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Consider alternative modes of compensation.


Laboratory professionals have for many years felt inadequately compensated for their skills and services. This situation could improve by the year 2000 as modes of compensation provided to hospital employees change, perhaps drastically. Until then, understanding the types of compensation available now may help laboratory managers to keep employees satisfied. Innovative compensation strategies can complement other retention strategies used by lab management.(1)

Compensation in health care has traditionally taken the form of automatic step-in-grade increases or merit-based pay-for-performance increases. Either system is often combined with a cost-of-living adjustment (COLA). It has been recognized for some years that the automatic increases provided by step-in-grade systems simply for "being there" are totally unsatisfactory. Among other deficiencies, they fail to motivate employees.

The basic idea behind the merit based pay systems that are currently in wide use is that the prospect of increased compensation provides sufficient incentive for continually improved performance. Pay for performance compensates employees for levels of performance; an outstanding worker might receive an annual salary increase of 7%, for example, while an employee who has put forth standard performance would be given an increase of only 5%. What increase actually inspires an employee to do better? Does 5.8% motivate more than 5.0% or the frequent average of 5.5%? Probably not.

Human resource professionals currently believe that individual merit-based compensation is less likely than other approaches to improve organizational quality, productivity, and team performance.(2) Compensation systems being introduced in health care today include skill-based pay (career ladders), gain sharing, exempt pay for health professionals, and total quality management (TQM) incentive pay. All these pay systems, which will now be discussed, offer certain advantages over traditional compensation programs.

* Total compensation. Health care organizations are looking with increasing interest at incentive-based compensation systems as a means of improving traditional pay programs. In the remainder of this decade, total compensation will combine base compensation, merit pay, skill-based pay, and some form of variable compensation. Base compensation levels will continue to be determined by the market. The salaries of laboratory professionals will be .affected in this way until the supply and demand for their services equalize.

Variable compensation will be comprised of incentive-based pay programs linked to the quality of team performance in the lab or the degree to which the employees as a group meet total quality goals. The goal of incentive pay is to reward team performance rather than individual performance. Since health care systems involve many interrelated teams, and the quality of the product relies heavily on how well they work together, this form of compensation (incentive pay) may do more to improve overall performance than traditional pay systems ever have or could. Incentive pay forges a strong link between group or team performance and the compensation received by members of the group or team.

A combination of skill-based pay and an incentive pay system such as gain sharing is likely to work best for health care professionals. Incentive-based pay systems have been in use for many years among executives in health care and the (outside) business world. Executive pay is frequently based on goals achieved by the organization or department under the individual's leadership. This type of variable compensation is now being considered potentially appropriate for the rank-and-file worker as well.

* Career ladders. Skill-based pay, also called career ladders, offers

increased levels of compensation as the employee acquires skills, knowledge, and levels of responsibility. Skill-based pay is not new to hospitals; nursing departments implemented clinical ladders many years ago. It is, however, relatively new to the clinical laboratory and should be set in place before any additional compensation programs are implemented.

A vital part of total compensation systems in health care institutions today, career ladders must be constructed so that they will motivate employees to add to their skills. Progression must require more than seniority or years of experience. To move up a career ladder, an individual must demonstrate that new skills, education, and expertise have been acquired.

No single model of career ladder will be suitable for all hospitals or laboratories. Factors leading to progression may include a combination of seniority, years of experience, level of technical performance based on performance standards, continuing or other education, work habits, specialty certification, cross-training, and skills at a higher level than before.

Good career ladders define the direction employees should take to obtain professional advancement and recognition. They frequently offer both an administrative track and a technical track for upward mobility. Each level of the career ladder must define new duties and responsibilities for the position. To provide incentives for promotion, adequate compensation must be provided for each consecutive rung on the ladder. Our institution's career ladder is depicted in Figure 1.

Through career ladders, the institution benefits by retaining highly skilled and experienced staff members and by reducing turnover costs to the hospital. Career ladders offer other advantages as well, often improving quality and productivity and helping eliminate bias in promotion decisions. Skillbased pay or career ladders should be implemented before or concurrent with other types of innovative compensation systems. Just as skill-based pay rewards the skills of the individual, incentive pay rewards teamwork and improved organizational performance.

* Gain sharing. Employees who work in institutions that provide gain sharing receive some of the profits earned by the institution or business. This incentive program recompenses staff members for improvements in team performance that lead to financial gain for the institution overall. Facets of such improvement include reducing the number of sick days used, increasing customer satisfaction, and shortening turnaround time.

