Pay For Performance Healthcare Essays

Performance Based Compensation Pay For Performance

Performance-based Compensation - Pay for Performance

Corporations are looking for new ways to improve employee performance as well as remain competitive. Pay for performance is one method some businesses are utilizing to improve employee performance. Performance-based compensation exists when compensation is tied directly to that portion of an individual’s performance that can be effectively measured. There are a number of ways in which this may be accomplished and a number of examples as well how it is applied. One of the oldest examples is taken from the ancient Egyptians, where slaves working in the pyramids were given bread for superior performance. Payment of commission for sales production is one of the methods used today.

Most will agree that knowledge is the ‘key’ resource in this post-industrial economy. The challenge for many companies is developing an organization that creates and cultivates knowledge and learning. Pay plays a significant role in shaping workplace behavior. Most of the traditional pay systems reward the job the individual performs rather than the skills he/she brings to the job. The system is not being able to reward the things the company needs and this presents a barrier. The trend has moved away from pay for the value of the job, service and seniority. It is being replaced with paying for skills, knowledge, competency, performance and productivity, all which can be delivered through different invitations, from changes to base pay to introducing gainsharing.


If part or all of the one’s salary is contingent on how well you actually perform your job, one will go the extra mile. The individual will attack his/her work with vigor and revel in the rewards. And if the employee and enough of his/her co-workers get this kind of incentive, one might even deliver the service that could turn a floundering company around.

The concept and practical approach for setting up a variable pay program is goal setting, performance threshold and. maximum pay out. Effectively goal-setting a program means closely aligning the needs of the business with the employee’s interest. Present an understandable performance contract between the organization and the employees, tie in contribution and rewards, motivate the employees and enable the company to meet planning budgeting requirements. Set performance goals for each measurement period based on SMART principles. Setting the Performance Threshold – most variable pay programs use a performance threshold, the minimum level an employee must reach in order to qualify for variable pay. The threshold takes into consideration compensation costs which is covered by minimally acceptable outcomes before a company incurs any additional costs. Maximum Pay out- it is a fact that most companies do not calculate their pay-out to performance ratio. The basic formula is calculating the pay-out to performance ratio of the target to the threshold and the maximum...

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A version of this essay appears in today’s edition of the Fortune Brainstorm Health Daily. Get it delivered straight to your inbox.

Paying for performance is a growing trend across the health care industry. Insurers have been striking deals with pharma companies that will land them discounts on pricey drugs if those treatments don’t demonstrably improve patients’ health outcomes; hospitals are penalized if they have high rates of patient readmissions.

But this model is also making its way to the C-suite, Modern Healthcare reports. To cite just one example: Executives at Trinity Health, which operates 93 hospitals, have their pay tied to the system’s overall effectiveness in keeping patients out of the hospital, lowering smoking and obesity rates, and other population health metrics.

“Ten percent or more of each eligible executive’s total pay is put at risk,” according to Modern Healthcare. “Of that amount, 20% is tied to reducing hospital-acquired infections and decreasing readmissions; 20% to smoking and pediatric obesity rates; 20% to patient satisfaction; and 20% to workforce engagement.” Even Trinity CEO Dr. Richard Gilfillan is affected by this incentive structure.

Talk about having a personal stake in your work. But the early trend should be taken with a grain of salt considering that just a small slice of firms are introducing population health incentives and that these metrics are so difficult to assess in the first place, according to some observers.

“[T]hough tying pay to healthcare outcomes is a big step in the right direction… It’s filled with enough mushy data that almost any good exec can come up with a formula that assures him/her their bonus, or incentive pay, or any pay at risk,” one 40-year health care industry vet tells me. “They have to screw up pretty badly to miss it.”

This same source (who preferred not to be named) points to hospital CEOs’ skyrocketing salaries. “Tying pay to patient health was discussed long ago, but no one wanted to do it, and no one wanted to have that type of liability,” the individual said. “Now they do. What changed? They make so much that 10% risk is not a big deal.”

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