Abstract
Background: Changes in the health-care industry have led to
increasing demand for physician-driven clinical volume. This environment has
altered the traditional balance among teaching, research, and service
responsibilities for faculty in residency training programs. As economic
pressures mount and budgets shrink, academic departments are exploring ways of
paying faculty that would help to maintain the global mission of the
organization. The purpose of this study was to examine the compensation
strategy for faculty in academic orthopaedic surgery departments in the United
States with a focus on compensation methods for academic productivity.
Methods: Thirty-one academic orthopaedic surgery residency training
programs were recruited for the study. Two methods of data collection were
used: (1) a survey was mailed electronically to the program chairpersons or
the finance directors, and (2) eight program leaders were interviewed to
obtain more in-depth information regarding compensation for academic
productivity in their organizations.
Results: All thirty-one programs responded to the survey. To
compensate faculty for clinical productivity, twenty-two programs used a
salary and bonus system, two used salary alone, and the remainder used
combined methods. Nineteen departments had a compensation system that included
academic productivity, and twelve did not. Of those that compensated for
academic work, seven used the chair's decision, six used a point system, one
used academic rank alone, and the remainder used a combination of methods. The
point systems varied in breadth, focus, and amount of detail.
Conclusions: Most, but not all, departments accounted for academic
productivity in their compensation system. Most programs used the chair's
discretion to determine academic bonuses, but several departments had
developed point systems. There are common themes with regard to this issue,
including the importance of the academic mission, the need for clinical
revenues, the value of flexibility and transparency, and the importance of
culture and leadership.
Dynamic changes in the health-care industry have created a new environment
for faculty in orthopaedic and other medical training programs. Caps on the
numbers of residents in training programs from a provision of the Balanced
Budget Act of 1997 increased the clinical demand on faculty. Compensation for
primary care physicians has risen 9% in the last five years, but did so with
an increase in productivity of 20%. In the same time-period, subspecialists
saw an increase in compensation of 15%, but this required an increase in
productivity of
29%1. Reimbursement
cuts to health-care institutions have resulted in tremendous pressure to fill
beds and generate ancillary revenues to remain solvent. As a portion of total
medical school revenues, the contribution of clinically derived monies has
grown from approximately 12% in 1970 to 1971 to >50% in 2002 to
20032. Much of this
need for cash flow lands directly on the drivers for any health-care
system—the physicians. Personal, departmental, and institutional needs
in this fiscal environment all create pressure to increase clinical
productivity.
In academic positions, however, faculty members have other responsibilities
such as teaching, research, and service. The need for increasing clinical
volume has altered the balance of these traditional faculty duties. As
economic pressures mount and budgets shrink, academic departments are
exploring ways of paying faculty to help to maintain the global mission of the
organization.
The purpose of this study was to examine the compensation strategy for
faculty in academic orthopaedic departments in the United States. Although
information on overall salary and bonus type of structures was obtained, the
focus was on compensation methods for academic productivity. This
term includes faculty efforts in teaching, research, and service that are not
directly related to patient-care activities.
Thirty-one academic orthopaedic residency training programs were recruited
for the study (see Appendix). These programs were chosen on the basis of their
reputation for academic output. They tended to be larger programs that are
active in research, since research is an important part of academic
productivity. Geographical distribution also entered into the selection
process, as did personal familiarity of the programs by one of us (S.E.E.),
which helped to secure participation.
Two methods of data collection were used. In the first, a survey designed
by us was mailed electronically to the orthopaedic surgery program
chairpersons or, in two cases, the department finance directors. Data were
collected from all thirty-one institutions. Questions were asked in a
multiplechoice format (see Appendix) with room provided for additional written
explanation after most questions. The questions focused on the compensation of
faculty for both clinical and academic work, particularly with regard to the
structure of clinical and academic bonus pay. The survey results were
calculated on a simple percentage basis. In the second method, eight program
leaders (seven chairpersons and one finance director) were interviewed by one
of us (S.E.E.) in person or by telephone to obtain more in-depth information
with regard to compensation for academic productivity in their organizations.