Gain sharing can have a positive impact on employee communication and satisfaction while making operations more efficient. In addition, it may help improve the all important bottom line by focusing employees' attention on the key areas in which the department has succeeded in meeting goals. Sharing rewards for acknowledged success can forge stronger intra- and interdepartmental relationships.

This is how it works. Employees in different areas of the hospital are given specific departmental goals to achieve, usually some related to quality and others related to finance. Shares are paid only if the institution reaps financial rewards from improved performance. Goals are determined by the department as the best measures of its team's performance. Because compensation will be based on team performance, peer pressure often drives poor performers to improve their performance. The system encourages teamwork at all levels of the institution.

Gain-sharing systems provide either equal shares to all employees, paid two to four times per year, or a fixed percentage share of base pay paid out at intervals. Let's say a lab has four departmental gain-sharing goals for the quarter: (1) a decrease of 10 minutes in turnaround time of Stat orders from the emergency room; (2) a 10% decrease in sick time used in the department; (3) a l0-point increase in physician satisfaction; and (4) a 15-minute decrease in waiting time for outpatients who have come to the laboratory to give a blood specimen. If all four goals are met, each employee will receive a lump sum share of $1,500 to $2,000 for the quarter. Subsequently, new goals are selected for the next quarter by the department head with the approval of upper management. Staff input would be solicited to assure that goals were attainable and realistic.

Compensation for executives and upper management is similarly linked to achievement of departmental gain-sharing goals. Gain sharing is not likely to replace current pay systems, such as pay for performance and skill based pay, but can be used wisely to complement and enhance them.

* Total quality concepts. Health care organizations are searching for ways to link employee compensation to the total quality management (TQM) programs that are sweeping the industry. The basic principle of TQM is to reduce the cost of quality by improving work processes on an ongoing basis and by putting customers' needs first. Tying compensation to total quality goals tells employees that quality improvement is important to the hospital and that teamwork and quality will be rewarded.

TQM rewards, usually a combination of team and individual rewards, are often linked to improvements in customer satisfaction. Unlike gain sharing, which depends heavily on team indicators, performance indicators used for TQM rewards include individual indicators as well. Team indicators may be related to increased patient satisfaction scores or to decreased operating expenses. Individual performance indicators might include specified customer-focused criteria to be incorporated into performance appraisal systems. For example, appraisal of an employee might rely partly on evaluations from his or her coworkers regarding how well the employee treats them as customers. Such customer focused measurements help to determine the amount of payout earned by the employee. Some hospitals also grant special contribution awards for suggestions and ideas that improve work processes.

While TQM-based payouts are often approximately 4% to 6% of base pay, they may be as great as 20% for top performers. Benefits of this system include the empowerment of employees, greater commitment to quality by employees, and a heightened business awareness on the part of employees. Some institutions have noted dramatic alterations in employees' behavior and attitudes toward their work and customers. Compensation systems tied to total quality management may enhance the effectiveness of TQM efforts. As hospitals continue to implement total quality concepts, they should consider incorporating compensation strategies that will support and enhance those efforts.

* Exempt pay status. Traditionally most health care professionals have been paid on an hourly, nonexempt basis. This means that they are paid for actual hours worked and for overtime on a time-and-one-half basis. Exempt pay status denotes that the employee is a professional and is paid a salary for the job performed regardless of the number of hours worked. Ordinarily, no additional compensation is given for overtime, although some institutions pay straight-time wages to exempt employees for working regularly scheduled overtime. Human resources and nursing departments are exploring the advantages of conversion to salaried, exempt status for nursing and other allied health professionals. Some labs have paid laboratory technologists on an exempt basis for years with success. It must be emphasized that laboratory management should not seize upon this idea as a cost-saving measure--that is, as a way to reduce overtime costs. Conversion to exempt status requires that professionals not lose compensation; otherwise they will not accept the new system. Base pay, overtime, differentials, and other forms of premium pay must be rolled into one salary figure for each professional. This salary must be determined only after careful review of previous hours worked at premium rates.

