Healthcare Compensation: From Broad Pay to Workforce Investment

Limited compensation budgets require healthcare leaders to prioritize the roles, workforce risks, and capabilities that matter most.

Compensation has become one of the most consequential workforce decisions healthcare leaders make. Labor is the largest component of hospital operating expenses, but most organizations cannot address every pay concern with broad increases.

Move From Broad Increases to Targeted Investment

According to the American Hospital Association, workforce spending accounted for about 60% of hospital expenses in 2025 and workforce costs rose 5.6% during the year. A new AHA Report: Hospitals Face Increased Challenges and Financial Pressures as They Care for Patients found that total hospital expenses increased 7.5%. These pressures make prioritization unavoidable. The practical issue is not simply how much an organization spends on compensation, but where limited dollars can reduce workforce risk and support healthcare operations most effectively.

Across-the-board increases can be appropriate when market pressure is widespread. They are less effective when recruitment, retention, or equity concerns are concentrated in specific roles, locations, or workforce segments. Uniform increases are easy to administer, but they may use substantial resources without materially changing the risks leaders are trying to address.

A targeted approach starts by identifying where compensation can influence a specific workforce outcome. Priorities may include critical clinical and patient care roles, positions with persistent vacancies, employee groups with elevated turnover, areas with meaningful internal equity concerns, and capabilities tied to future care delivery. The point is not to create a special adjustment for every problem. It is to distinguish issues that create operational risk from those that leaders can address over time or through other elements of the employee experience.

Evaluate Compensation as Workforce Capital

Healthcare organizations evaluate technology, facilities, and other capital investments based on need, cost, alternatives, and expected return. Compensation decisions warrant the same discipline. Leaders should define what they expect an investment to accomplish and how they will assess whether it worked.

Useful questions include:

• Which vacancies create the greatest disruption to patient care, access, revenue, or employee workload?
• Where do turnover and reliance on contingent labor create the highest avoidable cost?
• Which employee groups face sustained external market pressure?
• Where could pay actions materially improve retention or workforce stability?
• Which skills and capabilities will be most important to future operating models?

These questions help leaders separate broad dissatisfaction with pay from specific workforce risks that compensation can reasonably address. They also make trade-offs visible. A dollar committed to one population is unavailable for another, so priorities should be explicit and defensible.

Connect Compensation to Workforce Strategy

Healthcare organizations are adapting to labor shortages, changing care models, technology adoption, and new patient demands. Compensation strategies should support those changes but pay cannot solve every workforce problem. Scheduling, staffing models, leadership, career development, workload, and the work environment may be more important in some situations.

Before approving an adjustment, leaders should confirm that compensation is a material cause of the problem and that the proposed action is likely to change the outcome. If turnover is driven primarily by manager’s effectiveness or staffing levels, additional pay may increase costs without improving retention. If a critical role is consistently below the recruiting market, a focused compensation investment may be necessary.

Make the Priorities Clear

Healthcare organizations will rarely resolve every compensation concern in one budget cycle. A practical strategy establishes the order of investment, documents the rationale, and sets expectations about what leaders will and will not address. Leaders should be able to explain the business risk, affected workforce, expected outcome, cost, and timing for each priority. The organizations making better compensation decisions are not necessarily spending the most. They are directing available resources toward clearly defined workforce needs and testing whether those investments produce the intended result.

Need Help Making the Right Compensation Decisions?

Connect with a CBIZ advisor for guidance tailored to your organization’s workforce needs, financial constraints, and goals.