This paper examines the compensation/incentive structures
used in each of two forms of nonprofit organizations, religious
and secular, by comparison with for-profit organizations, in an
industry where they coexist, hospitals. The goal is to understand
whether the objective functions of the three forms of hospitals
differ. To pursue this we study compensation of CEOs and each
of 14 other jobs at middle management and technical levels, at
hospitals of each form. We also investigate the responses of compensation
structures in the three institutional forms to an exogenous change
in demand. We focus on the 1990s to capture the effects of the
growing emphasis on health care cost containment, which was manifest
in reduced prices for patient care. We hypothesize that responses
to the exogenous fiscal stringency differed across institutional
forms, reflecting differential objective functions, but only for
top management, not for lower level workers. The analyses account
for the effects of competition, as measured by Herfindahl indices,
and of HMO penetration. The findings for CEOs disclose that nonprofit
hospitals use weaker incentive mechanisms compred to for-profit
hospitals, and there is some evidence that the differences decrease
with competition and HMO penetration as well as over time. In
lower level jobs there was no systematic pattern of differences
across ownership forms in the levels of compensation or the use
of bonus rewards, at the beginning of the period or at the end.
Burcay Erus, Department
of Economics, Northwestern University
Burton A. Weisbrod, Department of Economics,
Northwestern University
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