Although answers were not recorded verbatim, the same questions were used to
guide the interviews so as to maintain consistency in the dialogue.
Thirteen respondents described their relationship to the parent institution
as a hospital or an institution-owned (i.e., full-employment) model; eight, as
a separate legal entity; and ten, as a multispecialty legal entity. All
thirty-one departments were affiliated with a school of medicine. Twenty-one
paid a tax to a dean and ten did not. The amount of tax paid to a dean ranged
from 2% to 14% (average, 7.4%). Of the twenty-one departments that paid a
dean's tax, thirteen said that the dean had the power to further tax
department profit to subsidize other departments.
Clinical Productivity
All thirty-one programs responded to the survey, and eight department
leaders were interviewed. All programs verbally consented to allow publication
of the material. Some requested anonymity with regard to the specifics of
their compensation system, so templates are not identified with the
institutional source. Twenty-four respondents (77%) agreed or strongly agreed
that pressure exists to produce more clinical work at the expense of academic
work. Four believed this had been noticed over the last two years, fifteen
said five years, and five said ten years. To compensate faculty for
clinical productivity, twenty-two programs used a salary and bonus
system, two used salary alone, and the remainder used combined methods. Base
salary was determined by collections in ten departments, the chairperson's
decision in two, relative value
units3 in one,
academic rank in one, a committee decision in one, a combination of the above
in twelve, and by another method in four
(Table I). Clinical bonus
monies were determined on the basis of a formula in nineteen departments, a
chairperson's decision in three, a committee decision in two, a combination of
the above in three, another method in one, and three did not respond to this
question (Table II). The
majority (nineteen) of the clinical bonus methods that included a formula were
based on collections, and the remainder used relative value units or other
metrics.
Academic Productivity
Nineteen departments had a compensation system specific for academic work,
and twelve did not. Academic bonuses were used by nine of the thirteen
respondents in a full-employment model, three of the eight in separate legal
entities, and seven of the ten in multispecialty group entities.
Of the departments that compensated for academic effort, seven distributed
bonuses solely on the basis of the chairperson's decision, six used a point
system, one used academic rank alone, and the remainder used a combination of
methods or other methods (Table
III). Seven department leaders had changed their academic
compensation system during their tenure, with most changing from "the
chairperson's decision" to another method. Of the eight departments
utilizing a point system for academic productivity bonuses, six submitted
their specific methodology (Figs.
1,
2, and
3 and Appendix). These point
systems varied in the breadth as well as the degree of detail in the
categories considered. Most allowed for a range of points attributable to
specific functions or to more general categories. Of the six templates
collected, all gave points for scholarly work (e.g., papers, grants, and
presentations), five rewarded teaching effort, five noted service such as
committee work, four acknowledged citizenship (such as cooperating with the
department and in the operating room as well as taking call on short notice),
and two included academic rank.
The departments that used an academic productivity bonus were asked by the
survey to indicate the approximate percentage of total compensation that could
be attributed to this bonus. The answers ranged from 5% to 25%, with a mean of
12.9% and a median of 12.5%. Seven chairpersons said that academic bonuses
were consistently given every year, and six said they were not; six
respondents either could not or did not answer this particular question. Of
the six programs that did not consistently provide a bonus for academic
productivity, five said the decision was based on the profitability of the
department as a whole. Approximately half (ten) of the departments allowed
chairpersons to receive an academic bonus, and half (nine) did not.
Of the thirteen departments reporting that the dean could take additional
tax, eleven had instituted an academic bonus for faculty. Of the eighteen
programs with either no dean's tax or restrictions on the dean taking
additional funds, only eight had academic bonus plans.
For the twelve programs that had no academic bonus as part of their
compensation plan, seven believed that a culture of academic productivity was
strong enough in their group so as not to need designated compensation. One
chairperson noted perquisites, such as travel expenses, space, and research
chair endowments, as another form of academic incentive. Two programs
emphasized that academic achievement was taken into consideration in
determining salary levels from year to year. Four departments thought that
there was a conscious effort of their group or institution to reward only
clinical productivity.
