Healthcare Human Resource Management Flynn Mathis Jackson Langan

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Healthcare Human Resource ManagementFlynn
Mathis Jackson Langan
Chapter 12

• Healthcare Compensation
• Practices

PowerPoint Presentation by Tonya L. Elliott, PHR
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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
• Legal compliance with all appropriate law and
  regulations
• Cost-effectiveness for the organization
• Internal, external, and individual equity for
  employees
• Performance enhancement for the organization

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Nature of Compensation

• Psychological effects
• Social effects
• Examples
• Base pay Benefits

• Monetary
• Non-monetary
• Tangible
• - Direct
• - Indirect
• Examples
• Praise recognition

Intrinsic Rewards
Extrinsic Rewards
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Direct Indirect Compensation

• Base Pay
• Wages
• Salaries
• Variable Pay
• Bonuses
• Incentives
• Stock options

• Benefits
• Medical/life insurance
• Paid time off
• Retirement pensions
• Workers compensation
• Others

Direct Compensation
Indirect Compensation
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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

• What philosophy and approach will be taken?
• How will the firm react to market pay levels?
• Is the job to be paid on the persons level of
  competence?
• Will pay be individual or team-based?

The Strategic Decisions
Compensation
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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
• 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 Category
A Discretionary Authority
B Percent of Time
C Earning Levels
Executive

1. Primary duty is managing
2. Regularly directs work of at least two others
3. Authority to hire/fire or recommend these

1. Must spend 20 or less time doing clerical,
   manual, routine work (less than 40 in retail or
   service establish-ments)

1. Paid salary at 155/wk or 250/wk if meets A1-A2

Figure 12-6
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Wage/Hour Status Under Fair Labor Standards Act
Exemption Category
A Discretionary Authority
B Percent of Time
C Earning Levels
Admin-istrative

1. Primarily responsible for non-manual or office
   work related to management policies
2. Regularly exercises discretion and independent
   judgment and makes important decision
3. Regularly assists executives and works under
   general supervision

1. Must spend 20 or less time doing clerical,
   manual, routine work (less than 40 in retail or
   service establish-ments)

1. Paid salary at 155/wk or 250/wk if meets A1-A2

Figure 12-6 (contd)
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Wage/Hour Status Under Fair Labor Standards Act
Exemption Category
A Discretionary Authority
B Percent of Time
C Earning Levels
Profess-ional

1. Performs work requiring knowledge of an advanced
   field or creative and original artistic work or
   works as a teacher in an educational system
2. Must do work that is predominantly intellectual
   and varied

1. Must spend 20 or less time doing
   non-professional work

1. Paid salary at least 170/wk or 250/wk if meets
   A1-A2

Figure 12-6 (contd)
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Wage/Hour Status Under Fair Labor Standards Act
Exemption Category
A Discretionary Authority
B Percent of Time
C Earning Levels
Outside Sales

1. Customarily works away from employer site and
2. Sells tangible or intangible items or
3. Obtains orders or contracts for services

1. Must spend 20 or less time doing work other than
   outside selling

1. No salary test

Figure 12-6 (contd)
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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 employees 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
• Hourly and salaried
• Office, technical, professional, and managerial
• Clinical allied health and support
• 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/Ski
lled Craft Clerical 30-40 or
13-16 General Clerical/Others 25-35 or
11-15
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Pay Rate Issues

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

Rates out of Range
Red-Circled Employees
Green-Circled Employees
An incumbent who is paid above the range of the
job
An incumbent who is paid below the range of the
job
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Performance-Based Pay Adjustment Matrix
Figure 12-11
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Pay Adjustment Factor Compa-Ratio

• Compa-ratio
• A persons pay level divided by the midpoint of
  the pay range
• Examples

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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 (contd)

• 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 (contd)

• car allowance
• first class air travel
• financial/tax planning
• legal counseling
• health club memberships
• lunch club memberships

Executive Perquisites (Perks)