Giving Pay Raises to Practice Staff

November 7, 2012
Shelly K. Schwartz

Here are the dos and don'ts of rewarding your hardworking employees.

Your billing clerk wants to talk. She's been with you for nearly a year and it seems she expects a raise. Trouble is, she drags in late, her customer service skills are lacking, and her performance thus far has been unimpressive, at best. You can help her set new goals or throw a cost-of-living adjustment her way, but you can't reward her work ethic if you hope to effect change. "Giving a raise every year for the sake of giving a raise is a bad idea because people come to expect it and they don't feel they need to do anything to earn it," says Vicki DeLeonardo, office manager at Monmouth Family Health Center's medical pediatric division in Long Branch, N.J.

Doling out pay raises is a delicate business, indeed. Reward too little and you risk losing your best and brightest, which creates costly turnover. Approve an across-the-board raise, on the other hand, and the employees who help drive profits might lose motivation. "Why should your top performers continue to give 110 percent effort when they get the same raise as those giving 90 percent?" says DeLeonardo. To maximize the impact of a merit-based raise, you'll have to take steps to ensure your system is both transparent and fair.

Share expectations

It goes without saying, of course, that your pay scale must be competitive. To confirm it is so, conduct informal polls at local networking events, and review national salary surveys like those conducted by the Medical Group Management Association and our annual staff salary survey (http://bit.ly/Staff_Salary_Survey).

If your compensation package is up to par, set some parameters for who gets what and when - and communicate those benchmarks clearly to your staff. Employees must know where your priorities lie, so they can aim to please, says Sheila Margolis, president of Workplace Culture Institute in Atlanta and author of "Building a Culture of Distinction."

To determine these parameters, consider your practice's priorities. Do you wish to reduce billing errors, or patient wait times, by 20 percent in the coming year? Is customer service your No. 1 goal? Will you reward financially for educational attainment, including continuing education classes? "Many organizations do not define the principles and values expected in the culture so when it's time to give pay raises, the leadership knows there's a problem with the employee, but they don't have a clear way to communicate it," says Margolis.

Most practices conduct a performance review on the anniversary of each employee's start date. That's the time to measure their progress against previously discussed goals, and assess their strengths and weaknesses. It is not the time to address new concerns, says Margolis, noting pointers and praise should be given as needed throughout the year so your staff has a chance to develop. "Individuals must be crystal clear on expectations for their performance and receive ongoing feedback so there are no surprises during their review," she says.

Play fair

When developing a system for financial rewards, says DeLeonardo, every effort should be made to ensure fairness. "I know some multispecialty practices that give raises based on how well the practice does, or the number of patients seen, but that's difficult for your staff to control," she says. In today's economy, many practices are experiencing a decline in volume as patients struggle with higher copays or a loss of health insurance. Your staff should hardly be penalized because patients are postponing checkups. According to DeLeonardo, the best merit-based systems reward for individual performance, using metrics such as patient feedback, peer evaluations, bedside manner, and error rates.

Margaret Blue, a former practice administrator, who now consults with Desert Practice Management in Phoenix, recommends a formal grading system. At the start of every calendar year, Blue says managers should determine the maximum annual raise for which each employee is eligible. At her former physician's offices, that was typically 5 percent. Blue would then evaluate each employee when their annual review came up, using a scale of 1 to 5 in the following categories: knowledge of work, quality of work, timeliness, initiative, judgment, professionalism, and cooperation. Any employee who received an average score of 4 or 5 was eligible for the full 5 percent raise. Those who earned an average 3 or 4 were eligible for a partial raise, while those who earned a 2 or 1 got nothing. "I gathered input from their peers and definitely from the physicians they worked with, but as the manager, I kept control over the final number and the message over what that number meant and why," says Blue.

Importantly, Blue says she also leveled with her staff about potential pay increases well in advance. "I would always tell everyone once the budget was done at the beginning of the year how much we had allocated for raises that year so they knew what to expect and what they were targeting," she says. An open and honest communication policy helped to manage expectations during the lean years, too, when there was no money in the budget for a raise.

Make lemonade

For those who fail to earn a merit raise, Margolis notes the review process is an excellent opportunity to help elevate their game. Set measurable goals together for the year ahead, ask what you can do to help them do their job, and establish a schedule to discuss their progress regularly between now and their next review. The goal is not to punish, but to help them succeed. In these cases, adds Blue, it may be most effective to give smaller raises more often. "Annual raises sometimes seem like a long stretch, while smaller, unexpected raises at shorter intervals actually work better at motivating people," she says, noting such a strategy helps remind staff members more consistently that their performance counts.

When you evaluate performance, Blue says, don't make the mistake of going too easy on your employees either, just to spare yourself an uncomfortable encounter. An honest review will best serve the employee, and provide the documentation needed to terminate their employment if they don't show signs of improvement.

Put it in writing

It's worth noting, too, that a transparent policy for distributing raises can prevent headaches down the road, says Blue. Practices that reward on an arbitrary basis expose themselves to discrimination claims from disgruntled employees who may feel that management is playing favorites. It also creates morale problems and infighting when word gets out that some of your staff got a salary bump while others didn't - and make no mistake, it always leaks out, says Blue.

To that end, have your employees sign a copy of their annual review every year so it's clear they understand where their strengths lie and what they need to improve. DeLeonardo says she puts her own commitment to the employee in writing, as well. "Before they sign it, I set goals for myself and I put that into the evaluation," she says. "For example, I might write that I will see to it that they get more training or go to a seminar. That becomes a contract between the two of us. It keeps me on my toes."

Reward on the fly

In certain cases, it may be appropriate to recognize someone who goes above and beyond. Perhaps they spent a month tirelessly working out the kinks of your new EHR, or devised a method to cut billing errors in half. You need not wait until their annual review to show your appreciation. If your budget allows, consider a small raise or one-time bonus. Depending on the size of your practice, you may instead promote them to a group head. You can also make a positive example of that employee without incurring a cost by recognizing them in front of their peers. "I recognize achievement like that with 'Employee of the Month' awards and maybe ad hoc thank you cards with a gift card," says Blue. "An unexpected gesture of appreciation like that goes a long way, sometimes even longer than a raise."

Merit-based raises can be a powerful tool for motivating your staff. But it can also create factions and resentment if you're not careful. Take time to establish performance goals for each member of your staff, and offer feedback throughout the year to help them maximize their monthly paycheck. It'll be your practice that benefits most.

Shelly K. Schwartz, a freelance writer in Maplewood, N.J., has covered personal finance, technology, and healthcare for more than 17 years. Her work has appeared on CNBC.com, CNNMoney.com, and Bankrate.com. She can be reached via editor@physicianspractice.com.

This article originally appeared in the November/December 2012 issue of Physicians Practice.