Understanding Different Types of Compensation
To negotiate properly, it is important to fully understand different models of compensation. Some of the most common types are explained below:
• Salary Compensation – A fixed salary is a familiar concept, but be sure you know the payment frequency. There should be a cost of living adjustment each year (roughly three percent) to account for inflation.
• Compensation Based on Productivity – In this system, physicians are paid based on their productivity in the prior month, minus adjustments. Productivity can be measured by hours worked; number of patients seen; amount billed to patients; or amount collected from patients. Adjustments are usually overhead costs. For more information, see the American Academy of Family Physicians’ primer on physician productivity compensation.
• Compensation Based on Net Income – In this setup, physicians are paid a percentage of net income (which is the money that remains after all practice expenses are paid). The percentage of net income can be based on monthly physician productivity, or can be a percentage divided evenly among physicians. An evenly divided percentage may diminish overall physician incentive, which could decrease net income.
• Formula Based Compensation – Productivity, referral sources, and board certification are just a few factors that might go into a compensation-determining formula. Formulas must be examined individually because they vary greatly.
NEJM examines the basic pros and cons of various physician compensation models. Regardless of the type of compensation, you can ask for a range of compensation received by other physicians or partners (this is especially important for formula based compensation offers).
• Salary Compensation – A fixed salary is a familiar concept, but be sure you know the payment frequency. There should be a cost of living adjustment each year (roughly three percent) to account for inflation.
• Compensation Based on Productivity – In this system, physicians are paid based on their productivity in the prior month, minus adjustments. Productivity can be measured by hours worked; number of patients seen; amount billed to patients; or amount collected from patients. Adjustments are usually overhead costs. For more information, see the American Academy of Family Physicians’ primer on physician productivity compensation.
• Compensation Based on Net Income – In this setup, physicians are paid a percentage of net income (which is the money that remains after all practice expenses are paid). The percentage of net income can be based on monthly physician productivity, or can be a percentage divided evenly among physicians. An evenly divided percentage may diminish overall physician incentive, which could decrease net income.
• Formula Based Compensation – Productivity, referral sources, and board certification are just a few factors that might go into a compensation-determining formula. Formulas must be examined individually because they vary greatly.
NEJM examines the basic pros and cons of various physician compensation models. Regardless of the type of compensation, you can ask for a range of compensation received by other physicians or partners (this is especially important for formula based compensation offers).
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