What a base salary really means for your compensation

You’ve just completed your residency and you’ve been offered two attractive positions, one in a private practice and one in a hospital. If you’re like most new physicians, you’ll probably opt for the hospital job, even though you may prefer the friendlier, more intimate setting of the private practice.

“In contrast to previous generations, most people coming out of residency don’t want to take the risk of going into private practice and having to buy out a senior partner or work in the practice for years to eventually become a senior partner,” says Michael Ferry of the Halley Consulting Group in Columbus, Ohio. “This is a millennial shift. Today’s young physicians are risk-averse. They would like to be employed and have a regular paycheck.”

“Today’s predominant compensation model usually has a base salary tied to some expectation of production performance or base work.” – Ronald Vance, JD, of Navigant Consulting in Suwanee, Ga.

Steve Look of The Medicus Firm, a national physician recruiting company based in Dallas, sees a similar trend taking shape. “On a national level, employed structures are dominating the market. Physicians of previous generations valued autonomy, but the newer generation is seeking lifestyle balance.”

And you don’t have to be a new graduate to find the employed model attractive. Many veteran physicians are tired of running their own practice and willing to “sacrifice autonomy to be free of the headaches of managing nonclinical aspects of a practice,” says Mr. Look. “There is an increasingly burdensome assortment of tasks such as new legislation, mandates regarding electronic medical records and complexities of dealing with third-party payers.”

Unfortunately, physicians often misunderstand what employment really entails. While many think being employed means a guaranteed salary in exchange for working a certain number of hours, that’s not always the case. When a salary is offered, it typically comes with all kinds of strings attached.

He says that most physicians are going to find themselves being paid via a combination of salary and incentives.

“I don’t think the term ‘base salary’ is accurate,” Mr. Vance explains. “A better term is ‘base compensation,’ because salary may be guaranteed, but compensation isn’t.”

Compensation to expect when starting a new job

If you’re just entering the job market, you can expect to receive a base salary for one to two years, although the exact amount of time can vary. After that initial period, however, compensation is usually tied to productivity metrics such as work relative value units (RVUs) or shift rates (especially for less busy times, such as night shift), gross charges, adjusted charges, collections, or number of patient encounters.

And if you’re a hard worker, you’ll be rewarded for your effort—sort of. Increased productivity is often rewarded with bonuses, Mr. Look explains, but you usually have to reach a threshold before any bonuses kick in.

Additional metrics

Other metrics besides productivity can be used to calculate bonuses above and beyond your salary. They include “good citizenship” responsibilities such as quality, service, teamwork, leadership, and appropriate use of EMR and other system protocols.

Exactly how popular are incentives in physician pay? According to the Merritt Hawkins 2015 Review of Physician and Advanced Practitioner Recruiting Incentives, the category “salary with bonus” remains the most common type of incentive offered to physicians, with 71% of physicians saying they receive bonuses in addition to salary.

By comparison, salary without bonus is considerably less common, with only 23% of physicians reporting they’re paid a straight salary. The least-used compensation formula, at 4%, is income guarantee, with doctors pocketing a certain dollar amount per month amount after expenses regardless of how much revenue they bring in. This model is often used by hospitals to attract physicians to areas that are difficult to staff.

What if you don’t meet production expectations? Lower productivity can be penalized, so when it’s time for contract renewal, you could receive a nasty surprise in the form of a reduced salary. “I’ve seen clauses where adjustments have been made at the end of each year, based on performance,” Mr. Vance says. “These can go either way, higher or lower.”