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The Center for Disease Control and Prevention reveals the healthcare sector to be the largest industry in the United States with over 18 million jobs and the Bureau of Labor Statistics (www.bls.gov) forecasts more new job creations than any other industry. Schepp (2012) affirms, "regardless of changes in health care reform, the demand for workers within the health care industry is expected to grow by 3 million to about 13 million by the end of the decade" (p. 4). Fottler, Erickson, & Rivers, (2006) declare in order to be successful in the turbulent health care environment, it is critical for health care managers and administrators to align strategic human resource management (SHRM) with organizational strategy. With these high employment projection numbers, an organization that is ill equipped to handle this potential surge in attracting and retaining employees in this competitive market could suffer detrimental effects.
SHRM is the comprehensive set of managerial activities and tasks related to developing and maintaining a qualified workforce that contributes to organizational effectiveness, as defined by the organizational strategic goals (Fried & Fottler, 2011, p. 3). Compensation is only one part of the strategic process to manage relationships between employee and an organization, and is usually the most expensive cost in any organization. Compensation strategies are derived from SHRM and define not only the position of the organization on the job market but also the basic compensation component used in the organizations. Heneman (2001) explains that compensation strategies "are crafted by understanding the impacts of an organization's process, structure, culture, laws and regulations" (p. 304). For instance, while the fundamental purpose of a compensation strategy by organizations is to attract and retain new employees, as well as motivate and reward current employee satisfaction and performance it must be accomplished in accordance to Title VII, American with Disabilities Act, and the Age Discrimination in Employment Act, which all prohibit compensation discrimination. Fried & Fotter (2011) include strategically approached goals that a compensation system design must contain, such as employee performance rewards, relevant labor market competition, maintaining a compensation budget in balance within organizational financial constraints and achieving internal equity within the organization. "Without a compensation strategy the organization can suffer damage from decreased production and underutilize the full potential of employees" ("Compensation strategy," 2011).
Fried and Fottler (2011) point out several financial complexities that the healthcare industry must deal with not often encountered in other organizational industries. For instance, the majority of healthcare employees are professionals with an advanced educational degree and any shortage in the specialty can drive up the salaries and wages (Fried & Fottler, 2011). An additional pressing financial intricacy in healthcare involves recovering the cost of services rendered from third-party payers (Fried & Fottler, 2011). In 2008, U.S hospitals provided $36.4 billon in uncompensated care, representing close to 6 percent of annual hospital expenses. ("Uncompensated fact sheet," 2009).
There is a saying that money is a powerful source of motivation. Motivation is also a powerful stimulus that can lead employees to organizational success, loyalty and productivity. "Psychological approaches to financial compensation focus on the motivational force of pay, its potential to get organization members to learn new abilities and skills, and the conditions for perceiving pay systems and practices as fair ("Encyclopedia of Applied Psychology," 2004). Fried & Fottler (2011) suggest that for employees to view compensation as fair the components should include; Job descriptions, job evaluations, job analysis, pay structures, policies and regulations. Predominantly in healthcare, the basic strategic design of compensation for non-management staff includes:
base pay- a reflection of the value of a job to the organization
Performance related pay,- a reflection of job appraisals
Fringe benefits- a benefit in additional to the wage or salary
Overtime- premium pay for additional time worked.
Bonus- an additional financial compensation
Intrinsic & Extrinsic Rewards
Two strategies have received widespread acclaim for their ability to create a work situation that is capable of integrating individual and organizational objectives. The first strategy is based on the assumption that employees are motivated by intrinsic rewards. Fottler and Fried (2011) define intrinsic rewards as intangible aspects of compensation such as public recognition, managerial praise, feeling of accomplishment or belonging to an organization (p 184). The second basic strategy assumes that employees respond more readily to extrinsic rewards that are provided in sufficient amounts to warrant their best efforts. Extrinsic rewards are tangible aspects of compensation that include wages and salaries, vacation time, and stock options (Fried & Fottler, 2011).
Fredrick Herzberg developed a theory in 1959 on motivation that still today influences the way organizations view motivation in the work place. Intrinsic motivators are needs that are fulfilled or satisfied in the workplace relying on social stimuli as a holistic approach. Extrinsic rewards have more of a financial impact that gives a sense of empowerment (Gkorezis & Petridou, 2008). Individual employees tend to evaluate organizational rewards differently. A research study conducted by Oddvar (2012), revealed that nursing was attractive as a career due to the extrinsic rewards. Oddvar (2012) also cited previous studies where nurses paid considerable attention to the intrinsic rewards related to the profession that emphasized values and personality traits as more important than the practical and materialistic concerns. Oddvar (2012) also mentioned a study of motivation for male nurses selecting the profession because of the extrinsic factor of economic security. "Although there are many features and characteristics of nursing which developed and developing countries share, perceptions about nursing, its practice, recruitment and motivations are arguably shaped by the different socioeconomic and cultural conditions that it is constituted within" (Oddvar, 2012, p. 1293). Personal values to intrinsic and extrinsic rewards are woven together differently between individuals. Because of this complexity, it becomes necessary for managers to understand the basic concepts of intrinsic and extrinsic motivators to inspire employees appropriately.
