has a long history. However, most studies have been conducted on publicly traded investor-owned enterprises. Although the not-for-profit sector experienced explosive growth during the 1990s, little work has been devoted to understanding its executive compensation schemes and incentives arrangements. In the United States, recent Federal and State legislation has changed the landscape under which nonprofits must operate to avoid penalties for paying excessive compensation to its executives. Studies of compensation schemes under different organizational arrangements are limited. This paper uses the U.S. hospital industry to link the for-profit and nonprofit compensation and incentive literatures. It highlights selected for-profit executive compensation and incentive processes and suggests how some of these methods could be applied in a nonprofit setting.