Improve productivity, quality with incentives
Don't let employees think it's a penalty
Employee incentive structures or bonus plans are commonly used by businesses in other industries, but are only beginning to be used in the hospital-based home health industry. The concept is worth putting to work at your company, say executives who use them.
Providing incentives for employees to boost productivity, keep costs down, and improve the quality of the care they give is an excellent way to make your company more competitive, some hospital-based home care executives say.
"Money motivates. It sounds kind of crass, but it's true," says Ruth Sedano, RN, MPH, the associate executive director of BJC Home Care Services in St. Louis.
Incentive plans also provide a way to lower your fixed costs, making your company more attractive to managed care organizations looking for providers. By offering incentives but withholding raises when business is good, and even cutting pay when things are lean, a company demands that workers share in the risk and rewards of the business.1
"Under managed care, we can't afford to increase base salaries because that increases your base costs, lowering your competitiveness in a managed care market. Instead, we can shift part of employees' total compensation to incentive programs. Their overall pay will go up, but your fixed costs won't," explains Craig D. Nelson, BS, EMT, MPA, the regional director of health care consulting for the HayGroup, in Dallas.
There are many ways that hospital-based home care companies can set up incentive structures, depending on what type of behavior your want to emphasize among your employees.
Pay nurses for extra work done
For example, Harris Home Health in Fort Worth, TX, uses an incentive plan to encourage higher productivity among field staff, says Les Siter, RN, MEd, MBA, the CEO of Harris Home Health in Forth Worth, TX.
Siter sets a standard number of visits nurses should make per week to earn their base salaries. The number is usually somewhere between 28 and 30, depending on whether there are inservices or other company-sponsored activities that can hinder productivity in a given week. For any additional visits they do above the base number, the nurses earn a per diem rate.
To prevent this incentive plan from inspiring nurses to sacrifice quality to do as many visits as possible, the number of extra visits the nurses may do is capped around 40, again depending on whether there are inservices going on. The cap is changed as needed, and nurses are notified in staff meetings and through memos that the cap is changing for a period of time.
Also, nurses can be cut out of the incentive plan if any complaints are lodged that indicate that the nurses were rushing too much through their visits to capitalize on the incentive plan. If a complaint is made, the nurses about whom the complaints were filed are first warned that they must improve the quality of their work before being banned from the incentive program.
If the complaints continue, they are removed from the incentive program and counseled until the quality of their work improves acceptably. After that, their supervisor will decide when the nurses may rejoin the incentive plan. Of course, those quality assurance measures serve to supplement the company's other quality controls.
The program takes the burden of policing overtime hours off the nursing supervisors, Siter says. Now the field nurses are responsible for dealing with the scheduling variables that occur in home care, and both the nurses and the supervisors are free from haggling about overtime hours.
So far, the nurses are happy with the program, Siter says. Previously, Siter's field staff members were paid per visit. Some of the nurses weren't happy with this system, and had requested to be paid hourly, but Siter didn't want to expose himself to having to pay huge amounts of overtime. Additionally, Siter foresaw that putting the nurses on straight salary might inspire low morale. Because Siter is trying to keep his company lean, he can't afford too many of his field staff. This would leave the nurses no options to earn more except to leave to work for another company.
Give the director a bonus
Another way to set up an incentive plan is to tie a high-level manager's salary to a bonus structure based on how much new business the manager brings in.
For two years now, BJC has paid a bonus to the director of its private-pay home care business for new business she generates. The bonuses are based on the company's operating margin, cash flow, and expenses, explains Sedano.
"Private services is a much more competitive market than the Medicare business is, and it requires more motivation to grow that section of the company. Medicare business is much easier to find and generate," Sedano says.
This is how the bonus plan works:
* The threshold at which the bonus plan kicks in is 85% of the targeted operating margin, cash flow, and expenses.
The cap is set at 15% over the target.
In other words, once the private services director brings in 85% of the targeted amount of new business the company has set for a given quarter, she earns 5% of her base salary as a bonus, in addition to getting the base salary itself.
If the private services director brings in the targeted amount of new business, then she earns 9% of her base salary as a bonus, in addition to the base salary.
Finally, if the director brings in 15% or more of the targeted amount of new business, she earns 15% of her base salary, the largest bonus that the plan allows.
* The bonus plan is split into urban and rural areas because the growth rates of these two markets are different.
* Bonuses are calculated and paid quarterly to help the director maintain her motivation throughout the year. "It gives you more incentive to keep your motivation up. You have a good quarter, you get a good bonus," Sedano says.