Interviews
Eight program leaders graciously participated in the interview process.
These departments were chosen because they represented different strategies
for addressing academic productivity, ranging from no system to detailed point
structures to abandonment of one method for another. Each discussion took
approximately thirty to forty-five minutes. Of these eight programs, five used
point systems and three used the chairperson to determine academic bonus pay.
Three in-depth interviews are summarized below as case studies.
Case Study 1
The academic compensation plan for this department arose out of a year-long
strategic planning process. Prior to the arrival of a new chairman, this
department had a compensation system consisting of salary and a bonus based on
relative value units and participation in the call schedule. Under the new
chairman, the entire faculty had provided input over numerous meetings to help
to produce a detailed point system (Fig.
1), the basis of which was proposed by the chairman. The new
compensation strategy reflected the vision of an academically productive
department.
Of the bonus pool dollars available, approximately 60% were attributable to
clinical work and approximately 40%, to academic productivity. The bonus
system was based on points assigned for many categories that encompass
clinical work, relative value units, subspecialty coverage, research (e.g.,
publications, grants, and lectureships), teaching, service, and fiscal and
administrative responsibilities. There was room for subjectivity on the part
of the chairman, as most of these categories had a range of points that can be
assigned at the chairman's discretion. This gave the system some flexibility
despite its detail. The chairman believed that this was important, as a system
that was excessively rigid could be too onerous and more difficult to apply
fairly to all faculty members. Tracking of this system was not considered
difficult. Some faculty felt the bonus system was unfair in that clinical work
was underemphasized, i.e., the bonus pool was weighted too heavily for
academic work. The consensus was that it certainly emphasized
accountability.
It was evident that in the last two years both the clinical and academic
productivity of the department had increased substantially. Whether this was
related to the bonus system or to the overall strategic planning process is
unclear since they were tightly linked. The chairman felt strongly that it was
necessary to look at the faculty members and their talents and to be realistic
as to what they could do and what they liked to do. As with most chairmen,
this chair wished there were more funding sources and predicted the future
would produce further tightening of funds, perhaps by federal policy changes.
The goal of the department was to produce more clinicians with master's
degrees as part of their residency training program.
Case Study 2
This department presents an interesting history with regard to academic
compensation. For approximately three years, the orthopaedic department had
used a point system on a spreadsheet to determine research and education
productivity. One year, at a research retreat, the faculty discussed and
actually voted to eliminate the point system. They expressed sentiment that it
was too rigid and tracking was difficult. They cited the example of a certain
faculty member who consistently showed up at 6:30 am teaching
conferences but was really not rewarded for such dedication. The faculty asked
the chairman to return to a chairperson decision-making process for the
distribution of the academic bonus. Each faculty member had an annual
performance review. They completed a form listing their activities in
conjunction with their current curriculum vitae. The decision for academic
bonus distribution is subjective in that the chairman decides, yet it is based
on detailed information of the academic, service, and clinical work of the
faculty member.
This department aligned 90% of compensation to clinical productivity and
=10% for academic productivity. The weighting was based on the reality that
dollars come from clinical revenues and emphasis should be placed on clinical
work in order to provide monies for the department and institution. For the
10% allocated to the academic mission, emphasis was placed on publications and
teaching more so than the other items. One other incentive that was
established for academic productivity involved the expense stipend for travel
to meetings. Historically, any meetings were covered by a specified amount of
pretax dollars. However, in order to encourage the presentation of papers at
meetings, one-half of the specified amount would be available only if the
faculty member was involved in the presentation of a paper.
The chairman thought that the current system as described was quite
flexible. The faculty was aware of the method used for academic compensation.
The chairman was satisfied with the system, and his impression was that the
faculty was satisfied as well. He did not feel the change from a point system
to a chairperson decision model had had any real effect on the academic
output. The greatest value of the 10% academic bonus lay in recognition for
those doing important academic work and not in its use as an effective
behavior modification tool.
