• Moving the Dial with Employee and Executive Incentives

    Jun 10, 2013

    By identifying employee and executive behaviors that drive results and designing incentive plans that have teeth, organizations are accomplishing lofty goals. 

    Rodger Brown    Joseph Cabral

    From Left to Right: Rodger Brown is vice president of human resources, North Mississippi Health Services, Tupelo, Miss.; Joseph Cabral is senior vice president, chief human resources officer, North Shore-LIJ Health System, Great Neck, N.Y. 

    Setting clear goals and rewarding leaders and employees for meeting targets are common factors in the incentive plans developed by North Mississippi Health Services (NMHS) and North Shore-LIJ Health System. 

    NMHS, a two-time recipient of the Malcolm Baldrige National Quality Award, encourages employees to adopt specific behaviors that directly impact the health system’s objectives. North Shore-LIJ uses a scorecard approach to unify a mammoth health system around common goals. In 2010, the health system won the National Quality Forum’s National Quality Healthcare Award. 

    How are you ensuring that NMHS employees and executives are focused on health system goals?

    Brown: We created a clear and aligned connection between NMHS’s critical success factors—people, service, quality, finance, and growth—and employee behavior. To accomplish that, we identified “high-impact behaviors,” which are specific actions our employees take to positively contribute to our goals. 

    For example, a high-impact behavior for inpatient satisfaction is hourly rounding. Unit staff coordinate their schedules to ensure that someone checks on patients on a regular basis. This reassures patients and family members that we are checking on them both clinically and from a service perspective. 

    In the emergency department, a survey revealed that the top drivers of patient satisfaction are wait times and the patient’s perception of the quality of physician care. Our emergency department staff is keenly aware of reducing the amount of time people spend in the ED, but that isn’t always possible. When long wait times are unavoidable, staff can minimize patient frustration by executing the high-impact behaviors that we’ve identified. These include setting expectations on arrival, updating patients on a regular basis about how long they can expect to be in the emergency department, and letting patients know what the next step in the care process will be.

    To underscore the importance of patient satisfaction, hospital staff members have the authority to spend up to $50 to fix a patient complaint. For example, if long wait times meant that patients missed lunch or incurred extra travel charges for a return trip, staff members can offer to buy them a meal or reimburse expenses. 

    What approach is North Shore-LIJ taking? 

    Cabral: At North Shore-LIJ, we first ensured that the health system’s goals were meaningful and reflected areas that would lead to success. We talked with senior leaders and found that the goals they were focusing on were different than those that the health system was measuring. We suspected that same misalignment of goals among our staff employees. 

    To repair the disconnect, we created a clear method for communicating goals across the organization. We have about 46,000 employees and 350 physician and ambulatory groups that came together as a result of a merger about a decade ago. To communicate goals across such a large organization, we report monthly results of our three measures—quality, patient satisfaction, and financial performance—on a scorecard on our intranet and on bulletin boards throughout our facilities. We compare how we are performing internally, and we also benchmark our performance against national numbers.

    Finally, we developed a short-term incentive program for our leadership. The reward had to be significant enough, and it had to be a component of pay rather than an addition to annual salary. There is nothing subjective about the measurement tool. You either hit your target or you don’t. That is powerful. 

    Can you share more details about North Shore-LIJ’s leadership incentive program?

    Cabral: North Shore-LIJ implemented a short-term incentive program for top-level executives because we wanted them to work alongside our frontline staff on our top goals: quality, patient satisfaction, and financial performance (see the exhibit below). The executives have the same targets as our housekeepers, nurses, and laundry workers. Some of the specific metrics we’re tracking include the likelihood that patients will recommend our health system, performance on Medicare quality indicators, and reducing length of stay.

    QA Incentive Plan

    To strengthen the power of the executive short-term incentive program, we designed it as a component of pay. That gets everyone’s attention. The target incentive is 20 percent of base salary. We pay some portion of that percentage depending on how well the health system meets its goals at threshold, target, or stretch levels for each of the components. Then the payout is calculated depending on the percentile by which the goal is met. 

    A few executives questioned how they could be measured on patient satisfaction when they don’t interact with patients every day. We offered specific examples to make the correlation. For example, a chief legal officer contributes to the patient satisfaction target by identifying potential hotspots that could result in patient lawsuits. 

    To encourage collaboration between executives in different facilities within our system, 40 percent of the bonus is reliant on how the entire health system performs, and 60 percent is based on how well the executive’s business unit performs. 

    We expect our leaders to seek guidance from other higher-performing facilities to find solutions to their units’ weaknesses. For example, if one hospital is in the 90th percentile in patient satisfaction scores, and another is in the 30th percentile, the executive from the lower performing facility must reach out to the executive who drives higher scores. If not, that lack of initiative will impact the incentive pay.

    At the request of our executives at each facility, we developed a targeted incentive plan for their subordinate leaders equal to 10 percent of their base pay. The incentive is a component of their salary, and this next level of leaders is measured on the same components (patient satisfaction, quality, and financial performance) as the executives, creating alignment.

