Total Rewards System. Tara Sheets. Human Resources in Healthcare/MPH 548. April 5, Dr. Hollie Pavlica

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1 Rationale: The following assignment was selected from the Human Resources in Health Care class. It shows some of the skills and competencies I have learned in the Health Policy and Management domain of public health. For this assignment, we had to write a paper on a Total Rewards System (TRS) in a health care organization. The paper needed to focus on how to create this system and what benefits we would recommend. I wrote about how the hospital I work for would benefit from a TRS. I wrote about the structure of the organization, the vacancies in many clinical positions many due to low pay which is controlled by our state legislature. In my paper, I created a team of diverse experts in human resources, different disciplines and levels of supervision. The team needed to conduct an assessment of the organization and the major areas that needed improvement and then identify some interventions that could help. I then wrote about a possible TRS that could be developed after the team reviewed data and analyzed the organizations concerns. I made several recommendations that could help improve turnover, vacancies, and satisfaction levels. I also provided some budgeting on the initiatives that would allow for some flexibility and decision making if a certain budget had to be met. This fits with several of the competencies in this domain: identifying main components and issues of an organization; applying principles of program planning, development, and evaluation in organizational and community initiatives; applying principles of strategic planning and marketing to public health; applying quality and performance improvement concepts to address organizational performance; apply systems thinking for resolving organizational problems; and demonstrating leadership skills for building partnerships. Paper: Total Rewards System Tara Sheets Human Resources in Healthcare/MPH 548 April 5, 2014 Dr. Hollie Pavlica

2 Total Rewards System 2 Introduction In the competitive job market facing healthcare organizations and the shortages of available people for key positions such as physicians and nurses, it is important to have pay and benefit plans to attract and retain good employees. One approach that has proven to be successful in the business world is to develop a Total Rewards System (Heneman, 2007). Such a system includes a comprehensive pay plan, a benefits package, and opportunities for personal growth and recognition. These pay plans consist of competitive base pay rates, raises, and incentives or bonuses. The benefits packages include health and life insurance, paid time off, and a retirement plan. The opportunities for growth and recognition involve training, professional development, an active and motivating performance management system, and an employee recognition program (Heneman, 2007). I work at a state psychiatric hospital, and while we have a good benefit package and some efforts toward creating opportunities for employee growth and recognition, our pay plan is controlled by the state legislature. As a result, we do not have competitive base pay rates (Missouri ranks 50 th in pay for state employees), often years pass between meager pay increases, we are not permitted to give performance-based raises, and any incentives or bonuses are strictly prohibited. Furthermore, we inconsistently have funds for training and professional growth opportunities, and we are somewhat limited in what we can do for employee recognition. Consequently, we have an extremely difficult time recruiting and retaining staff, especially in critical positions like psychiatrists, psychologists, nurses, and social workers. So, I would relish the opportunity to create a total rewards system that would have the funding and flexibility to strengthen our ability to attract high quality mental health professionals and retain them. Assessing the Organization

3 Total Rewards System 3 To create a total rewards system, the first thing I would do would be to gather a team of diverse professionals consisting of Human Resources (HR) experts, staff from a variety of disciplines and levels, representatives from hospital leadership, union representatives, and an outside consultant with expertise in creating such systems. The team would first conduct an assessment, including the following: An analysis of base pay rates for various job classes as compared with similar jobs in other hospitals both locally and for the Midwest of the US. A review of our annual staff satisfaction data. A review of our turnover data. A review of our benefits package and retirement plan and an analysis to determine how they compare to other packages and plans. A review of our performance management review and evaluation process to determine if changes are needed to make it more motivating and a process that can support performance-based pay raises and/or bonuses. A review of staff recognition efforts, including an inventory of all such efforts taken by supervisors, unit management, and hospital administration. Focus groups led by the consultant with diverse groups of staff to discuss pay, rewards, benefits, personal growth, and recognition. Additionally, this will give the consultant an idea of the extent to which staff find the work environment motivating. Some of this comprehensive assessment process would require extensive research and expert guidance from the consultant; however, we do already know some important things from some of our existing data. To measure staff satisfaction, we use a standardized instrument that we are permitted to add questions to every year as long as we do not alter the original instrument.

