Compensation Debate Series: Salary vs. Benefits Part IV (and Final!)

Understanding Motivations and Incentive Plans

As we’ve explored the multifaceted compensation debate for physical therapists, one fundamental truth stands out: compensation strategies are not just about the numbers — they are about understanding people. In Parts I through III, we delved into the nuances of balancing direct and indirect compensation, the economic pressures of inflation, and the role of variable pay in influencing productivity. We set up a behavioral economics framework to understand the implications of our decisions.

One last recap: We listed 4 key items that must be considered for our overall strategy, with #’s 2–4 covered in this post:

1. Incentives Influence Behavior (economic framework, subject of last post)

2. Motivation is Personal (the only way to know is to know)

3. Traditions (PT is not typically a variable pay job like sales or other medical providers)

4. Compensation as a Strategic Competitive Advantage

Now, let’s shift our focus to a critical yet often overlooked aspect: the motivations of your employees the key understanding is that “the only way to know is to know.”

Why Understanding Motivation Matters

Compensation plans that fail to resonate with what truly drives your employees are destined to fall short, leading to disengagement, turnover, and a disconnect between individual and organizational goals. While pay and benefits are important, they are not the sole drivers of job satisfaction or performance. Intrinsic factors — such as a sense of purpose, recognition, autonomy, and professional growth — often have a more significant impact on employee engagement.

Motivational Tools: Beyond the Generic Compensation Package

Consider using tools like motivational sort cards to align compensation with what motivates your physical therapists. I can attest to using Gallup’s, but any simple search will reveal many options. These tools categorize various motivators — such as achievement, affiliation, autonomy, and security — offering personalized insights into each employee’s unique set of drivers.

For example, a therapist who values professional development might prioritize continuing education stipends (residency/fellowship) and flexible scheduling over higher pay. Another therapist focused on financial security might prefer robust performance-based bonuses or an IRS-approved student debt retirement program. By leveraging these tools, you can craft a compensation, incentive, and benefit plan tailored to your team’s diverse motivations rather than applying a one-size-fits-all approach. Over the past many years, this style has been called “cafeteria plan,” which provides for sound choices by employees that best fit their families’ needs. Moving continuing education to an “opt-in” benefit has significant value as it is often deemed as a necessity rather than a benefit. It is a good litmus test for understanding the value of ongoing education and training.

For large organizations, using sophisticated survey instruments to determine benefit preferences might be necessary; however, with shortages and retention, the best practice is for all supervisors to understand their employees’ motivators, which is a far larger construct than compensation. Motivation sort cards cross the boundary and enable personalized employee recognition, a key driver. There are sharp differences in how individuals like to be recognized and rewarded and results over many years show that they are primarily non-financial.

To make this issue more complex, preferences in benefits change over time thus necessitating re-visiting. According to the results of a new survey commissioned by a healthcare provider, 9amHealth, employees would rather have coverage for a new class of weight-loss drugs than unlimited paid time off or childcare assistance.

The survey of 1,300 Americans found that when ranking their desired job benefits in order of importance, coverage for weight-loss drugs such as Ozempic and Wegovy ranked behind only employee-sponsored health care, flexible working hours, company equity and matching 401(k) contributions. It came ahead of unlimited PTO, work-from-home or hybrid work, and childcare assistance.

About 30% of the survey respondents said they were employed somewhere that covered the weight-loss drugs, but for those who said they were not, about 21% said they would be very likely or likely to change jobs if they could access coverage to the drugs. Among respondents who were taking the drugs, about 67% said coverage was either an extremely important or very important consideration for staying at their current job; another 23% said it was a somewhat important consideration.

The relativity of this and other employee surveys to your organization may not be transportable, but the larger point of preferences and sensitivity to underlying motivators cannot be understated as a key process in crafting a yearly compensation vs. benefit plan.

Effectiveness of Bonuses and Incentive Compensation

Incentive programs, including bonuses, can drive performance and align employee behavior with organizational goals. However, their effectiveness depends on careful design and execution, balancing short-term gains with long-term sustainability, and being mindful of how they influence behavior and engagement, as illustrated in the last post’s story of the kids who stopped trashing an old man in the previous post.

