December 2000 Bulletin

How to set salary of top job

Market value of position depends on size, complexity of practice

By Sandra Lee Breisch

If you’re not aware of the different criteria that drive compensation and benefits, negotiating the best salary package for a practice administrator, chief executive administrator (CEO) and physician CEO could be a difficult undertaking.

"But by assessing the market value of the position and knowing what your market value is, you can identify two of the most important factors for determining compensation," says David N. Gans, Survey Operations Director at the Medical Management Group Management Association (MGMA). "What many practices don’t understand is that the market value or market salary for a position is dependent upon the size of the practice and relative complexity of the position—more so than the personal characteristics of the individual applying for the job," explains Gans. "And this all determines the skill level of the candidates that the doctors will interview.

"Basically, a more sophisticated practice pays a higher level of compensation for a practice administrator. This is because the administrator is as much at risk as the doctors are for the success of the practice. Often, the majority of compensation may not be based on a fixed salary—but on performance bonuses that are usually tied to the overall performance of the practice."

Smaller or less sophisticated practices that want to hire an administrator—but who have always had an office manager—will usually negotiate a fixed salary or a salary plus bonus compensation plan, notes Gans.

All practices should have a detailed position description that will assist them in determining just how much compensation that position is worth, says Gans. The description should include: day-to-day tasks (routine or project-oriented), degree of independence, culture of the practice, exposure to colleagues, pressure and pace of work, social significance of the position, long-term goals, hours (stated and expected), and opportunities to learn new skills and apply academic training.

"If you’re hiring an administrator, you need to know what the levels of responsibility are for this position," stresses Gans. For instance, how much autonomy is provided for the administrator? Does the administrator have the authority to hire/fire staff in addition to administrative staff? What is their role in the strategic planning for the practice? Does this individual have the ability to contract on behalf of the practice and on what level?

Seldom do you see a CEO in a practice of less than 25 physicians, points out Gans. "This is the highest nonphysician executive position in the organization, typically found in larger, more sophisticated medical practices or found in an integrated system such as physician hospital organization or a management service organization," he says.

Because the CEO responsibilities include the overall operation of the organization such as patient care, contract relations, strategic planning and marketing, Gans says a compensation plan will be individualized.

"The market levels for physician CEO compensation are determined by both the administrative expertise required for the position and by the equivalent compensation that would be earned if the physician remained in 100 percent clinical practice."

The MGMA Management Compensation Survey, Survey 2000, a report based on 1999 data, cites $85,178 as the median compensation for administrators in a 7-25 physician orthopaedic surgery practice. In practices with six or fewer physicians, the median salary is $63,495.

The median salary level for an orthopaedic group’s CEO is $128,359. The median compensation for a physician CEO in single specialty practice is $318,098.


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