4 Total Rewards System 4 This instrument has nine subscales measuring a variety of domains as well as a normative database that allows for comparisons with other mental health workers as well as public sector employees (Spector, 1997). We consistently score lower than the norms for mental health workers on pay and rewards; however, we are competitive on benefits, staff s perceptions of supervisors, and the extent to which staff find the work fulfilling. Additionally, our most recent annual turnover report documented very high turnover rates for important direct care positions such as nurses (28%) and psychiatric aides (50%). Other low paying support positions such as food service and custodial workers consistently average 25%-50% turnover annually. The turnover rates for other clinical professionals such as social workers, psychologists, and psychiatrists are much lower, typically averaging 15-20%; however, the main reason for those who do leave is usually because of better pay based on exit interview data. Developing a Total Rewards System In order to guide the development of a total rewards system I will assume that based on these existing reports as well as the expert opinion of the consultant that our pay plan requires significant revision. Additionally, I will assume that our benefit and retirement plans stack up well when compared to others, but could use some tweaking. Third, it will be assumed that our performance management review process needs to be overhauled; we use a 10 point unanchored scale that likely has poor reliability. Finally, as we consistently hear from our employees, while the nature of the work is fulfilling, our attempts at staff recognition and professional growth leaves some to be desired. Adjustments to the pay plan will need to start with overall salary increases for most job classes in order to pull these positions into competitive levels in comparison to other hospitals in our state and region. This would be the most expensive move as we are a very large organization

5 Total Rewards System 5 with more than 1200 employees and a base payroll of 40 million. Thus, a significant readjustment of the pay scale would increase the cost to the state of Missouri (the employer). However, some savings could be realized because such an adjustment would help to reduce turnover, which is very costly in terms of advertising, hiring, and training new staff at our current exorbitant rates not to mention the inefficiencies and disruptions in services it causes. In addition to an initial re-alignment of salaries, a new pay plan would include annual salary increases across the board, with some incentives built in for seniority e.g., at milestones such as 5, 10, 15 years, etc, staff would get a small percentage more for their annual increase. A third major revision to the pay plan would be to introduce incentives or bonuses. These should be based on staff achieving certain goals or meeting specific performance criteria. For example, staff nurses who consistently demonstrate excellent performance on competency assessments might receive a cash bonus. Or, employees who receive very high ratings on an annual performance evaluation might get more of a raise than others (assuming that the new pay plan would have built in annual increases). However, this would depend on developing a more reliable and meaningful appraisal system. The new system would have a scale with a narrower range (4 or 5 points) with each value behaviorally anchored to well-defined criteria. Furthermore, the ratings would be closely tied to competency assessments throughout the year, so that employees would know what to expect in terms of ratings rather than relying so much on the subjective judgments of supervisors that might be biased in certain ways. This way, performance-based pay raises would be fair and defensible across employees. By revising the pay plan in these ways, all of which are suggested for total rewards systems (Heneman, 2007), employees would remain more motivated and salaries would remain competitive with other healthcare organizations, thereby reducing turnover and creating a more reinforcing work setting.

6 Total Rewards System 6 In addition to revising the pay plan, some slight adjustments to the benefits package and retirement plan may be necessary. We have a solid benefit plan, with new employees accruing 10 hours of both sick time and vacation time each month, 12 paid holidays, very good health insurance with modest premiums and deductibles, and a good life insurance plan. As an incentive for seniority, vacation accruals increase to 12 hours a month once an employee reaches 10 years of employment and to 14 hours at 15 years. About the only adjustment needed for these benefits would be to include dental and vision benefits without additional extra costs (currently they are optional and increase premiums) and to keep family premiums at modest costs. One benefit that was removed several years ago was a match for deferred compensation investments. That is an important benefit that encourages staff to save for their future. I would reinstate that benefit at a $50 per month match. This would be a relatively modest cost for the state, but would be considered a very attractive benefit for employees. An additional benefit that I would add that our hospital currently does not have is access to discounted long and short term disability insurance. Fried and Fottler state that healthcare employees have a higher risk of disability than workers in other industries (2011). This is no exception at a forensic psychiatric maximum security setting where our workers compensation claims surpass all other state agencies. Having this available to employees could ease some concerns they might have about taking a job at the facility. A benefit that I would look into to determine the feasibility is long-term care insurance. We have an aging workforce and a good portion of the employees live in rural areas. Having the security of knowing that the employee would be able to take care of their parents or themselves through assisted living facilities or in-home care could be another benefit that would attract employees to the facility.

7 Total Rewards System 7 The retirement plan that is in place is very good, with early retirement available to employees with a combination of age and years of service equal to 80. Additionally, there are substantial monetary incentives for employees who remain at least two years beyond that milestone that continue to increase for up to 5 years. The one major problem with the retirement plan is that retirees have to pay about triple what regular employees pay for health insurance. This seems extreme and unfair for employees who have devoted much of their adult lives to the hospital, and I would like to see that cut in half at least. While pay and benefits are important to attract and retain good employees, in order to round out a total rewards system that creates a really satisfying work environment efforts are needed to create opportunities for personal and professional growth. At our hospital, we formed a Wellness Committee a few years ago that has been very active and productive. They partnered with a local YMCA to create a gym on our campus. It is available to staff for a modest cost and can be used during lunches or after-hours. The Wellness Committee continually looks at opportunities to add equipment and bring in different monthly wellness activities that all employees can participate in. There are bikes available around the hospital for use free of charge to travel from one building to another or to take for a ride during lunch break. And, there are basketball courts that frequently are used by staff. These improvements show staff that the hospital cares about their well-being in meaningful ways, and I would keep looking for ways to expand and improve this service. Another incentive I would like to see included is having an employee health clinic on campus. This could be available twice a week in two four-hour blocks to cover the day shift and evening shift employees. A nurse practitioner would be available to provide preventative care services and education on chronic conditions. Employees might see the value and convenience in being able to receive services during breaks or right after work.

