Last month in Planning Strategies ("Staff Pay: It's More than Salary,") , we discussed how to remedy some mistakes that practices commonly make in determining staff salaries.

But setting on-target salaries isn't the only factor you must consider as you try to retain valuable employees while remaining economically viable. Benefits and incentives are important parts of the compensation equation as well. This month, we'll present some smart ways to approach those areas.

HOW BENEFITS ARE CHANGING

Benefits are an important part of any compensation package. As with direct wages, the benefits you provide will affect the attractiveness of your organization to job applicants and will influence employee satisfaction and job performance. Benefit costs should range from 10% to 25% of the individual employee's base salary.

Traditional benefits include: health insurance, holiday and vacation benefits, dental insurance, life and disability insurance and pensions. Some practices have adopted what is called a cafeteria plan. Cafeteria plans can generate significant tax savings for both your practice and your employees. These plans give each employee a benefit budget based on his salary and some flexibility in choosing a set of benefits to meet his needs.

Other practices are instituting alternative benefits as part of employee retention campaigns. Alternative benefits can range from flexible hours, childcare, health club membership, job-sharing programs to long-term care coverage.

SAMPLE INCENTIVE PROGRAMS

You should also consider incentive programs as an added compensatory benefit for your employees. In an incentive plan, an employee receives compensation as a direct result of a change in some performance indicator.

For example, some practices award a bonus to the practice administrator based on net income before physician compensation. In this case, the practice administrator is motivated to increase collections and reduce overhead. In any event, the practice's bonus program should be achievable. Unreachable goals defeat the purpose of the bonus program, which is to motivate employees.

Practice administrators in particular are often frustrated because they feel they are not paid what they're worth. This usually occurs when the practice has done well, but the physician owners have failed to recognize the efforts of the administrator financially. Administrator compensation is an issue you need to evaluate every year. Here are some popular administrator incentive plans:

�       5% of current base salary if the practice's net collection ratio equals or exceeds 95%

�       5% of current base salary if the accounts receivable ratio at the end of the year is equal to or less than 1.5 times the average monthly production for the preceding 12-month period

�       3% of all collections exceeding a designated collection target.

In developing the target, start with practice collections for the prior year and add a targeted growth rate (between 10% and 25%). If the practice administrator can increase collections over the targeted growth rate, he will receive 3% of the excess.

For example, if practice collections for the previous 12-month period were $1,000,000, and you want to target a 10% increase in the next year, the administrator would get 3% of all collections that exceeded $1,100,000. The objective here is to motivate the administrator to build gross revenue.

GOALS MERGE

Working under a compensation plan that you've created, giving careful consideration to salary, benefits and incentives, will motivate employees to strive for superior performance. And the economic benefits they receive will be commensurate with helping your practice achieve its performance goals.

Dr. Gable is chief executive officer of Dynamic Health Connections, Inc., in Lake Forest, Calif., which provides specialized consulting expertise for subspecialty physician groups, managed care organizations and other medical organizations. You can reach him at dhc38@aol.com.