If one thing could be changed, the chairman would consider delineating
where and how a separate 5% department tax is used so as to increase the
transparency of the system. Currently, half of the academic funding pool was
provided by the state and half was provided by the department tax. Looking
five to ten years into the future, this chair predicted that revenues would
probably get even tighter and monies to provide an incentive for academic
productivity would be at risk of disappearing.
Case Study 3
Compared with the other department case studies, this department had no
specific compensation for academic productivity. The strategy was to
distribute academic tasks, such as fellowship director, coordinator of
resident and medical student education, conference organizer, and supervisor
of a staff clinic, among the faculty. The goal was to have people contribute
to the academic mission in a fashion that played to their individual
strengths. Academic goals were set for the individual for the upcoming year.
If those goals were not reached or the individual was not a "good
citizen," then all of their clinical incentive bonus may not be paid
out. This actually had not occurred up to the time of the interview.
Role success was strongly emphasized in this program. As a leader in the
department, the chair was responsible for determining what all of the faculty
members did best and what they enjoyed the most and then blending this into
the mission of the department. The chair believed that when the team wins,
everyone should feel part of the team. There also was an effort to remove
academic disincentives; for example, this department had unlimited academic
travel expenses covered.
Although decisions for the following year's salary depended on the
achievement of goals for that prior year, the main driver of academic success
was the culture of the organization. There is a strong philosophy in this
department to perform as an academic group, and, if there was a need to
incentivize academic work specifically, then something was wrong. People who
did not fit into this culture of producing research or educational value for
the department would tend to leave the group.
For this system to work, leadership played an important role. The leader
was charismatic, and there was a presumed desire for approbation. This system,
however, relied strongly on the internal motivation of its faculty members.
The chair reported that there had been no complaints up to the time of the
interview with regard to the compensation strategy. If the chairman could
change one thing, it would be to increase money from the medical school to pay
for teaching responsibilities. The future is expected to hold a further
squeeze on teaching duties and especially on research, given declining
revenues and increasing malpractice costs.
At issue is how best to structure physician compensation to value and
reward contributions fairly and to motivate preferred behaviors. The design of
successful compensation arrangements is particularly challenging for academic
orthopaedic surgeons given their multiple missions. Historically, many
programs paid clinical faculty on the basis of academic rank and tenure; this
system is being replaced by productivity-based compensation methods in
response to industry
pressures4-6.
Given the fact that compensation arrangements have an impact not only on
financial performance but also on group culture and expectations, it is
optimal for the pay structure to reinforce the physician and department
objectives7. This
will optimally (or hopefully) reinforce the aligned incentives of the
department and the values and vision of the parent institution.
In the development of incentives, the goals and objectives should be
matched to specific activities and clear metrics that will be used to measure
performance. Expectancy theory indicates that incentives are most effective
when employees can clearly see that their extra efforts lead to increased
performance and desirable results—this is often termed
"line-of-sight." Bonus plan systems that foster the achievement of
certain results are best termed rewards. Rewards do not create exceptional
performance; they only encourage and reinforce existing actions. Stronger
methods that produce performance results above and beyond expectations are
true incentives. The target level of bonus incentives should be substantial
enough to get the attention of the physician, yet remain within the range of
competitive practices and not discourage other desirable behaviors.
Smithson and
Koster8 stated that
from management's point of view, incentives can be evaluated according to
three attributes: (1) power—the ability to energize behavior, (2)
specificity—eliciting a particular behavior, and (3)
sustainability—influencing behavior over time. The types of incentives
can be broadly classified into economic and noneconomic categories. Economic
incentives (i.e., bonus pay) are by far the most powerful means to influence
physician behavior. Unless linked to objective performance measures, however,
these economic incentives can lack specificity and not produce the desired
behavior. They also can be problematic with regard to sustainability, such as
when a bonus paid at the end of the year is perceived by the physician to be
simply part of the base salary. Noneconomic incentives, such as work content,
recognition, and control, are less powerful in nature and are of intermediate
specificity, but, if appropriately matched to individual physician
preferences, they can offer a high degree of
sustainability8.
