Compensation Comparisons: Evaluating Apples and Oranges

Compensation comes in many forms. This guide helps you evaluate what each piece is worth to you.

By Derek Sawyer | Fall 2017 | Feature Articles

 

When investigating potential jobs or opportunities, it’s easy to get excited about large sign-on bonuses, inflated hourly rates or what appear to be substantial benefits packages—because these are all compensation tools used to catch the eye of prospective candidates.

Not so fast, my friend! To consider total compensation, you need to see the complete picture, one that includes all these factors as well as a way to gauge the value of them as it relates to your situation.

In this article, we will take a shallow dive into some of the more common forms of compensation and address how to find common denominators so that you can fairly compare one factor to the rest of the package (as well as compare to others that may be markedly different).

Apples: Your needs

Jason Eppler, M.D.

Jason Eppler, M.D., recommends consulting an oft-overlooked source about a group’s reputation: the grapevine. Other physicians, nurses and ancillary staff can give great indicators about the culture, metrics and long-term viability of the group.

It may seem like advice you would get in a fortune cookie, but “know your needs” is a critical step.

Erik Petersen, D.O., regional medical director for American Physician Partners, noticed the recurring theme of preparation.

Medicine continues to demonstrate a lack of standardization regarding overall compensation across specialty and geography. Every situation is different. Family, geography, loans and other debt, investments, businesses, charity work and more can all play big roles in whether you should accept a high pay rate and fewer benefits or vice versa.

“At the end of the day, having a firm grasp on your own limitations and flexibility will increase your chances of avoiding otherwise unseen pitfalls along the way,” Petersen says.

If you have a 7 percent interest rate on your student loans, for example, then it could be less helpful to have a 401(k) match instead of loan repayment benefits.

This isn’t to say that starting a retirement plan is a bad thing, just that your financial focal points will change as your personal situation does.

In addition, when a prospective job is presented to you, the employer or recruiter will communicate all the reasons they think the job would be a great fit for you. Their reasons might include a great health care package, shorter shifts, free lunch in the hospital cafeteria or any number of things.

On the surface, these benefits sound wonderful…unless your spouse has access to a benefits package, you prefer longer shifts for more days off, and the cafeteria isn’t open during your night shifts. In this case, a higher straight hourly rate or more contributions to your 401(k) might be more ideal.

In short, there are several ancillary and sometimes unique offerings that an opportunity will provide, and knowing which ones will benefit you the most will help you determine which items are of value and which are not.

Oranges: The location

Most compensation packages are centered around a principle you learned back in middle school economics: supply and demand.

More desirable areas and a higher concentration of available physicians will equate to lower pay rates. The easiest examples are Hawaii and the Florida Keys. Both have a line out the metaphorical door for providers waiting to get in, but both by and large also have the lowest pay rates in the country.

On the flip side, many locations that are less desirable for a multitude of reasons will carry higher compensation packages. Keep in mind that a “less desirable location” is not necessarily a bad location; its supply is just less than the general demand.

Location also comes into play when considering the area’s cost of living and local taxes—two factors that can potentially have the largest impact on your take-home pay after all is said and done. Be aware of the tax laws where you intend on living and practicing, as there can be additional state, county and township taxes.

As a fan of a particular football team which will remain nameless (but resides in Jacksonville, Florida), I can say that a major draw for free agents is no state tax. As a free agent in your own right, you should take into account the difference in your taxable income, which can be as high as 10 percent of your annual pay (e.g. a $30,000 difference each and every year on $300,000 in annual salary).

Apples: The benefits

The next step in comparing your compensation offers is to establish a common denominator. In this case, the almighty dollar is the easiest. This doesn’t mean that you are only out for the money, but, instead, can offer a way to find the relative value of each portion of your compensation package.

Though this may sound complex, it can be determined simply by establishing the annual dollar value of a benefit, then dividing that by your projected hours over the course of the year.

A simple example would be two weeks of PTO, for which you would simply multiply your hourly wage by the hours provided.

A more complicated scenario, however, could revolve around hitting a performance bonus, which in itself contains some uncertainty.

To determine the value of a bonus, you must consider not only the dollar amount, but also the statistical likelihood of hitting that target each time.

(I must also note that job satisfaction is obviously a key component here, but for the sake of brevity, we will assume that whatever jobs you are comparing are ones that will fulfill your clinical and professional needs.)

If your employer is willing to contribute all or even a portion of your health/vision/dental benefit premiums, that’s hard to beat.

In reality, the company contribution to your plan is the true benefit here.

To determine the value of this portion of your compensation, divide that monthly amount by your number of hours.

As a side note, make sure that the network also covers your local hospital and desired clinical network.

Oranges: Employee type

There is no right or wrong answer here, and your specific circumstances play the biggest factor. According to Jay Widler, a consultant at Financial Designs in Overland Park, Kansas, “The current financial environment makes this a great time to work as an independent contractor. Health care reform, deduction allowances and other tax and investment rules make it a manageable, financially advantageous status for physicians. You should consider all the positions available to you and talk with a financial consultant who specializes in working with physicians to compare offers and determine which financial arrangement works best for you.”

As an employee, your employer will pay a portion of taxes as well as minimize the effort required when it comes time to file your tax return. Benefits, retirement and other group benefits are offered (sometimes at lower rates) and managed for you, which can be a big timesaver.