When the evidence is culled for incentives, they are divided between their effect of short-term impact vs. long-term sustainability.

Short-term Impact of Incentives

1. Short-term Performance Boosts:
   Bonuses and incentives can lead to significant short-term performance improvements, as employees often work harder to achieve immediate goals when financial rewards are on the line. However, over-reliance on these mechanisms can result in diminishing returns, where the motivational impact lessens over time.
2. Motivation and Engagement:
   Well-designed incentive programs can enhance motivation and engagement by recognizing and rewarding effort. Programs that combine monetary rewards with non-monetary incentives — such as professional development opportunities and public recognition — tend to yield the best results. Many of the most sustainable programs have an element where there has been delivery of a reward without expectation.
3. Behavioral Alignment:
   Incentive compensation can effectively align employee actions with organizational goals, such as driving higher volumes or meeting specific performance metrics. However, it’s crucial to calibrate these incentives carefully to avoid unintended consequences, such as prioritizing quantity over quality, which can harm patient care, staff morale, and compliance issues. Many healthcare organizations take a conservative approach to incentives, making them all team-based to eliminate potential compliance traps.

Long-term Sustainability of Incentives

1. Diminishing Returns:
   As employees begin to expect bonuses as part of their regular compensation, the incentive effect weakens, necessitating increasingly more significant bonuses to sustain the same level of motivation.
2. Intrinsic vs. Extrinsic Motivation:
   An overemphasis on bonuses can undermine intrinsic motivation, causing employees to focus on financial rewards rather than the inherent satisfaction of their work. This shift can be particularly detrimental in roles that require creativity, innovation, and a long-term commitment, such as physical therapy. This intrinsic vs. extrinsic phenomenon was the key finding in the kids trashing the old man’s house research. Over the long term, building and reinforcing intrinsic motivation is the soundest strategy for recruitment, retention, engagement, and thriving for healthcare organizations. In my experience, organizations that go from one incentive program to another have the highest turnover and the most toxic culture.
3. Turnover and Retention:
   While bonuses can reduce turnover in the short term, they may lead to higher turnover if employees feel their performance is not adequately recognized or if the bonuses are perceived as unfair. Sustainable retention strategies often require a combination of monetary and non-monetary rewards, catering to intrinsic and extrinsic motivators. Again, motivational sort cards are a great and impactful tool as they bridge rewards and recognition.

Ineffective Incentive Programs:

1. Not understanding Traditions or Expectations: Like many professions, physical therapists are not typically paid by commission or using variable pay as the main component of their salary. This cultural element has to be acknowledged as the primary expectations of physical therapists are simply compensation and most frequently seen benefits, contrasted with sales positions where there is a high expectation of commission. The shift to variable pay is likely a necessary operating model given that practices are under immense margin erosion and stress due to poor reimbursement and rising costs. However, an onboarding period where pay is not at risk is justified. Variable pay will not likely be an attractive feature for physical therapists early in their careers, where developing intrinsic motivation and vital clinical skills are a higher priority. Forcing “at risk” compensation has been shown to increase turnover and decrease engagement, making them a highly ineffective option. There is evidence of moving traditional non-variable pay to variable pay in healthcare. Orthopedic surgeons, for example, amongst many other specialties, have migrated much of their primary payment source, mainly when employed by hospitals, to a per unit (e.g., RVU). Perhaps over time, a new level of expectation will occur for physical therapists relative to this mode of competition, but forcing this on a day 1 new hire PT will continue to be futile, in my opinion.
2. Overemphasis on Volume:
   Programs that overly focus on patient volume can lead to burnout and reduced care quality, pressuring PTs to prioritize quantity over quality. And then of course, the incentive of meaningful work is replaced by dollar signs.
3. Complex or Unclear Incentives:
   Incentive programs with complex formulas or unclear criteria can demotivate staff if they don’t fully understand how to achieve rewards. Simplicity and transparency are essential.
4. One-Size-Fits-All Incentives:
   Rigid incentive structures that do not account for individual preferences or career stages are often ineffective. Offering a choice of incentives — such as a bonus, extra PTO, or professional development funds — can better address diverse motivators.