One of the many responsibilities for managers is creating an environment in which people can motivate themselves (Falcone, 2002). Motivation is the psychological process that stimulates needs, wants, desires and drives each individual internally (Falcone, 2002). Internal equity exists when employees in an organization perceive fairness in pay wages with the relative value of each job (Romanoff, Boehm, & Benson, 2006). Romanoff et al. (2006) asserts that employees who perceive equitable pay treatment may be more motivated to increase performance, more influential upon colleagues and support the organizational goals more readily. In general, people want to have a sense of purpose, want to be valued and to be treated fairly. In the work place, it is common for employees to continuously monitor whether they are seen as fair or equitable in comparison to other employees in similar positions within the organization (Romanoff et al., 2006). Feelings of inequity create discomfort, anger, or dissatisfaction and may result in reduced job efforts. External equity exists when employees in an organization perceive fairness in pay wages to the average rates in external job markets (Romanoff et al., 2006). When an organization sets deliberate compensation strategies, employee perceptions of equity or inequity are equally important and should be carefully considered (Romanoff et al., 2006, p. 17). Because it is also common for employees to compare adjacent roles and salaries to those in other organizations, with the potential to leave, market pricing or a job market analysis are critical in determining comparable compensation. As with intrinsic/extrinsic rewards, perceptions and values towards internal and external equity vary between individuals. Compounding this along with the notion that "there is no primary consideration between internal and external equity in formulating organizational compensation objectives" (Romanoff et al., 2006, p. 24), the need to balance the two is paramount. "The long term need is to establish a strategic organization-wide wage level policy that addresses an organization's approach to the marketplace (external equity) and an internal job evaluation methodology for using in assessing the relative value of each job in an organization (internal equity)"(Romanoff et al., 2006, p. 25).
Pay-for-performance (also known as performance pay) is a compensation system, evaluated by management, which rewards employees based on job performance, pre-established goals, and standards or company values (Fried & Fottler, 2011). In addition to motivating production, performance pay attracts and retains more productive employees (Stefanec, 2010). Theoretically speaking, conditioning an employee's compensation to output rather than input supplies individuals with the incentive to increase productivity. "Literature has recently begun to gravitate away from the employment of classical approaches to the study of incentive pay and begun to focus more on the behavioral aspects"(Stefanec, 2010, p. 25). The current practice of setting up a performance pay program can have unintended, undesirable consequences, particularly if incentives are offered mainly to influence employee behavior (Pomeroy, 2008, p. 12). In healthcare, it has been argued that pay-for-performance makes the employees more interested in satisfying management than patients (Fried & Fottler, 2011). Fried & Fottler (2011) also mention that employees are less likely to report errors due to compensation, and add that individual goals could be set low ensuring easy achievement, hampering improvement efforts by discouraging risk taking and innovation. Early studies have shown little gain in the quality of patient care for the cost associated with implementing a pay-for-performance program (Rosenthal, Frank, & Li, 2005). "Many pay-for-performance plans fail because the focus eventually becomes more about pay and less about performance" (Gabel, Harker, & Sanders, 2009, p. 1). Gabel et al. (2009) emphasizes if pay-for-performance is implemented, it must be continuously evaluated ensuring the goals are being met, showing evidence of promoting high performance, rewarding the correct employees, proving constructive feedback for improvement allowing the organization to reach its mission.
Compensation systems are a critical piece of SHRM. Because compensation is both tangible and intangible to employees, a strategic compensation design is necessary to communicate the organizational goals, provides motivational direction, leverages the organizational investment in current employees and places the organization in a positive position to recruit talent. Because individual needs and values differ, management should not lose sight of the importance of both influential intrinsic and extrinsic rewards to motivate employees performance and to support the organizational goals. The effective governance of balancing equity is crucial in developing employee commitment and performance effectiveness. The healthcare industry could face an extremely dynamic and volatile environment over the next decade and to be steadfast, these organizations should continuously monitor and update their compensation strategies. Designing a pay-for-performance structure in the healthcare industry involving patient care would be arduous to implement. There are sound arguments and fears that ultimately could jeopardize the number one goal of every healthcare institution, that being patient safety and the quality of patient care. Tainting these desirable ideals with monetary incentives such plans entail could be detrimental to patient outcome or patient care.