Healthcare

Human Resource
Management
Flynn Mathis Jackson Langan

Chapter 12
Healthcare Compensation
Practices
PowerPoint Presentation by
Tonya L. Elliott, PHR
 Learning Objectives

After you have read this chapter, you should

be able to:
 Describe the differences between an entitlement
compensation philosophy and a performance-focused
compensation philosophy
 Define the issues confronting the healthcare industry in
complying with the Fair Labor Standards Act (FLSA)
 Discuss the various methods of administering a
compensation process
 Explain the issues associated with awarding pay
increases
 Discuss the five components of executive compensation

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 Healthcare Compensation Responsibilities

4 Objectives:

1. Legal compliance with all appropriate law and

regulations

2. Cost-effectiveness for the organization

3. Internal, external, and individual equity for

employees

4. Performance enhancement for the organization

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 Nature of Compensation

Intrinsic Rewards Extrinsic Rewards

Psychological effects Monetary

Social effects Non-monetary
Tangible
Examples: - Direct
Base pay & Benefits - Indirect

Examples:
Praise & recognition
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 Direct & Indirect Compensation

Direct Compensation Indirect Compensation

Base Pay Benefits

 Wages  Medical/life insurance
 Salaries  Paid time off
Variable Pay  Retirement pensions
 Bonuses  Workers’
 Incentives compensation
 Stock options  Others

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 Compensation Components

Base pay
 Basic compensation an employee receives, usually in a
wage or salary
Wages – payments directly calculated on the amount of
time worked
Salaries – consistent payments each period regardless
of the number of hours worked
Variable pay
 Compensation linked directly to individual, team, or
organizational performance
Benefits
 An indirect reward given as part of organizational
membership, regardless of performance
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 Compensation Approaches

Figure 12-2

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Compensation Philosophies

Figure 12-3

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Market-Based
Compensation
Strategies

Figure 12-4

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 Competency-Based Pay

Employees paid for their knowledge or skill rather

than the completion of tasks, duties, &
responsibilities

Considerations
Significant time investment
Strong management commitment
Training required to gain & maintain competencies
Limitations on number of people allowed to gain
competencies

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 Individual vs. Team Awards

Team Rewards

Use as variable pay added to base pay

Use to reward group performance beyond

satisfactory level

Base pay for individual employees paid as

competency-based

Most frequently distributed annually as a specified

dollar amount, rather than a percentage of base pay
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 Compensation Systems Design Issues

Compensation: The Strategic Decisions

1. What philosophy and approach will be taken?

2. How will the firm react to market pay levels?

3. Is the job to be paid on the person’s level of

competence?

4. Will pay be individual or team-based?

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 Perceptions of Pay Fairness

Pay Openness
– The degree or openness or secrecy that
organizations allow regarding their pay systems

External Equity
– The perception of the degree of equity that
employees have regarding their pay in their job as
compared to similar jobs in other organizations

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 Fair Labor Standards Act (FLSA)
Enforced by: U.S. Department of Labor

Provisions of the Law:

Law

 Establishes a minimum wage floor

 Defines exempt and non-exempt status
 1990: exempts highly paid computer workers
 Sets rules for compensatory time off
 Child labor – minimum age requirements
 age 16 – unlimited hours
 Sets overtime provisions
 1 ½ times pay for hours worked over 40 in a week

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 Wage/Hour Status Under Fair Labor Standards Act

Exemption A B C
Category Discretionary Authority Percent of Time Earning Levels

Executive 1. Primary duty is 1. Must spend 2. Paid salary

managing 20% or less at $155/wk
2. Regularly directs time doing or $250/wk
work of at least two clerical, if meets
others manual, A1-A2
3. Authority to hire/fire routine work
or recommend these (less than
40% in retail
or service
establish-
ments)

Figure 12-6 15
 Wage/Hour Status Under Fair Labor Standards Act

Exemption A B C
Category Discretionary Authority Percent of Time Earning Levels

Admin- 1. Primarily responsible 1. Must spend 1. Paid salary

istrative for non-manual or 20% or less at $155/wk
office work related to time doing or $250/wk
management policies clerical, if meets
2. Regularly exercises manual, A1-A2
discretion and routine work
independent (less than
judgment and makes 40% in retail
important decision or service
3. Regularly assists establish-
executives and works ments)
under general
supervision Figure 12-6 (cont’d)
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 Wage/Hour Status Under Fair Labor Standards Act

Exemption A B C
Category Discretionary Authority Percent of Time Earning Levels

Profess- 1. Performs work 1. Must spend 1. Paid salary

ional requiring knowledge 20% or less at least
of an advanced field time doing $170/wk or
or creative and non- $250/wk if
original artistic work professional meets A1-
or works as a teacher work A2
in an educational
system
2. Must do work that is
predominantly
intellectual and varied

Figure 12-6 (cont’d)

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 Wage/Hour Status Under Fair Labor Standards Act

Exemption A B C
Category Discretionary Authority Percent of Time Earning Levels

Outside 1. Customarily works 1. Must spend 2. No salary

Sales away from employer 20% or less test
site and time doing
2. Sells tangible or work other
intangible items or than outside
3. Obtains orders or selling
contracts for services

Figure 12-6 (cont’d)

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Independent Contractor Regulations

Figure 12-6

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 Equal Pay and Pay Equity

The Equal Pay Act of 1963

Prohibits using different wage scales for men and
women performing substantially the same jobs
Pay differences can be justified based on merit
(i.e. better performance, higher seniority, etc.

