Brookdale Senior Living (NYSE: BKD) and Pennant Group (Nasdaq: PNTG) held their earnings calls in the last week, with one common theme being the future of the executive director role.
“We are evolving the executive director role to emphasize a larger growth mindset, underscoring strong sales acumen for the incumbents and future community leaders,” Brookdale CEO Cindy Baier said.
And while Baier noted that executive directors are “the CEO of their community,” Pennant CEO Brent Guerisoli emphasized that the company bestows that title on its strongest local leaders.
“Developing C-level leaders is my number one priority,” said Guerisoli. “ … We are committed to tripling the number of CEOs in our organization over the next three years.”
In this week’s exclusive, members-only SHN+ Update, I analyze this recent news and offer key takeaways, including:
- The gap between lip service paid to EDs and the actual level of support and recognition available to many of them
- How providers are seeking to raise ED’s financial and sales acumen, and why such efforts are overdue
- The need for more robust compensation and incentives for executive directors
Going beyond lip service
Baier is not the only senior living executive to describe EDs as the “CEO of their community” — this phrase has to be one of the top industry cliches. And yet, I believe that too many providers have not trained or compensated EDs in accordance with their supposed status and importance, given that pandemic-era pressures revealed how overworked and unsupported many EDs are, leading to burnout and turnover.
“The expectations over the phone from corporate was, ‘Well, you just have to figure it out’ — okay, but I have worked all night because we didn’t have any staff overnight,” the outgoing executive director at a large national provider told Senior Housing News last spring. “Some people fear speaking up to say they can’t work five over-nights in a row and be on all the Zoom calls during the day, because they need the job.”
Such circumstances only exacerbated problems that existed pre-pandemic; in 2015, executives with Ventas (NYSE: VTR) cited high ED turnover as an industry-wide challenge, and said that ED attrition across three key metros — Chicago, Atlanta and Jacksonville, Florida — dragged down occupancy by 150 basis points in those markets.
With operators striving to reach pre-pandemic occupancy, grappling with frontline staffing shortages, and trying to manage acute expense pressures, executive director turnover is more damaging than ever, and the demands on EDs are greater than ever.
The good news is that some providers are responding by investing more in their EDs, including through professional development and more robust and creative compensation structures.
Baier’s comments about the need to increase the financial acumen of EDs echoes what I’ve heard from other providers over the last several years.
“You send out financial reports every month to each of … your communities, and the level of financial acumen and ability to comprehend what’s there — that’s not their skill set. That’s not why we hired them. We hired them to run the community and take care of our residents and bring more residents in and enrich lives,” Christian Sweetser told me in 2019, when he was serving as CFO of Silverado. He now holds that position with Erickson Living.
Finance-focused professional development is not an easy sell for EDs, he emphasized. Many executive directors assume that their aptitude for math is not strong enough and that they’ll “never understand” an income statement, he said, adding that the notion of “financial responsibility” is “about as exciting as a wet blanket.”
To surmount these challenges, his goal was to create dashboards and other tools to put key performance indicators at EDs’ fingertips, enabling them to connect everyday decision-making to bottom-line outcomes.
“It’s really about connecting people with that fundamental foundation, in my mind, of finance, which is that every day you’re taking these actions, and all these events can end up looking very, very random, but — you look at all that data, and it’s not random,” he said. “ … If you’re connecting people with that foundation, I think the lights go on. People say, ah, this income statement … it’s just the result of all my actions that I’ve already taken. So, how do I take a different action?”
Other operators have taken similar approaches, including 12 Oaks. Before becoming president of the company, Greg Puklicz served as CFO, in which role he set up dashboard reporting and customized KPI reports, creating “targeted data” to drive operations.
“I’ll then have monthly calls with the executive director and RPM [regional property manager] where we’ll review the performance indicators, give them guidance and answer any questions,” Puklicz explained in a 2019 interview.
This mixture of technology, closer collaboration between corporate and community-level leaders, and finance-focused professional development for EDs seems like a logical approach to improving operational and financial performance. The fact that major providers are just now talking about raising the financial acumen of EDs actually is disturbing, as it underscores how lax the industry has been in setting up these key leaders with the proper financial foundations, as Sweetser put it.
And in fact, providers should be taking a hard look not only at the financial acumen of their EDs, but of their overall enterprise. Sweetser brought up the example of helping EDs understand their rent roll, “getting people to calculate their average rates and look at their rent roll and say, all right, am I having rent roll up or roll down, because I’m moving people in above the average rates in the community?”
But in a conversation with me this week, Welltower CEO Shankh Mitra decried the fact that most operators do not even have a “proper rent roll.”
“Forget about small operators, big operators don’t have a proper rent roll,” he said, noting that even small multifamily companies are well ahead of senior living in having basic financial information, tools and expertise.
While Sweetser said that EDs have not been hired for their financial wizardry, he said they have been expected to “bring residents in.” But they too often are falling short on this expectation as well.
That’s obvious from the industry’s persistently bad performance — which SHN has reported on for years — on basic sales practices, such as answering the phones and returning calls promptly.
