1. Healthcare Human Resource Management Healthcare Human Resource Management Flynn Mathis Jackson Langan Healthcare Compensation Practices Chapter 12 PowerPoint Presentation by Tonya L. Elliott, PHR

2. 2 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

3. 3 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

4. 4 Nature of Compensation Psychological effects Social effects Examples: Base pay & Benefits Monetary Non-monetary Tangible - Direct - Indirect Examples: Praise & recognition Intrinsic Rewards Extrinsic Rewards

5. 5 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

6. 6 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

7. 7 Compensation Approaches Figure 12-2

8. 8 Compensation Philosophies Figure 12-3

9. 9 Market-Based Compensation Strategies Figure 12-4

10. 10 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 Competency-Based Pay

11. 11 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 Individual vs. Team Awards

12. 12 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? Compensation Systems Design Issues The Strategic Decisions Compensation:

13. 13 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 Perceptions of Pay Fairness

14. 14 Enforced by: U.S. Department of Labor Provisions of the Law 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 Fair Labor Standards Act (FLSA)

15. 15 Wage/Hour Status Under Fair Labor Standards Act Exemption Category A Discretionary Authority B Percent of Time C Earning Levels Executive1.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) 2.Paid salary at $155/wk or $250/wk if meets A1- A2 Figure 12-6

16. 16 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 (cont’d)

17. 17 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 (cont’d)

18. 18 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 2.No salary test Figure 12-6 (cont’d)

19. 19 Independent Contractor Regulations Figure 12-6

20. 20 Equal Pay and Pay Equity Pay differences can be justified based on merit (i.e. better performance, higher seniority, etc. The Equal Pay Act of 1963 Prohibits using different wage scales for men and women performing substantially the same jobs 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

21. 21 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 State Laws & Garnishment Laws

22. 22 Compensatio n Administratio n Process Figure 12-8

23. 23 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. Job Evaluation

24. 24 Ranking Method Classification Method Point Method Factor Comparison Integrated & Computerized Job Evaluations Methods of Job Evaluation

25. 25 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 Legal Issues & Job Evaluation

26. 26 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 Surveys

27. 27 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

28. 28 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 Pay Structures: Pay Grades

29. 29 Pay Ranges Start with market line, used as the midpoint Determine minimum and maximum pay levels Types of Jobs Range Above Minimum % Around Midpoint Executives50%-70%+ or –20-25% Mid-Management/Professional40%-50%+ or –16-20% Technicians/Skilled Craft & Clerical30%-40%+ or –13-16% General Clerical/Others25$-35%+ or –11-15%

30. 30 Pay Compression –Occurs when the pay differences among individuals with different levels of experience and performance becomes small Pay Rate Issues Red-Circled EmployeesGreen-Circled Employees An incumbent who is paid above the range of the job An incumbent who is paid below the range of the job Rates out of Range

31. 31 Performance-Based Pay Adjustment Matrix Figure 12-11

32. 32 Compa-ratio –A person’s pay level divided by the midpoint of the pay range Examples: Pay Adjustment Factor: Compa-Ratio

33. 33 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 Issues Involving Pay Increases

34. 34 Executive Compensation Components Figure 12-13

35. 35 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 Executive Compensation

36. 36 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)

37. 37 car allowance first class air travel financial/tax planning legal counseling health club memberships lunch club memberships Executive Compensation (cont’d) Executive Perquisites (Perks)