    To ensure subordinate leaders are focused on the results of their individual facilities, 70 percent of their incentive is based on the business results of their particular unit, while 30 percent is based on the performance of the entire health system. 

    Does NMHS also have a financial incentive plan?

    Brown: We are the only health system in Mississippi to have a team incentive plan for all full- and part-time employees, including our senior leaders (see the exhibit below). That broad coverage of all employees is a major factor in our organization’s success. 

    North Mississippi Health Services Team Incentive Plan

    Each facility is measured on patient satisfaction and cost-per-unit of service. Employees can earn an annual bonus from 0 percent to 5 percent of their annual salaries depending on the level they achieve on each goal. 

    For the patient satisfaction goal, the payout ranges from 1.5 percent at the 75th percentile, 2 percent at the 80th percentile, and 2.5 percent at the 90th percentile. The cost-per-unit of service payout ranges from 1.5 percent at 3 percent over target cost, 2 percent at target cost, and 2.5 percent at 5 percent under target cost. 

    That’s a potential 5 percent bonus for teams meeting the highest levels of patient satisfaction with efficient operations. Employees receive monthly feedback on their progress. Quality of care is also considered. It is measured based on patient satisfaction survey results.

    In addition to providing financial rewards to employees, the team incentive plan is a great way to communicate organizational goals. I look at it as a communication strategy as much as a compensation strategy.

    Have you documented any improvements or successes related to the goals associated with your reward programs?

    Brown: In 2005, we improved our alignment by measuring our incentive performance targets against our critical success factors: people, service, quality, finance, and growth. Since that time, our patient satisfaction score increased 10 percentage points, and our healthcare quality scores increased 8 percentage points. 

    We also maintain an AA bond rating, demonstrating our strong financial performance. The icing on the cake was when NMHS won the Malcolm Baldrige National Quality Award, once in 2006 for our 650-bed flagship medical center and again in 2012 for the entire health system.

    Cabral: Inpatient satisfaction rose by 3.3 percent between 2006 and 2010, and satisfaction among patients who visit our emergency departments rose 8.3 percent in that same time period. 

    We also saw positive results on the Medicare measures: AMI [heart attack], HF [heart failure], PNE [pneumonia], and SCIP [surgical care improvement project]. Between 2006 and 2008, AMI improved by 11.6 percent, HF by 9.3 percent, PNE by 3.2 percent, and SCIP by 8.2 percent. 

    In addition, our ICU central-line associated infections fell by 70 percent, ICU ventilator-associated occurrences of pneumonia fell by 50 percent, surgical site infections fell by 24 percent, and MRSA infections fell by 23 percent. Length of stay fell from 5.26 days in 2007 to 4.85 days in 2010. 

    Are there any nonfinancial rewards that you tie to organizational goals?

    Brown: Our Ideas for Excellence program rewards employees for submitting ideas that would improve one or more of our critical factors or is a Lean or innovative idea. In 2012, we received more than 12,000 ideas, and we implemented one-third of them. For example, at one facility, an administrative employee noticed that daily reports printed on costly four-part computer paper weren’t being used. Her recommendation to stop printing the reports was approved, and the facility saved $12,000 per year on paper costs. 

    Another nonfinancial incentive program initiative, Stars Online, invites employees to nominate co-workers for acts of kindness or exemplary service. Last year, 5,350 employees were recognized as Stars.

    Points earned for ideas accepted by Ideas for Excellence and for being recognized through Stars Online can be used to purchase items from an online gift catalog.

    Cabral: Before any organization implements a nonfinancial incentive program, it should ensure that employees are receiving competitive compensation and benefits. Employees who are paid well aren’t distracted by salary issues, and they can focus on the goals set forth in your nonfinancial reward programs. 

    Our nonfinancial rewards include recognizing employees for exemplary performance and length of service with a personal letter of appreciation and a choice of gifts from a catalog. The value of the gifts increases based on employees’ tenure with the health system. 

    In addition, our Annual President’s Award Program recognizes team members across the system for extraordinary performance in three areas: exceptional patient experience, innovation, and teamwork. The award presentation is one of the most widely anticipated employee events at North Shore-LIJ.

    What challenges or lessons learned can you share? How did you overcome those obstacles? 

    Brown: Employees need to realize that the incentives are not awarded automatically each year: They must be earned. Our emphasis on identifying behaviors that drive results is helping employees become self-motivated to achieve organizational goals.

    Also, we realized that you have to consider everyone who contributes to your organization when you develop an incentive program. For example, our non-employed physicians weren’t participating in our Ideas for Excellence program and Stars Online because they didn’t have access to the electronic nomination form. Once we expanded access, participation from those groups increased. 

    Cabral: When we implemented the short-term incentive program to drive patient satisfaction scores, we saw scores improve within the first six months. However, once we took our eye off the ball, and we stopped the incentive program, the numbers went right back to where they were. Why? We didn’t design the program to sustain the change and the momentum. That is why many incentive programs fail. My advice is to develop incentive and reward programs with a long-term strategy.

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