As an independent contractor, business expenses qualify as a tax write-off. Scrubs, gas, travel, health care premiums, etc., are all tax-deductible. Managing your taxable income is a top priority for a contractor. Being able to knock yourself down a tax bracket or two can easily make a five-figure difference in your annual take-home pay. You can also save significantly more for retirement in a tax-deductible plan (up to $54,000 per year vs. $18,000 as a W-2 employee).

Creating an entity can allow more financial planning advantages and possibly an extra layer of liability protection.

An independent contractor’s benefits are portable, and you can tailor them to your own needs. For example, a single, healthy 35-year-old male may need different coverage than a 45-year-old with a heart condition and family.

Apples: Bonus/metric incentives

It’s hard to ignore the increasing focus on the variety of metric incentives like patient satisfaction and quality-based measurements, because they are an ever-growing part of health care.

These typically are considered to be indicators of consistently good patient care and satisfaction. As a portion of compensation, it is important to have a good understanding of how they are tracked and the consistency of success. In many cases, you may need to rely on other departments within your system to achieve your goals, so situations like nursing shortages, volume variance, etc., can play a big role. Be sure to speak to other folks who work there to get a feel for if you are walking into a well-oiled machine or a 1978 Cutlass.

Oranges: Opportunities for advancement

Tony Briningstool, M.D.

The most successful negotiators calmly approach the table with facts. This approach helped Tony Briningstool, M.D., consider-and meet-a group’s benefit requests.

I would be remiss not to mention a partnership track, although there is such variety here that it is tough to lump them all into one group.

Two of the biggest factors to consider are your ability to achieve partner status and group liability. In most partnerships, there is a certain time frame or set of criteria that must be achieved before you become fully vested in the group.

These goals need to be reasonable and attainable and should also have some sort of guarantee. Once the goals are met, the partnership should be granted. The track record of the previous success of potential partners is the best indicator of how viable the option is, so don’t hesitate to ask about it.

Group liability is another easily overlooked factor in a partnership. According to Jason Eppler, M.D., emergency department director at Research Medical Center Emergency Room in Kansas City, Missouri, “partners can incur mutual liabilities not incurred with practice groups in which a physician is an employee. In a simple partnership, partners are financially liable for any malpractice claims against their partners, whether or not they were involved in the claimed incident. Most democratic groups avoid these sorts of problems by creating partnerships in the form of ownership of shares in a corporate entity. Equal shareholder status can create a functional partnership in group decision-making and other areas important to the physician, while reducing the legal and financial risks of a classic partnership.”

Apples: Payment structure

A relative value unit (RVU) is simply a unit of measure by which to judge the dollar value of any medical action.

According to Petersen, “if you go into a RVU-based comp model, be sure you feel very comfortable not only with the financial aspects of the plan itself, but also your ability [to] chart and knowledge of billing practices.”

In addition, be sure you have a method of obtaining feedback and chart reviews so you can continue to improve your documentation and accurately capture all services rendered. Knowing how to document procedures, critical care, etc., can play a huge difference in how much you are able to bill over the course of months or years, which in turn will directly affect your compensation.

One other main cause for heartburn among even the savviest negotiators is the dreaded counteroffer. Each situation is obviously a little different, but the number-one rule is to approach it rationally and with facts. On more than one occasion, I have been presented with the following line: “I just feel like I deserve more money.” That is, of course, not the best approach to justifying additional compensation.

Tony Briningstool, M.D., chief medical officer for American Physician Partners, shared the following story as an example:

“Recently we encountered a situation where our company would be taking over an existing practice of emergency providers from a different organization. In this particular case, both benefits packages couldn’t be more diverse from different in-network health providers. They had 401(k) match and PTO whereas we did not, but our base rate was set higher to account for some of these differences.

After we presented our initial proposal, we were sent a request for a meeting with all the providers to sit in person and discuss the differences and address questions.

After sitting down to the meeting, we were presented a typed, two-page breakdown from one of the current providers that detailed their benefits. This included the value of each portion of the package, as well as the rates of four nearby hospitals as a comparison. Based on this well laid-out research, the group presented a thoroughly thought-out counteroffer that was backed with evidence. After taking that information back to our team, we were able to shift around some of our package to allocate more money into the base rate and thereby meet the total compensation number that the group thought was fair.”

In this situation, the approach taken by the providers was just as important, if not more so, than the counteroffer itself.

While no method has a 100 percent success rate, laying out a logical argument based on facts and data of the surrounding market certainly has the best chance to be considered.

Apples and Oranges Photo

Oranges: Longevity

In closing, I wanted to touch on a point that I think is one of the most critical and most often overlooked ideas in negotiating: making sure the package is viable in the long term.

If you are lucky enough to stumble across a position that is willing to pay well above the market value, then it is certainly worth investigating—but understand that it may very well not last. In addition, if you find yourself making more than the rest of the physicians around you, you can bet that the clock is ticking on the longevity of that position.

To reiterate, be sure to do your homework! This is so you can not only maximize your total compensation, but also make sure it is a sustainable rate for your employer.

Derek Sawyer is a physician recruiter for American Physician Partners.

 

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