An increasing portion of hospitalist groups have some pay tied to performance, and the portion of total pay tied to performance seems to be going up at least a little. It was 5% of pay in 2010 and 4% in 2011, compared with 7% in the 2012 survey.
Keep in mind two things. First, this 7% reflects the performance or bonus dollars actually paid out, not the total amount available. In other words, even if the median total bonus dollars available were 20% of compensation, hospitalists earned less than that. Some hospitalists earned all dollars available, and some earned only a portion of what was available. And second, some hospitalists fail to earn any bonus or don’t have one available at all. So the survey would show for them zero compensation tied to bonus.
Making Sense of the Numbers
If you follow the reasoning above, then you probably agree that if your goal is to match mean compensation from the MGMA survey (I’m not suggesting that is the best goal, merely using it for simplicity), then you would set nonbonus compensation 7% below median—as long as you’re likely to get the same portion of a bonus as the median practice.
In some practices, performance thresholds are set at a level that is very easy to achieve, meaning the hospitalists are almost guaranteed to get all of the bonus compensation available. To be consistent with survey medians, it would be appropriate for them to set nonbonus compensation by subtracting all bonus dollars from the survey median. For example, if a $20,000 bonus is available and all of it is likely to be earned by the hospitalists, then total nonbonus compensation would be $220,000.
However, what if the bonus requires significant improvements in performance by the doctors (which seems most appropriate to me; why have a bonus otherwise?) and it is likely they will earn only 25% of all bonus dollars available? If the total available bonus is $20,000, then something like 25%, or $5,000, should be subtracted from the median to yield a total nonbonus compensation of $235,000.
Simple Thinking
I think it makes most sense to set total nonbonus compensation below the targeted total compensation. Failure to achieve any performance thresholds means no bonus and compensation will be below target that year. Meeting some thresholds (some improvement in performance) should result in matching the target compensation, and truly terrific performance that meets or exceeds all thresholds should result in the doctor being paid above the target.
Dr. Nelson has been a practicing hospitalist since 1988. He is co-founder and past president of SHM, and principal in Nelson Flores Hospital Medicine Consultants. He is co-director for SHM’s “Best Practices in Managing a Hospital Medicine Program” course. Write to him at [email protected].