Compensation is a major factor in determining whether or not to accept a particular job offer.  When evaluating various job opportunities, different compensation models and rates of compensation may be presented.
Understanding the basis of how organizations determine compensation allows for better evaluation of offers when searching for a new career.

Why is it important to know about different compensation models and rates of compensation?

Different compensation models and rates of compensation can vary significantly, resulting in tens of thousands of dollars left on the table.  Being informed about how the compensation offer was determined will enable you to make a better decision regarding the offer in relationship to your skills and experience.

What is the difference between compensation model and rates of compensation?

Compensation Model
Compensation models are the arrangement set ups for how an employee is paid.  There are several compensation models and most of them pay a percentage of revenue to the physician.  The percentage is based on net revenue minus the physician’s salary and operating overhead.

Rate of Compensation
Rate of compensation is a specific amount of money periodically paid out during a given time period for an agreed upon service.

What are the different types of compensation models for physicians?

Guaranteed Salary
Hospitals or groups often pay physicians a starting salary.  These salaries are generally lower than the overall potential of the opportunity, because they are seeking physicians who are productivity-minded.  In the event that the physician is not pleased with the opportunity or they need to relocate for personal reasons, the guaranteed salary provides an easier way out for the physician than an income guarantee arrangement.  Generally, guaranteed salary contracts include a clause that requires the physician to give thirty days to six months notice of leaving.

Income Guarantee
Hospitals typically offer an income guarantee to physicians.  Generally, the concept is to bring a physician into the community where the hospital supports the physician for “X” amount of time, but the physician takes ownership of their practice.  The hospital pays the physician a salary, however, this salary acts as a loan.  As revenue comes in from the physician’s services, it is applied against the loan that was initially paid by the hospital to the physician.
After “X” amount of time, if the physician’s revenues balance out the loan from the hospital, the physician then earns X%.  (Generally, the X% can be as high as 90 to 100% of collections after expenses).  In the event, the physician shows a loss during “X” amount of time, the hospital may forgive the loan as long as the physician practices for “Y” amount of time longer.

To read more about the Pros and Cons of Guaranteed Salary and Income Guarantee follow this link to our AIM Resource Library: http://aimresourcelibrary.com/resources/best-practice-for-physicians-to-evaluate-compensation-offers/

Author:  The Adventures in Medicine Team

Sponsor:  Though the views expressed above are solely the writer’s, Guthrie supports “The Dose with Dr. Goodhook” and is partnering with Adventures in Medicine to create an open, inspiring and insightful community for residents and physicians. Click here to learn more about ways that Guthrie is making practice purposeful.