January 12, 2001

Pay for performance begins in July 2001

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Artist Karen Heyl stands outside the Ann and Roscoe R. Robinson Medical Research Building where her sculpture titled "Cellular Micrograph" was installed recently. (Photo by Dana Johnson)

Pay for performance begins in July 2001

The work that staff do today will help determine their raises in July. That’s when VUMC will begin using paychecks to recognize and reward individual job performance. The amount of each staff member’s annual raise will be determined by job performance evaluations conducted February through April. Faculty are not included in the pay for performance program.

“The main goal of pay for performance is to be able to recognize through compensation the contribution of employees to the success of the medical center,” said Dr. Harry Jacobson, vice chancellor for Health Affairs. “It will provide for the first time flexibility in compensating individuals based on their relative contributions to the medical center’s progress. There are plenty of examples showing that compensating staff based on performance helps to retain the best people.”

The current VUMC compensation program is geared to the labor market. The pay for performance program will extend and refine this market competitiveness, doing more to retain the best individual performers by paying them above market rates.

“The new system sends a cultural message,” said Norman Urmy, executive vice president for Clinical Affairs. “What we want of all our staff is excellent performance and a continuous effort to improve. To help communicate that goal, we want to reward people for their individual performance rather than raise salaries uniformly.”

Pay for performance has become common in health care, said David Posch, VMG chief operating officer and one of the designers of the compensation plan. Posch has been involved in installing such programs at Cleveland Clinic and Ochsner Clinic and Hospital in New Orleans. Some of Vanderbilt’s local competitors also have pay for performance programs.

In preparation for pay for performance, VUMC has taken pains over the past three years to build a fair, consistent and simple system for evaluation and development of individual performance. Jacobson underlined the need for fairness. “Any time you do something like this for the first time, you have to be prepared to make modifications. Clearly there will be a need to examine continually how we measure performance and ensure that we are consistent across the institution.”

As a precursor to pay for performance, VUMC staff in October received $200 bonus checks, together with a letter from Jacobson thanking them for helping the medical center through the financial straits of the past fiscal year.

Careful preparation

Medical center leaders six years ago approved moving to a pay for performance system as recommended by the VUMC Collaborative Organization Design Team. To lay the groundwork, in spring 1998 managers met in focus groups to test the design of a staff performance development process, drafted by the learning center and human resource services, intended to align individual performance with the overall goals of VUMC. To support fairness and consistency, VUMC job descriptions, all 611 of them, were rewritten to include concrete descriptions of duties and an account of expected performance. Supervisors received training early in 1999, and by July of that year all staff and supervisors initiated the annual cycle of job evaluations and performance development. The way was paved to performance based compensation.

Under the by now familiar VUMC performance development program, individual performance is graded on a five point scale, including performance of key job functions and adherence to the VUMC credo. At the manager’s discretion, staff in some areas are also graded on area-specific job functions. While adherence to the credo will be weighted at 25 percent of the final score, managers have discretion over how to apply weighting guidelines for individual job functions.

Staff member regulatory compliance, including such requirements as TB testing and annual fire and safety training, is graded “met” or “not met” and does not figure in the job performance score. Under pay for performance, failure to meet compliance requirements makes a staff member ineligible for any salary increase.

A performance based compensation plan was developed this summer by the Pay for Performance Task Force, and was approved in October by the Vice Chancellor’s Advisory Committee. David Posch, who led the task force, said the compensation plan is similar to that used at other medical centers.

“I’ve seen pay for performance work very smoothly at other health care organizations,” Posch said. “Most people believe it’s the right thing to do. The critical element for success is clear communication about performance objectives and outcomes.”

“The main concern in switching to pay for performance is ensuring that staff can trust the system to be fair,” said Urmy. “Implementation is going to require a big effort from everyone.”

Communication and final preparations

Soon all staff will receive a brochure explaining the pay for performance program. In February all staff and supervisors will receive training regarding pay for performance, with the focus on consistency and objectivity of job performance evaluations.

Between now and the coming round of annual performance evaluations, managers will develop job-based descriptions of performance corresponding to scores of one, two, three, etc. In generic terms, a score of one means “does not perform,” a two means “performs inconsistently,” a three means “competent to perform independently,” and so on. More specific descriptions will lend fairness and objectivity to the scoring process.

For job classifications that span several areas of the medical center, committees have already written scoring guidelines, including weighting recommendations for individual job functions. For example, the job description for office assistant I happens to have seven key functions, one of which has to do with phone communications. On the job description, specific requirements under this key function include taking accurate phone messages and delivering them within five minutes. Per the committee that dealt with this particular job description, a score of one for this job function would indicate that the assistant rarely takes accurate messages; a two would indicate that the assistant often takes inaccurate messages and often doesn’t deliver them within five minutes – and so on through scores three, four and five.

The various committees that wrote scoring guidelines sought participation and feedback from staff members occupying the jobs in question. “We found that the involvement of staff was necessary and very helpful,” said Layle Kenyon, manager of the outpatient center of Vanderbilt Children’s Hospital.

There are hundreds of job classifications that are unique to a given area of the medical center. Managers will be responsible for working with staff to develop measurable criteria to guide objective scoring of performance for these jobs. With annual salary increases linked to performance scores, there’ll be a need for thorough communication with staff regarding these guidelines.

Staff seeking more information about pay for performance should contact their supervisors.