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 Relieving “Pay Compression” — A New
Compensation Strategy for Calvert Memorial Hospital
Calvert Memorial’s new pay strategy is designed to
address the unintended consequences of the hospital’s efforts to close the
nurse vacancy gap. As the hourly rate for relatively new nurses increased,
their compensation was creeping up on, or even exceeding, the rate paid to the
hospital’s more experienced nurses.
Carrie Forrest, vice president of human resources at CMH,
believes that the new strategy will not only eliminate the pay compression and
equity problems, but result in higher job satisfaction, lower turnover and
recruiting costs, and increased quality of care. “The compensation issues
related to recruiting and retaining experienced RN’s are no longer a
problem,” says Forrest.
CMH’s executive management team worked with
compensation consultants from Techinfocus, Inc., to analyze the hospital’s
previous practices and recommend steps to eliminate the pay compression
problem. Taken together, the data analysis, market research, and financial
modeling resulted in several conclusions. Pay compression did exist at CMH,
within a range of years of experience. New-hire rates were falling behind
market competitors’ rates. And overall pay ranges needed to be adjusted
for market movement.
Techinfocus designed a unique long-term pay strategy that
corrects current pay inequities, prevents future pay compression, and
recognizes the past gains of nurses whose performance has earned merit
increases.
Having defined the building blocks of the new model,
Techinfocus compiled data on relevant pay-related information for the
hospital’s RNs, as well as market data from multiple sources (including
Web-based research, local and regional hospital data, and independent salary
surveys). Actual average pay by years of service was compared to both the
existing CMH new-hire schedule and the schedule for competitive hospitals.
Best-in-class compensation practices were used to develop
the business rules that shape the program. These practices include incrementing
pay ranges for advanced degrees, setting a pay minimum equal to the new hire
rates, and customizing pay ranges to reflect specialties and shift
differentials. The new program has been implemented with approximately the same
cost to the hospital as its former across-the-board and merit increase
approach.
The building blocks of the new compensation strategy
include:
- Position in Range (PIR): Describes a nurse’s
current pay position as a percentage of the possible compensation within a
salary range. The minimum pay rate is described as 0 percent; the maximum, 100
percent; and the midpoint (or market) as 50 percent.
- Target Position in Range (TPIR): A structured
approach resulting in PIR progression through a salary range, based on years of
experience (YOE).
- Performance-Based Target Position in Range
(PBTPIR): Incorporating past and/or current performance evaluations to
increase TPIR for higher performers. For example, assuming two RN’s are
identical in every way except past performance ratings and increases, the RN
with higher past performance would have a higher hourly rate as the result of
higher merit increases. But if both were adjusted up to the same TPIR, the best
performer would have a smaller increase; the two nurses would, in fact, have
the same rate of pay. PBTPIR increments the best performer’s rate of pay
to restore past gains and promote future performance.
- Performance Spread: The difference in PBTPIR
between the lowest to highest performance levels.
The new pay strategy addresses all of these issues, within a
performance framework of fiscal responsibility. A Targeted Position in Range
schedule was developed for each level of performance, with higher performers
moving more quickly through the salary range. Keeping pay costs within budget
was facilitated by the ability to manipulate the financial model.
“CMH nurses now feel that their pay is competitive with
the external marketplace,” says Mattie Lowery, vice president of patient
care services. “And internal equity issues have also been resolved.”
Lowery says that the bottom line is that CMH now has the ability to recruit
experienced RN’s and is rapidly closing vacancy gaps. “The expected
increase in employee satisfaction and reduced turnover,” she says,
“will help Calvert Memorial Hospital meet our overarching goal of
providing the highest quality of care for our patients.”
Contacts:
Carrie Forrest
Calvert Memorial
Hospital
Vice President, Human Resources
E-mail:
mcforrest@cmhlink.org
Phone:
410- 535-8120
For more information or a copy of the complete case
study:
Janet Quigley, CCP
Techinfocus, Inc.
E-mail:
janet@ep2u.com
Phone: 410-561-8338
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