Our survey shows that the majority of orthopaedic departments in this study
had established bonus systems for clinical work as well as academic
productivity. Whereas clinical bonus dollars were determined largely by the
formula method, academic incentives were more frequently determined by the
chairperson, with point systems seeming to increase in popularity as a second
method. This difference between disbursement methods of clinical compared with
academic bonuses most likely is related to difficulties inherent in measuring
research, teaching, and service productivities compared with pure numeric
revenues collected. Point systems attempt to provide more quantitative metrics
to some of the intangibles of academic work. We found it interesting that an
extremely low percentage of the orthopaedic departments surveyed mentioned
academic rank as a factor in bonus determinations.
The use of an academic bonus plan was less common in the departments that
were self-described as a separate legal entity. Individual corporations
theoretically have more control of their resources but also more
responsibility to be profitable; there are perhaps no deep pockets of an
institution or multispecialty group to help a department to get through lean
periods or to provide investment capital. Thus, a separate legal entity-style
of department may want and need to emphasize clinical work and not academic
efforts. This was not true across the board, however, as several of these
departments stated their reason for not having an academic bonus was because
their internal culture was strong enough to succeed both clinically and
academically.
We also wondered whether a `profit at risk' mechanism might induce
chairpersons to create academic bonus plans. If the dean can take additional
tax monies from a department, then an academic bonus strategy may represent a
way to disburse funds to the faculty rather than show a large profit or
reserve. However, this assumption would suggest a ceiling on clinical
bonus monies that could be paid out (causing a chairperson to label extra
funds as an academic bonus). We have no data to support this possible
influence on rewarding academic activity. Another confounding factor is the
unknown detailed financial relationships of institution-owned departments.
Five of these programs did not pay a dean's tax so one might think that profit
was not at risk. However, several of these chairpersons noted that all
revenues go to the institution, a situation that actually might foster the
creation or expansion of academic bonus plans to keep money in their
respective departments. Our survey data are not detailed enough to postulate
that any given behavior might be based on these different financial
relationships.
Because of the inherent complexities of academic departments, including
their financial infrastructure, one might think that each organization would
be unique. Several common themes, however, became evident after analysis of
the survey and interview data.
1. The Importance of the Academic Mission
For these chairmen, the underlying value system emphasized academic
productivity and success for the department as a whole. All understood the
pressure to increase clinical volume in their institution, yet research,
education, and service were critical components of their vision that need
attention and resources. It was recognized that not every faculty member would
be an academic star, so role fulfillment and goal attainment were stressed.
The focus was on academic output as a group, with a strong desire, however,
for everyone to contribute in some fashion.
2. Clinical Revenue Is the Primary Driver
Although academic success is a lofty goal, these leaders were well grounded
in the reality that clinical revenues drive the department. No one had a money
tree, and all of the programs derived most, if not all, of their academic
bonus pool funds from the orthopaedic clinical collections. This fundamental
truth was the rationale for some chairmen to keep the academic bonus a
relatively small percentage (e.g., 10%) of overall compensation.
3. Flexibility
Whether by use of a point system or purely at their discretion, most
chairmen emphasized the need for some flexibility for the chairman in
distributing academic monies. This conceivably could open the door for
criticism from faculty with regard to favoritism or unfairness, but instead it
provided the chair with some "wiggle room" to recognize
contributions that may not fit neatly into the existing numerical system. In
point systems, this flexibility took the form of point ranges to be assigned
for a given category or simply a category called "other" that
could be awarded at the chair's discretion.
4. Homework
Even without a point system, these particular chairs paid attention to the
accomplishments and goal achievement of their faculty for the preceding year.
The faculty members completed forms to document research, teaching, and
service efforts. The chair used this information in an annual review with the
individual faculty members. Regardless of the system, in all of the case
studies, the decisions for awarding academic productivity were made on the
basis of information and data and the homework done by the chairperson.