8 Total Rewards System 8 Specific efforts to create opportunities for professional growth should include more training opportunities for staff. Currently, we budget 50k per year for staff training, not counting our in house training. These are funds to send staff to conferences and seminars, or to bring in presenters. We do our best to stretch these dollars, but in the 1990 s our external training budget was 200k. We should return to that level. External training is professionally stimulating for staff, it leads to more innovation in practices, and it provides CEUs, which are very important to the licensed staff. The organization has stipends and tuition reimbursement mostly just available to nursing employees. I would like to increase the availability of this incentive to other disciplines. We need to retain more than just nursing staff, and these incentives are small bonuses that students value greatly. This also might be appealing to young high school graduates that we have working at the facility. Having options other than nursing for these younger people to choose for their future could provide more opportunities for these individuals, more opportunities to grow the educational diversity in the local community, and provide our facility with staff to fill various disciplines in the future. Of course, there would be a requirement to work for the facility for at least two years, and the money would be given in installments to decrease the chance of an employee negating on their promise. Some additional rewards that increase morale without costing too much are employee recognition awards. Our staff satisfaction survey consistently shows that we need to do a better job at this. The facility has an employee of the month award that gives a small cash award and a special parking space for the month. This is publicized in the hospital newsletter, but maybe we do not reach enough people. We are a large organization, we need to empower local managers and program directors with the ability to recognize good employee efforts with small rewards and celebrations. Sometimes, small things like a surprise pizza party in the break room for a

9 Total Rewards System 9 group of staff that has been performing well can go a long way. Or, certificates of achievement given publicly by managers, accompanied by some reward could increase the recognition efforts. The important thing would be to have a large number of such recognitions, given frequently, and distributed throughout the organization. These are relatively inexpensive tokens that would not take much of a budget allocation, maybe just $10,000 annually. Costs of the System In terms of the overall costs of this total rewards system, it is important to note that the first year would be the most expensive as the base salaries would need to be significantly adjusted. The base payroll at our hospital is about 40 million. I would estimate that the overall pay scale adjustment would be about 10%, or 4 million, the first year, with most of that going toward our lowest paid employees; however, all job classes would receive some increase based on salary analyses. In future years, overall increases would average 2-4% per year. I would allocate about 500k for bonuses and rewards in order to maintain a vital and reinforcing work environment. Our benefit package is about 36% of our base salaries. The improvements proposed would likely increase this to about 40%, which would cost about 1.7 million after the initial pay scale adjustment. I am unable to estimate the improved retiree health insurance benefit, but I am sure it would be several hundred thousand dollars. The increased training dollars and employee health clinic also would likely cost several hundred thousand. So, a ballpark estimate of this overall program would be about 8 million in the first year and about million a year in subsequent years. Assuming that a 20% cut was needed in some subsequent year after the initiation of this total rewards system, this would come to about 1 million dollars (i.e., 20% of 5 million). To accomplish this, I would start with some of the improved benefits. While the long-term care

10 Total Rewards System 10 benefits are attractive to many people, the elimination of this would be less likely to decrease retention rates than cuts in pay or rewards. Additionally, modest increases in the health insurance premiums for both current and retired employees would be needed. Finally, I would reduce the on-site employee health clinic to just one day a week. These cuts should accomplish the 20% target without affecting pay, bonuses, rewards, recognition, or professional growth initiatives. Conclusion Total rewards systems have been shown to produce highly effective, motivating, and satisfying work environments (Heneman, 2007). The system described in this paper would be for a large, 376-bed, state psychiatric hospital with more than 1200 employees. This hospital has a difficult time recruiting and retaining effective, qualified staff. To some extent, this is due to constraints placed on the budget and performance management practices by the state legislature and state regulations. Absent these constraints, the efforts proposed would overhaul the pay structure, introduce bonuses, expand recognition and rewards, improve benefits as well as the retirement package, and introduce many new opportunities for personal and professional growth for employees. Ongoing data collection and analysis would evaluate the effectiveness of these efforts at reducing turnover, increasing employee satisfaction, and improving job performance.

11 Total Rewards System 11 References Crowley, Mark (2013, January 22). How SAS Became The World's Best Place To Work. Fast Company. Retrieved from Fried, B. J. & Fottler, M. D. (2011). Fundamentals of Human Resources in Healthcare. Chicago, IL: Health Administration Press. Heneman, Robert (2007). Implementing Total Rewards Strategies: A guide to successfully planning and implementing a total rewards system. Society for Human Resource Management Foundation. Spector, Paul (1997). Job Satisfaction Survey. Retrieved from