Though the base salary for the private-pay services division director is about 10% lower than that of the other division directors in the company, and the job grade is one step lower, Sedano says the private-pay director usually makes more than she would if her salary weren't tied to a bonus structure.
BJC's incentive plan for its private services division has been so successful that the company is considering expanding the bonus plan to other positions too, Sedano says.
"Competition is getting stiffer for our Medicare business, so we'll probably consider introducing the incentive plan to the other division directors' positions too," Sedano says.
What behavior do you want to inspire?
Setting up incentive plans isn't difficult, but they have to be well thought out. Otherwise you could end up with a problem like that of Sears Roebuck automotive service centers in California some years back when the company began paying employees a commission based on what they billed customers for service and sales. Sears customers soon found that their cars required more service and parts than anyone else's cars. Needless to say, Sears Roebuck had to change their incentive plan.
Here are tips from hospital-based home care executives for starting a successful incentive plan at your company:
* Identify the areas of your business for which you want to provide incentives.
"The key in all of this is behavior. Look at the group of people you want to provide incentives to, and ask yourself, 'What is it we want them to do?'" Nelson suggests.
Hospital-based home care managers should design their incentive plans around job duties, productivity, and responsibilities, Nelson says. There are four basic business areas to which incentive plans can be tied:
-- cost;
-- quality;
-- service;
-- productivity.
These are measured in many ways including patient satisfaction, physician satisfaction, and quality levels or outcomes.
"When you identify what the key areas are that you want to look at and peg the incentive structure on, you have to be fair to both the business and the director," Sedano says.
* Decide how much you can afford to pay in base salary and bonuses.
Typically companies take the fair market value for a job and offer a percentage of that as the base salary for an incentivized job. Then they offer the opportunity to earn 25% of that salary in bonuses, Nelson says.
* Work closely with the people who are going to be subject to the incentive plans.
You can encounter stiff opposition to incentive plans from your employees, home care executives say.
"There can be entrenched traditional values -- 'I'm an RN, pay me for my education and experience,'" Nelson says.
By enlisting your employees to help set up the incentive plan, and by explaining the market forces behind your decision to use an incentive plan, you can defuse this opposition.
The former private-pay services director at BJC Home Care Services first saw the bonus plan as a penalty until Sedano met with her privately to discuss the plan. To help the director understand that the plan wasn't a penalty, Sedano explained what the market trends were that pushed BJC to introduce the bonus plan. The market for private-pay home care services was getting extremely competitive, and the director would have to be truly aggressive to help ensure the company's success, Sedano told her.
"You can't sit back in home care now," Sedano says.
After that conversation, the director saw the bonus plan as an opportunity to perform better and be rewarded for it. Together Sedano and the private services director decided on the key areas they wanted to incentivize.
* Be careful not to reward the wrong behavior.
Don't tie an incentive plan to individual employees' productivity, because you want to inspire teamwork -- unless you seek to inspire higher individual productivity, Nelson says.
References
1. Gleckman H., Atchison S., Smart T., et al. Bonus pay: Buzzword or bonanza? Business Week, November 14, 1994. pp. 62-64. *
* Toni McClay, Administrator of Home Health and Hospice, Memorial Hospital of Salem County Home Health and Hospice, 390 Broadway, Suite 900, Pennsville, NJ 08070. Telephone: (609) 339-6066.
* Faye Royale-Larkins, BJC Home Care Services, 4353 Clayton Ave., Suite 128, St. Louis, MO 63110. Telephone: (314) 362-0222.
* Elissa A. Hamilton, Regional Director of Patient Care, Nations Healthcare, 5355 Mira Sorrento Place, Suite 770, San Diego, CA 92121. Telephone: 619/625-2180.
* Les Siter, CEO, Harris Home Health, 6000 Western Place, Suite 430, Forth Worth, TX 76107. Telephone: (817) 570-8261.
* Ruth Sedano, Associate Executive Director, BJC Home Care Services, 4353 Clayton Ave., Suite 128, St. Louis, MO 63110. Telephone: (314) 362-0222.
* Sarah Malone, Director of Human Resources, Advocate Home Health Services, 2311 West 22nd St., Suite 300, Oak Brook, IL 60521. Telephone: (708) 572-1232.
* Craig D. Nelson, Regional Director of Health Care Consulting, HayGroup, 12801 North Central Expressway, Suite 1000, Dallas, TX 75243. Telephone: (214) 934-6842.
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