Employee Compensation: Cost or Investment?

August 30, 2011

Your view of compensation ― as a cost or as an investment ― can have a major impact on the long term growth of your practice.

Your view of compensation - as a cost or as an investment - can have a major impact on the long term growth of your practice.

Compensation as a cost. With labor costs representing the single highest component of overhead, it's easy to see why so many physicians adopt a cost-based view of compensation and strive to reduce such costs whenever possible. This leads many practitioners to cut corners - on both the number and/or caliber of people they hire and accordingly, the salaries paid to them.

Compensation as an investment. Physicians who view compensation as an investment take a different approach. They hire highly-qualified support staff and pay them accordingly. Their return on this investment results in greater efficiency, higher productivity, increased patient satisfaction, and less staff turnover among other benefits.

Reality check: Your staff members are ambassadors for your practice - for better or for worse. Inefficiency, incompetence, and rudeness of any kind toward patients, family members, or referring physicians are extremely detrimental to your practice. Get the right people on board. They will pay for themselves many times over.

The following are five additional hard learned lessons about staff compensation.

1. You get what you pay for. If you underpay your employees, you will attract either less competent people whom you probably will let go - or those who are just starting out, who will learn all they can from you and then move on to better paying jobs. Either way, your salary policy will generate more staff turnover than loyalty.

2. Don't be understaffed. High performance practices tend to have more staff than the norm, not fewer. Their offices are more productive, efficient, and are less stressful for both patients and staff - even if costs are higher. The result is greater patient satisfaction, more referrals, and practice growth.

"Too many doctors trying to cut costs don't care about staff. They just want a warm body standing there," says Vicki Seibert, administrator for a solo medicine and gastroenterology practice in Clearwater, Fla. "It's important to keep good staff long-term, no matter what it takes in terms of salaries and benefits."

3. Don't be afraid to link annual raises to performance. Use a compensation model that recognizes and rewards improvement in knowledge (e.g. coding), skills (e.g. EHR), or performance (e.g. productivity). In other words, "Base raises on merit to reward excellent and good performers" advises The Health Care Group, based in Plymouth Meeting, Pa. "Giving everyone a flat raise, for example 3.5 percent of the previous year's salary, across the board, tells your best performers that no matter how hard they work, it doesn't matter and tells your poorest performers that they can continue to generate inferior results and still be rewarded."

4. Be wary of making counteroffers. Suppose a key employee gives notice that he or she is leaving to take another job for more money. Do you make a counteroffer to persuade the person to stay? The consensus of physicians and practice managers with whom I've spoken, is "No." The reason: The problems caused by counteroffers often outweigh the benefits.

For example, if concessions are made and the employee stays, it may lead to resentment among other employees who feel they too deserve a raise, additional perks, or a change in work schedule. Worse yet, a counteroffer to a departing employee may lead to a chain reaction, prompting other employees to use the same tactic to get concessions.

(The one exception: a key employee who is critical to the day-to-day operation of the practice. In the long run, it may cost more to replace that person than to retain her. Consider making a counteroffer in such a case and take a chance that the aftermath will be smooth sailing.)

5. Don't be afraid to let your employees know they are appreciated. Coddle your employees. Without them, you may not have a practice. If necessary, pay them before you pay yourself. Give them benefits you would not take for yourself. Spoil them and empower them in every way possible. Your practice will be better for it.

Bob Levoy is the author of seven books and hundreds of articles on human resource and practice management topics. His newest book is "222 Secrets of Hiring, Managing and Retaining Great Employees in Healthcare Practices" published by Jones & Bartlett. He can be reached at blevoy@verizon.net.