Healthcare Human Resource Management &n by X1C175UA


               Human Resource
            Flynn        Mathis   Jackson   Langan

Chapter 12
Healthcare Compensation
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
 Discuss the five components of executive compensation

             Healthcare Compensation Responsibilities

4 Objectives:

1.   Legal compliance with all appropriate law and

2.   Cost-effectiveness for the organization

3.   Internal, external, and individual equity for

4.   Performance enhancement for the organization
                 Nature of Compensation

Intrinsic Rewards            Extrinsic Rewards

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

                             Praise & recognition
             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

                 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
   An indirect reward given as part of organizational
    membership, regardless of performance                  6
              Compensation Approaches

Figure 12-2

Compensation Philosophies

     Figure 12-3


Figure 12-4

                  Competency-Based Pay

Employees paid for their knowledge or skill rather
   than the completion of tasks, duties, &

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

               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

 Most frequently distributed annually as a specified
 dollar amount, rather than a percentage of base pay
              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

4.   Will pay be individual or team-based?

                  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

               Fair Labor Standards Act (FLSA)

Enforced by: U.S. Department of Labor

Provisions of the 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

                 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 A1-
               others                           manual,               A2
            3. Authority to hire/fire           routine work
               or recommend these               (less than
                                                40% in retail
                                                or service

   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 A1-
             2. Regularly exercises             manual,               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)
                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
            2. Must do work that is
               intellectual and varied

                                                         Figure 12-6 (cont’d)
                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)
Independent Contractor Regulations

                                     Figure 12-6

                 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

               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

Figure 12-8

                        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.
            Methods of Job Evaluation

Ranking Method

Classification Method

Point Method

Factor Comparison

Integrated & Computerized Job Evaluations
                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

                       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

                        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

                 Pay Structures: Pay Grades

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

                               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%

                     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

               Performance-Based Pay Adjustment Matrix

Figure 12-11
             Pay Adjustment Factor: Compa-Ratio

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

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

             $22.00 (current pay)
Employee B                       100  92
              $24.00 (midpoint)
                 Issues Involving Pay Increases

– 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
– Does not increase base pay

               Executive Compensation Components

Figure 12-13

                  Executive Compensation

Executive Salaries
 Vary by job type, organizational size, region, &
 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

               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

                 Executive Compensation (cont’d)

Executive Perquisites (Perks)

 car allowance

 first class air travel

 financial/tax planning

 legal counseling

 health club memberships

 lunch club memberships


To top