A major advantage of granting exempt status to laboratory workers is enhanced recruitment. When these premiums are rolled into the starting salary, it often is higher than it would be otherwise. A hospital providing a starting salary of $36,000 to medical technologists may gain a competitive edge over hospitals that pay new technologists $25,000. The risk of unionization may be reduced, since staff paid in this way tend to identify with other salaried professionals rather than with hourly workers. This issue has become extremely important to clinical laboratories as unions have increasingly targeted lab technologists for unionization due to the recent National Labor Relations Board (NLRB) ruling regarding bargaining units in hospitals(3)

Exempt status for technologists may improve the work climate by creating peer accountability for covering shifts and for accomplishing work as efficiently as possible. Productivity may thus be improved. Some hospitals have reduced the costs of temporary help as their newly enfranchised professionals began to work together more closely to assure coverage. In these ways, the institution may save money, but not at the expense of the professional employee. Conversion to exempt-pay status must be carefully communicated and implemented to assure long-term acceptance and success.

* Salary equity. With salary equity, employees who have the same education, experience, and seniority and who assume the same duties and responsibilities are paid comparably. Although difficult to maintain at times, pay equity is critically important to the retention of lab professionals. How often have we heard the complaint that a new employee is being brought in at the same salary as a valued long-term employee--or at a higher one? The usual reason for this dilemma is that hiring guidelines are inadequate or have been violated or because the market is fluctuating rapidly and the institution has not adjusted pay scales regularly.

Laboratory managers can do several things to avoid creating salary inequities. They should make market adjustments when the demand for professionals exceeds their supply. These adjustments must be made regularly, since lab positions will probably continue to be affected by the market until at least the year 2000. Pay scales should be reviewed by a market survey at least once a year and compared with the salaries of competitors for talent in the market. The facilities surveyed should include not only hospitals but also other key competitors for staff. When adjustments are made, the pay of incumbents in affected positions must be adjusted by the same percentage as the scales.

To avoid scale compression or overlap, managers should adjust pay scales at each level in the laboratory. The difference between the median and top of scale rates for each consecutively higher position in the laboratory should be approximately 10% to 15%; any less might fail to assure adequate incentive for progression to the next rung. As career ladders are used more widely, it will be important to align compensation rates carefully with various levels of skill and responsibility as well as with the market for each position in the career ladder.

The final component necessary to assure equity is adherence to written hiring guidelines. Guidelines should specify the starting rates of individuals with specified credentials and years of experience. Hiring guidelines must be followed carefully. Starting salaries of newly hired workers should be equivalent to salaries of incumbents in the same job class who have the same credentials and degrees of experience. Hiring and salary guidelines should be made clear to all employees in order to establish an environment of trust regarding salary issues. Occasional errors will result in an employee's being over- or undercompensated. To keep morale high, managers should correct such mistakes as soon as possible after discovery.

In rare instances, a manager will be forced to violate hiring guidelines. Certain positions may require individuals with unique talents that are difficult to find in the prevailing market, for example. In such cases, the manager should discuss the laboratory's needs openly with the employees involved and ask them to agree that the higher salary must be paid. Managers who have made previous efforts to deal fairly with compensation-related issues are likely to encounter little resistance from their staffs.

Salary equity within the laboratory and with other health care professionals will remain top priorities for lab professionals through the remainder of this decade. Laboratory managers who wish to retain valuable staff members must be both responsive and sensitive to these issues.

* Providing incentive. Compensation has been viewed historically as a means of paying people for work performed. It has rarely provided adequate incentives for improved organizational and individual performance. Compensation systems of the future will reward employees in health care institutions for additional skills, individual performance, and attainment of team goals. Incentive pay systems will become more widespread in hospitals as their administrators and managers seek ways to improve organizational performance on many fronts.

These concepts go to the heart of the work experience. "Incentive compensation is not a way of paying people; it is a way of managing people,"a hospital executive has said.(4) Heightened levels of teamwork and commitment achieved by innovative compensation strategies benefit not only the employee but also the most important customer of all health care providers: the patient.

1 Compensation cures for today's health care professionals. Workshop proceedings. Institute for International Research. November 1991.

2 Best, M. Laboratory administrators' role in retaining professionals. MLO 22(8): 46 50, August 1990

3 Barman, MR. The state of the unions in the clinical lab. MLO 24(1): 26 38, January 1992

4 Snyder. G. Incentive pay at St Elizabeth Hospital. Performance Management Magazine 9(8): 18-24, 1991

General reference:

McDonagh, KJ., and Sorenson, M.A Restructuring nursing salaries: A mandate 1or the future Nuts Management 19(2): 39 41, February 1988.

The author is director of laboratory quality assurance and human resources in the department of pathology, Washington Hospital Center, Washington, D.C.
COPYRIGHT 1992 Nelson Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:laboratory technicians' salaries
Author:Best, Michele L.
Publication:Medical Laboratory Observer
Date:Jul 1, 1992
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