Follow the Money

Introduction

Non-profit (NP) organizations in the healthcare arena have historically relied on government funding to support their service delivery efforts. In most cases, their operating budgets are derived solely off government funding (e.g. federal, provincial) [1]. While this funding allocation model is effective in the sense that it aligns with a more localized healthcare service delivery mandate it has had unintended consequences of encouraging pay inequities across the staff roles that deliver healthcare services and more broadly can limit the social good impact of the organization they are funding.

Compensation Management Dilemma

A framework for compensation management in a formal organization structure includes some core internal and external considerations. Collectively, these considerations endorse a transparent and defensible relationship between job value and job worth. Internally, job value is determined through some form of job evaluation approach which assesses the relative presence of skills, effort, responsibility and working conditions across the spectrum of jobs.  The resultant job banding hierarchy clusters jobs deemed to be of similar relative value to the organization. For example, Figure 1 illustrates a job banding hierarchy where jobs in one stream have been deemed to have the same organizational value as some jobs in other streams.

Figure 1: Sample job banding hierarchy

After establishing the job hierarchy further internal (e.g. compensation philosophy, budget constraints) and external (e.g. labor market peer group, inflation projections, professional association influence) metrics are used to develop a common wage grid [2] for managing base salary of all roles within the same contribution level. In essence, roles that are deemed to be of similar relative value to the organization are compensated according to the same wage progression schedule and have access to the same job rate maximum.  Figure 2 illustrates a common wage grid design.

The management dilemma facing most NPs is that the external metrics part of the equation is artificially influenced by Funder expectations. This impact effectively decouples the relationship between how the organization values jobs relative to each other and how such jobs are compensated relative to each other. In essence, Funders become analogous to institutional shareholders that have a weighted influence on how the organization manages its pay practices relative to other internal and external metrics.

Role and Organization Pay Inequity

It is not uncommon for NPs to have the same role (e.g. Social Worker) across multiple programs each sponsored by different Funders.  For example, one program may provide funding for a specific number of Social Workers with a focus on at-risk youth. Another program may provide funding for another subset of Social Workers with a focus on crisis intervention. From a job relativity perspective, they are basically worth the same to the organization in terms of the requisite qualifications and expected job contribution levels.  Through the lens of fairness and equity - common compensation management principles - these jobs would be entitled to similar compensation arrangements and as such would typically be managed through the same compensation guidelines related to salary increase or merit pay considerations.

Differences across Funder expectations, however, create a program-centric approach to compensation management instead of the more common job-centric approach. Consequently, incumbents in the same role, but in different program areas, are compensated according to a valuation of job worth established by the program Funder not the service delivery organization. From an efficiency vantage, the collective impact of managing multiple program-centric compensation programs with different guidelines or constraints requires additional administrative resources. From an effectiveness vantage, such resources could otherwise be directed towards supporting service delivery. From a workplace moral vantage, as differences in compensation levels for incumbents in the same job are publicized through the employee grapevine they can impact employee commitment and engagement levels. The employee messaging derived from a program-centric compensation approach is one of – I can make more money doing the same thing in a different part of the same organization.

Beyond disrupting the job value and job worth linkage for a specific role, a program-centric compensation focus also increases overall payroll liability. Salary adjustments for roles covered by a specific program Funder will tend to be prescriptive in terms of the frequency and quantum of adjustments. The Funder directives create some pressure for the organization to match adjustments for non-program specific roles in order to maintain wage parity for all jobs within the same job level.

Sector Pay Inequities [3]

The current fractured program Funding approach can also lead to significant differences in job rates for the same role across different healthcare service delivery providers in the same geography. For example, it is not uncommon for Social Workers at a smaller Community Health Centre to realize a $25 hourly rate increase by moving over to the local Community Care Access Center for essentially doing the same job. Differences in pay rates are not driven by end-user demand for Social Worker job expertise but rather by the artificial labor market created by variances in Funding models. From the employee vantage the messaging is – I can make more money at a different organization doing the same job [4]. As the healthcare service delivery framework relies on coordinated impact from various tiers of service delivery organizations, the influence of this artificial labor market can adversely impact service delivery at the smaller organizations through resource scarcity.

Some course correction

A more equitable long-term solution would be to move towards a cause-centric funding approach instead of the prevalent program-centric approach. Compensation management practitioners across the spectrum of NPs are realizing that some of these Funder induced pay inequities can be addressed through dialogue at the Association level. Through their collective voice and understanding of common client service and corporate services role expectations Associations can more effectively partner with Funders to influence compensation arrangements within their membership. This approach also reduces the individual streams of dialogue between Funder and service delivery organizations as the latter group is represented by one voice –the Association. It also engrains the compensation principle of fairness through more consistent fund allocations across the individual organizations within the Association.

Within the spirit of downloading healthcare service delivery, Funders may want to consider a more hands-off approach to compensation management with more of a focus on outcomes. Essentially, these institutional investors would provide working capital with the expectation that the NPs leadership group, through the collective lens of its organization structure, job evaluation framework and existing compensation management guidelines, is best positioned to allocate funds proportionally to all the roles that contribute to service delivery. Within the context of Figure 1, this would address one of the challenges NPs face in dealing with the disproportionate funding for clinical roles vs non clinical and leadership roles; all are necessary for effective and efficient service delivery.

Written by Dave Nanderam, Ph.D., President of TapestryBuilder

[1] Children Treatment Centers in Ontario, for example, rely primarily on the Ministry of Children & Youth Services as well as the Ministry of Community & Social Services for funding operational needs. 
[2] Typically include 5 steps from Start Rate to Job Rate where progression is based on job tenure.
[3] Although the focus of this discussion is on pay inequities caused by Funder expectations, such inequities often result from the application of different legislated Pay Equity methodologies (i.e. Job to job vs. proxy) which also creates labor cost management challenges.
[4] Base salary differentials play a key role in decision to leave in the absence of variable pay programs.

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