Here’s a sampling of compensation methods

The relationship between salary and incentives

Many physician employment agreements call for a guaranteed salary combined with some sort of incentive. Following is a sampling of some basic compensation arrangements suggested by health care attorneys Vasilios J. Kalogredis and Michael R. Burke of Wayne, PA:

1. The employee is presented with a lesser guarantee because of the upside potential of income. One method of incentive compensation pays the employee a percentage of the gross revenues that he or she personally generates in excess of a certain threshold. The threshold is sometimes the amount of revenue the employee must generate for the practice to break even on the expenses incurred by the practice by employing the physician. 

For example, the agreement may read thus: "You will receive a base salary of $80,000 with incentive compensation equal to an additional 25% of all gross revenue generated personally by you in excess of $200,000." The advantage of such an incentive formula is that it would be directly tied to your work. The disadvantage may be increased competition for patients among the physicians in your group, they note.

2. The employee receives a percentage of the practice’s gross revenues or net income over a clearly defined level. "This provides a group incentive. However, it can lead to problems if physicians perceive that not everyone is pulling his or her weight," says Burke.

3. Base salary increases each year the physician is employed by a practice. Where an employee’s incentive formula is based on revenue generated by that employee, the threshold revenue will generally be increased to correspond to increases in the employee’s base salary. Once an employee becomes a co-owner of a practice, compensation is generally divided among the co-owners according to a formula appropriate for the practice and its market.