By: Ken Sandbakken

Compensation in the healthcare industry has been a hot topic for decades. The convergence of two phenomena — upward pressure on entry level jobs and the COVID-19 pandemic — have exacerbated the problem. This article will define the issues and offer some broad strategies to address compensation challenges for nurses and entry-level staff.

Nurse Staffing & Compensation

Nurse staffing is an ongoing issue. The pandemic has accentuated the need for healthcare organizations to revisit their nurse pay levels and practices. Long hours and understaffing have caused burnout and a nurse exodus. Pay was also a determining factor of the exodus with nurses looking to staffing organizations for higher pay. Ironically, not adequately addressing nurse pay has forced organizations to spend tremendous amounts on traveling nurses.

Healthcare organizations can consider a number of strategies to address nurse pay. Components to address are starting wage, step systems, tenure, shift differentials and merit-based systems. Inpatient and ambulatory settings also need to be considered. Ambulatory settings generally allow for a 9 to 5 schedule, Monday through Friday. Inpatient settings generally involve acute care, extended/call hours, and 7-day coverage. If the acuity of care and work-life balance is different for differing healthcare settings, should compensation be different?

Entry-Level Compensation

Wage competition has caused healthcare organizations to increase entry-level starting wages to match Walmart, Target, Costco, Amazon, etc. Some of these entry-level jobs are imperative to healthcare operations and have seen increases. Examples are lab assistants, nursing assistants, phlebotomists, registration, food service and housekeeping. Increasing starting wages has come with consequences and costs that were unexpected. Mainly, wage compression has become a major issue.

Long-tenured employees and supervisors wonder why they haven’t gotten an increase. Any increase to them brings the same questions from managers. A severe cultural breakdown ultimately occurs.

Strategies to Address Compensation Challenges in the Healthcare Industry

There are steps that can be taken to minimize the impact of wage volatility for entry level staff and nurses. Ideally, an organization will have a plan before implementing sweeping wage increases for any level of employee. Unfortunately, the pandemic put many organizations into panic mode over staffing, resulting in knee jerk compensation reactions.

Conduct a Market Study

Compensation alteration plans should first include conducting a market study to determine the competitiveness of compensation for all jobs in the organization. Concurrently, an organization should be developing a compensation philosophy. The compensation philosophy will determine if the organization will lead, lag or follow the market. It does not need to be static for the entire organization but rather should be flexible within essential departments and for jobs difficult to attract and retain top talent.

Test the Impacts of Wage Increases

Test the effect of implementing increases on other parts of the organization. Will it create compression and cultural issues? Will it affect job levels and grades? The answer to those questions will most likely be yes. No organization has unlimited assets for wages, so priorities will need to be set on what jobs/levels are going to be prioritized.

Rethink Compensation Models

Reassessing compensation models can also be considered. For instance, compensation models often use a cost-of-living adjustment as the determinant for annual wage increases. The main advantage of this model is simplicity of administration. The main disadvantage is that it treats A-level employees the same as C-level employees. This often leads to animosity of high performers and an incentive to only perform at a mediocre level. This can also encourage turnover of the organization’s best employees. Other compensation models that can result in underperformance are step systems and plans that weigh on tenure.

Moving to a merit-based compensation model can help organizations develop a high-performance culture. However, organizations can be hesitant to make the move because of the risk of treating employees inequitably during the annual review process. The concern is some managers may rate their direct reports as 4s and 5s; some managers will rate their direct reports as 1s and 2s. All things being equal, these diametrically different managers may have equally valuable employees. Avoiding discretionary measures and metrics will minimize this fear. Even after development of the measures and metrics for a merit-based program, employers need to be aware that there will be a period of time needed for socializing and training.

To help mitigate the growing pains of moving to a merit-based system, organizations can bite off small chunks. Examples include incrementally rolling out to certain departments and jobs, developing measures and metrics that are objective and understandable, developing an incentive plan that rewards performance, or some combination.

Create a Communication Plan

Plan communication should focus on the positive aspect of the employee having a level of control over their annual increase, or level of pay if changes are for acute versus ambulatory settings. Communication should take place well in advance of the effective date to give employees enough time to understand the plan(s), what’s expected of them and how their performance affects the organization and their income.

We’re Here to Help

Healthcare is one of the very few industries where appropriate staffing can be a matter of life or death for its customers. Short of an unlimited budget, there is no silver bullet to solve shortages among frontline entry-level or nursing jobs. However, taking steps to make sure you’re competitive and have a strong employer brand to attract, recruit, retain and motivate is more important than ever.

Fortunately there are several actionable steps your healthcare organization can take that will put employee retention and wellbeing at the forefront and help reduce high levels of staff turnover and burnout amid the Great Resignation era. If you have questions about any of the solutions mentioned in this article or are considering reevaluating your current compensation models, connect with a member of our team.