5. Transparency
The chairs who were interviewed believed that the faculty was well aware of
the specifics of the compensation system. This held true for the academic
bonus portion as well. Some, but not all, of the point systems had faculty
input into their creation or modification.
6. Fairness
Although each chair interviewed believed that the faculty was happy with
the system in place, all acknowledged that there were some complaints from
individuals at one time or another. Two of these examples were about the
weightings of the point system, but most were related to compensation. It
should be noted that no faculty interviews (other than chairpersons) were
conducted, so the perceived fairness of the system is subject to the chair's
bias. Smithson and
Koster8 wrote that
physicians as a sociologic group crave three things: security, self-esteem,
and fairness. Any system can fail or cause divisiveness if the faculty
believes it to be unfair. Involving the group in creating a method of
compensation is ideal. Leadership, trust, and transparency are important
factors at work in these systems.
7. Culture and Leadership
These two overarching themes could be applied to all of the programs
examined for the case studies. It could be argued that the stronger the
culture for academic productivity, the less the need for strong external
incentives to foster scholarly and educational effort. Creating the
appropriate culture is a complex issue, but on the surface it seems linked to
department leadership and the hiring of faculty members with strong internal
motivation to pursue academics.
If a program chooses to create an academic bonus pool, the two common
methods for distribution are the chairperson's discretion and a point system.
Each method has strengths and weaknesses. A chairperson using his or her
judgment allows maximal flexibility, which can be very important if cash flow
varies from year to year or the department is at risk of losing faculty
members to competing institutions. Efforts that are difficult to quantify can
be rewarded. Faculty members have different strengths and play different roles
in the department, which may best be accommodated by this method. The
chairperson maintains maximal power over faculty members with the subjective
disbursement of income. The more subjective the system, however, the more open
it is to complaints of unfairness or favoritism. With less well-defined goals,
the power of incentives is diminished.
In contrast, a point system provides more specific goals or targets, and it
can be a powerful motivator if the rewards are high enough. By removing some
or all of the subjectivity, complaints of unfairness are less likely to occur,
or at least the chair may believe his or her decisions are more defensible. A
point system, however, is subject to criticism regarding its weightings, since
the faculty may have different perspectives on that issue. Point systems
strengthen external motivators, but they may weaken the internal drivers of
academic success and actually disincentivize some individuals. Point systems
are difficult to change because altering the measurement factors could
potentially harm some faculty. Modifications may also require faculty
consensus, which is not always an easy task in physician groups. The more
specific point systems may require additional tracking effort and
administrative time, although, as described above, information gathering was
an important part of either type of system.
In summary, we believe that any system can work well in a given setting, as
evidenced by the case studies. Tailoring the method to the abilities,
personalities, and internal drive of the faculty members is an important
underlying concept. For a highly motivated faculty in a culture that promotes
and encourages academic outputs, stronger external incentives may not be
necessary. In departments with a broader range of faculty capabilities and
interest, specific academic incentive systems may stimulate higher levels of
academic achievement for the department as a whole. The question remains
whether these academic incentives will actually influence the desired outcome
and, if so, at what magnitude. This would have to be validated by examining
longitudinal data of stable departments.
It is important to recognize that a faculty compensation plan represents
the economic underpinning of a medical school and its faculty groups and is
potentially the most important factor in ensuring long-term success at both
the department and institutional levels. A greater awareness of existing
methods of income distribution, as demonstrated by the templates, may be of
some use for leaders of academic departments or perhaps may inspire the
creation of new, innovative models of compensation.
Tables showing the institutions surveyed, the survey instrument, and three
other point systems are available with the electronic versions of this
article, on our web site at
(go to
the article citation and click on "Supplementary Material") and on
our quarterly CD-ROM (call our subscription department, at 781-449-9780, to
order the CD-ROM). ?
Note: The authors thank all of the orthopaedic department
leaders and personnel who contributed to this study for their participation.
They also thank Suzanne Smith at West Virginia University for her help in the
preparation of the manuscript and James B. Rebitzer, PhD, Professor and
Chairman of Economics at Weatherhead School of Management, for his instruction
and guidance.
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