Physician
Compensation Article
Lindalee A. Lawrence, "Are Our Physicians Compensated Fairly?",
Consultant's Corner, MHHRA News, Spring 1999.
Are
Our Physicians Compensated Fairly?
By
Lindalee A. Lawrence, Lawrence Associates
Human resources (HR) professionals are frequently asked to
consult with physicians to determine the fairness and equity of
physician compensation. Fairness and equity, though, depend on
one’s perspective. The steps outlined here assure a quality
analysis of internal and external compensation, but may not
address the underlying concerns of the physicians.
Toward that end, the HR professional should first talk with all
concerned parties to learn their perspectives and to find out
what issues have prompted compensation questions. Even after
gaining an understanding of the various perspectives, the tasks
of identifying internal compensation practices and analyzing the
competitive marketplace for a myriad of physician specialties
can seem daunting.
This article offers brief guidance in managing these tasks based
on our experience with physician compensation for HMOs,
multi-specialty group practices and hospitals.
Understanding the Culture and Work Environment
Understanding the physicians’ culture and work environment is a
key step toward analyzing physician compensation. The work
environment is an important element in physician recruitment and
retention. Organizations vary tremendously in terms of culture
and values regarding levels of productivity and performance
expectations, use of physician extenders, annual hours worked,
on-call and after hours coverage, hospital visitation, levels of
patient acuity, and approaches to administration, research,
teaching and outside consulting. All of these work factors
influence the perception of fair compensation in relation to
colleagues in other organizations. The level of administrative
support and work-associated stress also impact the time and
patience that physicians can offer the human resources (HR)
professional in any discussions about compensation.
Evaluating External Equity: Design and Amount
The culture and values of the work environment generally
determine physician compensation structure and design. National
surveys provide a good picture of the range of design options
and serve as useful benchmarks for annual competitive analysis.
The Medical Group Management Association (MGMA) "Physician
Compensation and Production Survey", identifies six categories
of compensation design: productivity-based, guaranteed or base
salary, straight salary, equal shares, capitation and structured
incentive/bonus. In our own surveys, physicians frequently
describe "salaried" as including fee-for-service and rates per
hour. "Full-time" physicians include a wide range of flexible
work hours, and a wide range of "full-time" pay.
Apart from the impact of varied pay designs, surveys tend to
capture different elements of pay. MGMA consolidates
compensation into "direct compensation" and "retirement
benefits". Other surveys like Sullivan, Cotter & Associates’
"Physician Compensation and Productivity Survey Report" present
a more detailed picture of total cash compensation, including
salary, stipend, incentive, deferred compensation and other
cash.
Prior to collecting external market data, the HR professional
should identify the most important pay elements for his/her
organization. Total compensation, including cash compensation
and all benefits, is the most valuable information from a
recruitment and retention perspective. Total compensation is
also the focus of the Internal Revenue Service Intermediate
Sanctions, applicable to "disqualified" physicians.
Unfortunately, the benefits element of total compensation can be
difficult to value and quantify. Valuation and comparison of
different kinds of retirement plans is detailed and
time-consuming. Valuation of subsidized office space, office
staff, board certification incentives, malpractice insurance,
income guarantees and other varied arrangements is even more
difficult. With limited administration, physician practices
cannot assure the quality and accuracy of responses to complex
benefit questions. Inability to collect detailed data can limit
a survey to analyzing the prevalence of these benefits.
Information about cash compensation is somewhat easier to
collect. It, too, varies with the incumbent’s work hours or
negotiated arrangements. Pay rates per hour worked, combined
with an assessment of productivity data, help to assure greater
comparability between an organization and its external market.
National surveys, like MGMA and Sullivan Cotter, have fairly
large numbers of physician participants. The HR professional can
select from a variety of market segments by specialty,
geography, practice type, compensation type, years of service
and so forth. Periodic local surveys, however, help to answer
specific questions about local work environments, the
marketplace and competitive hiring practices. A local survey can
target a group of similar participants and collect detailed
information from the physicians’ colleagues. This level of
custom analysis highlights organizations’ differing practices
and can address misperceptions about external compensation.
Evaluating Internal Equity
A
final piece of any compensation analysis -- internal equity --
addresses the fair relationship of an organization’s incumbents
to each other. In order to establish equity, some organizations
link base pay to experience or step rates. Step rates may be
more prevalent in response to union organizing among physicians.
Other organizations have compensation tiers with flat rates for
either entry-level or experienced physicians. Still other
organizations link pay to productivity and performance. In
surveying the marketplace, clear relationships between pay and
other factors can be masked by the variety of approaches being
used. In general, employers try to assure competitive
compensation at the entry level in order to recruit physicians
with 1 - 2 years in a specialty.
Any of these internal equity approaches are appropriate if they
satisfy the organization’s values and support retention. In
communicating its approach to internal equity, an organization
should be explicit about how incumbents are valued.
Talking with the Physicians
Above all, the HR professional wants to build credibility,
provide consulting support and forge a cooperative link with
physicians. Toward that end, it is essential to:
-
Understand the physicians’ culture and work environment.
-
Educate physicians about how compensation strategy impacts
behavior, how an organization assesses its total compensation
and what constitutes internal equity.
-
Consolidate the organization’s data on all compensation
elements across as many physician contracts as possible.
-
Communicate "bottom-line" information and, if necessary,
detailed information to individuals with inquiring scientific
minds, little administrative time and stressful jobs.
-
Respond to recruitment and retention concerns with a good
understanding of the work environments, levels of compensation
offered by the external marketplace, and ways in which market
compensation packages can be misunderstood or misstated during
recruitment.
Conclusion
Determining the fairness and equity of physician compensation
involves gaining an understanding of the perspectives of all
parties, their culture and values, comparing compensation for
the external and internal markets, and communicating the
findings. In general, although perspectives may differ greatly
and the data may be questionable, the outlined process should
help in reaching an answer to the question, "Are our physicians
compensated fairly?".
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