Pay Equity
A concept that the pay for all jobs requiring
comparable knowledge, skills, and abilities should
be the same even if job duties and market rates
differ significantly

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 State Laws & Garnishment Laws

State Laws
Many states have enacted modified versions of federal
laws, and they must be recognized

Garnishment Laws
Garnishment – when a creditor obtains a court order
that directs an employer to set aside a portion of
one employee’s wages to pay debt owed
Consumer Credit Protection Act – sets limitations on
amount of wages that can be garnished, and
restricts employers for discharging affected
employees
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Compensation
Administration
Process

Figure 12-8

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 Job Evaluation

Job Evaluation
– A systematic basis for determining the relative worth of
jobs within an organization
– Priced according to:
 Relative importance of the job
 Knowledge, skills, & abilities (KSAs) needed to perform
the job
 Difficulty of the job
Benchmark Jobs
– Jobs found in other healthcare organizations and
performed by several individuals who have similar
duties that are relatively stable and that require similar
KSAs.
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 Methods of Job Evaluation

Ranking Method

Classification Method

Point Method

Factor Comparison

Integrated & Computerized Job Evaluations

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 Legal Issues & Job Evaluation

Americans with Disabilities Act (ADA)

Job evaluation considers all functions of the job, not
just the essential functions

Gender Issues
Traditional job evaluation programs place less weight
on knowledge, skills, and working conditions for many
female-dominated jobs

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 Pay Surveys

Pay Survey
– A collection of data on compensation rates for
workers performing similar jobs in other organizations

Legal Issues
Using outside consultants to conduct pay surveys
helps avoid charges of “price-fixing” on wages

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 Pay Structures

Types of Pay Structures:

1. Hourly and salaried

2. Office, technical, professional, and managerial

3. Clinical allied health and support

4. Clerical, information technology, professional,

supervisory, management, and executive

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 Pay Structures: Pay Grades

Pay Grades
– Grouping of individual jobs having approximately the
same job worth
Broadbanding
– Practice of using fewer pay grades with much
broader ranges than in traditional compensation
systems
– Why Broadbanding?
 Creates more flexible organizations
 Encourages competency development
 Emphasizes career development

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 Pay Ranges

Start with market line,

used as the midpoint

Determine minimum and

maximum pay levels

Types of Jobs Range Above Minimum % Around Midpoint

Executives 50%-70% + or –20-25%
Mid-Management/Professional 40%-50% + or –16-20%
Technicians/Skilled Craft & Clerical 30%-40% + or –13-16%
General Clerical/Others 25$-35% + or –11-15%

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 Pay Rate Issues

Rates out of Range

Red-Circled Employees Green-Circled Employees

An incumbent who is paid An incumbent who is paid

above the range of the job below the range of the job

Pay Compression
– Occurs when the pay differences among individuals
with different levels of experience and performance
becomes small

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 Performance-Based Pay Adjustment Matrix

Figure 12-11
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 Pay Adjustment Factor: Compa-Ratio

Compa-ratio
– A person’s pay level divided by the midpoint of the
pay range

Examples:
$25.00 (current pay)
Employee A  100  104
$24.00 (midpoint)

$22.00 (current pay)

Employee B   100  92
$24.00 (midpoint)
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 Issues Involving Pay Increases

Seniority
– Time spent in the organization or on a particular job
– Step systems -- pay increases based solely on how
long they have been with the organization
Cost-of-Living Adjustments (COLA)
– A standard raise given based on economic pressure,
such as the consumer price index
Lump-Sum Increases (LSI)
– A one-time payment for all or part of the yearly pay
increase
– Does not increase base pay

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 Executive Compensation Components

Figure 12-13

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 Executive Compensation

Executive Salaries
 Vary by job type, organizational size, region, &
industry
 Typically 40% - 60% of total compensation package
Executive Bonus Plans
 Usually tied to specific performance measures
 Typically 25% of total compensation package
Performance Incentives
 Attempt to tie executive compensation to the long-
term growth & success of the organization

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 Executive Compensation (cont’d)

Benefits for Executives

– Includes traditional benefits (health insurance,
retirement, vacation, etc.)
– Additional benefits not available to most employees
(deferred compensation, no-limit health plans, etc.)

Executive Perquisites (Perks)

– Special executive benefits, usually non-cash

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 Executive Compensation (cont’d)

Executive Perquisites (Perks)

 car allowance

 first class air travel

 financial/tax planning

 legal counseling

 health club memberships

 lunch club memberships

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