Compensation as a Competitive Advantage

Best Practices for Incentive Program

Considering the short-term impact vs. long-term sustainability, here is a list of best practices that have been beneficial and sustainable.

1. Balanced Approach:
   Combine bonuses with other forms of recognition and reward, such as flexible work arrangements, professional development opportunities, and public recognition. This approach addresses diverse employee motivations and reduces the sole reliance on financial incentives.
2. Clear and Transparent Criteria:
   Ensure that the criteria for earning bonuses are clear, achievable, and transparent. Employees should fully understand how their performance impacts rewards, fostering trust and motivation.
3. Regular Review and Adjustment:
   Periodically review and adjust incentive programs to keep them relevant and effective. Soliciting employee feedback can help refine and improve the programs, ensuring they continue to meet the workforce’s needs.
4. Focus on Team and Individual Goals:
   Design incentive programs that reward both individual and team performance, encouraging collaboration and reducing unhealthy competition. For instance, profit-sharing can align individual efforts with the practice’s overall success.
5. Sustainable Budgeting:
   Ensure that bonus and incentive programs are financially sustainable. Programs that strain the organization’s finances are unlikely to be effective in the long run.
6. Long-term Incentives:
   Consider implementing long-term incentive plans, such as stock options or profit-sharing, to promote sustained performance and loyalty. This would align employees’ interests with the organization’s long-term success.
7. Foster Intrinsic Motivation:
   Cultivate a work environment that supports intrinsic motivation by providing meaningful work, opportunities for growth, and a positive organizational culture. Recognizing the broader impacts of their roles can keep employees engaged beyond just financial rewards.

Most Expected and Appreciated Benefits:

According to numerous surveys

1. Health Insurance:
   Offer comprehensive health insurance, including medical, dental, and vision plans, with different tiers to cater to diverse needs and preferences.
2. Retirement Plans:
   A 401(k) plan with a matching contribution (typically 3% to 5% of salary) is a competitive offering. Additional options like stock appreciation plans or profit-sharing can further secure employees’ financial futures.
3. Paid Time Off (PTO):
   Generous PTO policies, including vacation days, sick leave, and personal days, are essential. A minimum of 15–20 days of PTO is common, with additional days accrued based on years of service.
4. Continuing Education (CE) Support:
   Providing CE stipends ($1000–2500 or a time payback for longer-term programs like residency) and paid time off for courses or conferences is highly valued by PTs who need to stay current with certifications and new practices.
5. Flexible Scheduling:
   Offering flexible hours or part-time work options can enhance job satisfaction, especially for those with family responsibilities.
6. Wellness Programs:
   Investing in wellness programs, such as gym memberships, mental health support, and wellness incentives, contributes to overall employee well-being.
7. Professional Liability Insurance:
   Covering the cost of professional liability insurance is a critical benefit for physical therapists.
8. Student Loan Repayment Assistance:
   Offering assistance with student loan repayment can be a significant attractor, especially for newer graduates burdened with debt. Many are now offering IRS approved matching programs that provide additional tax benefits.

By carefully designing and implementing incentive programs that consider both financial and non-financial motivators, you can create a balanced compensation strategy that drives performance while supporting long-term employee satisfaction and sustainability. Understanding and aligning with what truly motivates your team is the cornerstone of a compensation plan that retains talent and inspires them to deliver their best every day.

This series has attempted to raise issues regarding the importance of careful crafting of an overall strategy for compensation vs. benefits. While there are no perfect solutions, there are best practices, considerations, and expectations. When done thoughtfully, an organization can have an on-going competitive advantage-one that is sustainable and differentiating.

Hope you have enjoyed the series. All thoughts and comments are appreciated.

@physicaltherapy