“How disappointing it is that you have customers calling you … saying here is the problem, you potentially run something that can fix the problem, I’m willing to pay you dollars, and we don’t respond to half their calls, 70% of their calls, that’s how bad we are, from an industry standpoint,” Mitra told me.
His observation is backed up by copious data from organizations such as Bild & Co. For instance, that firm conducted a 2020 mystery shop in which 43% of communities targeted by mystery shops offered to send information with no reference to follow up, 29% offered to send information with only a vague promise to follow up, and 14% made no offer to send information or follow-up.
David Smith, co-founder of senior living sales enablement platform Sherpa, also has been outspoken about the broken senior living sales process. He believes that too many operators and owners generally have been complacent as long as occupancy reaches a threshold to meet financial obligations.
“My hypothesis is that as long as at the property level you were able to pay the rent and management fee, no one cared about the last 10%,” he told me in 2021.
Brookdale has been focused on revamping its sales function, under the leadership of Rick Wigginton. On Brookdale’s latest earnings call, Baier said that Wigginton has “done phenomenally well with our sales associates,” and now a concerted effort is underway to instill a similar “growth mindset” among EDs.
When Jefferies Analyst Brian Tanquilut asked for specifics about how Brookdale is evolving the ED role, Baier offered this tidbit:
“The first thing that we really did is help them clearly understand just the value of the apartments that are not in service, and the opportunity that creates.”
This seems to me like a shockingly basic starting point for “evolving” the ED role. One of the fundamental elements of the ED job is to drive occupancy, and yet EDs did not know the “value” represented by a vacant unit? What are EDs learning in their training programs, if not this sort of information?
I don’t mean to criticize Brookdale for taking steps to address this situation, which is laudable. But if the largest operator in the space has to start from such a basic place to evolve its EDs, I take it as another indication of how urgently the industry as a whole needs to elevate its game and drastically sharpen executive directors’ skills.
Incentives and compensation
As providers hold EDs to higher standards and equip them with greater knowledge and resources, they also are going to have to improve how these leaders are incentivized and paid.
Brookdale has piloted some “special compensation programs” in certain communities, Baier said on the earnings call.
Pennant provides another model. Reflecting its roots with Ensign (Nasdaq: ENSG), which has a similar framework, Pennant is organized in regional clusters, within which leaders have financial incentives to collaborate and drive performance.
“Our operating model empowers these leaders to identify partners in the local community, create strategic plans relevant to their local situation and align with other cluster partners through our incentive and equity structures,” Guerisoli said on the recent earnings call.
He also emphasized that Pennant recognizes its most successful leaders with C-suite titles, and offered the example of newly-appointed CEO Russell Sylvester and future Chief Wellness Officer Dakova Nielsen, of Sherwood Village Assisted Living and Memory Care in Tucson, Arizona.
“Throughout 2022, Sherwood gained momentum, increasing its census to pre-Covid levels to end 2022, with the census of 151 residents, an increase in occupancy from 80% in Q4 2021 to 91% in Q4 2022. Sherwood’s financial performance improved accordingly with a 78% increase in EBITDAR year-over-year,” Guerisoli said.
The Pennant model is not easy to implement, and the company’s senior living business struggled and demanded a great deal of Guerisoli’s attention over the last several years, as he explained in a TALKS interview with me last fall.
The executive director role is one that is particularly crucial to the success of the model, and a new ED typically is brought in when Pennant acquires a community.
“Even in a situation where there is a strong local leader already in place, the expectation would be that they’re still going to go through our executive director in training program,” he said. “They’re going to learn the culture, they’re going to learn accountability, they’re going to learn what it means to be a cluster partner, they’re going to learn how to be accountable in a different way and to really take ownership and see their opportunity and really be motivated by what that opportunity looks like. That’s why we normally will see turnover at the executive director level.”
Getting the senior living business on the right track also involved having hard conversations with incumbent leaders.
“We asked many, many of our leaders, many of our key leaders to either do something different or to leave,” Guerisoli told me. “It’s not that we don’t love them and care about them and want them to be wildly successful, but they didn’t believe or they didn’t feel like they were capable of making the change, and that’s okay.”
In addition to finding and training the right leaders, and parting ways with others, Pennant’s model demands that corporate leadership relinquish a significant amount of control, Guerisoli emphasized.
“It’s a paradigm shift,” he said. “Frankly, it’s harder. It would be a lot easier for me to just tell people what to do and to just say, look, you’re failing here. You need to do this, this, this, and this. That doesn’t extend trust. That diminishes trust. We’re building leaders and we’re extending trust and we’re creating opportunities for our leaders to achieve their potential, and by extension, their operations can achieve their potential.”
Pennant is organized to support this paradigm, including by having operations under local brands. I do wonder how well a company like Brookdale, with a one unified brand, can strike the right balance between corporate leadership and local autonomy.
Then again, it remains to be seen whether Pennant can build on the progress it has made in its senior living performance and deliver the type of consistent results that Ensign has delivered. And perhaps Brookdale and other providers will create other models that prove successful.
But whatever the approach, it’s clear that a paradigm shift is needed, and that the future of senior living providers will be dependent in large part on how they redefine the ED role, hire the right people to fill these positions, and train and compensate them to drive their success.