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The Impact of Productivity-Based Incentives on Faculty Salary-Based Compensation

Miller, Ronald D. MD; Cohen, Neal H. MD

doi: 10.1213/01.ANE.0000168491.59329.52
Economics, Education, and Health Systems Research: Research Report

In industry and academic anesthesia departments, incentives and bonus payments based on productivity are accounting for an increasing proportion of a total compensation. When incentives are primarily based on clinical productivity, the impact on the distribution of total compensation to the faculty is not known. We compared a pure salary-based compensation methodology based entirely on academic rank to salary plus incentives and/or clinical productivity compensation (i.e., billable hours). The change in compensation methodology resulted in two major findings. First, the productivity-based compensation resulted in a large increase in the variability of total compensation among faculty, especially at the Assistant Professor rank. Second, the mean difference in total compensation between Assistant and Full Professors decreased. The authors conclude that this particular incentive plan, primarily directed toward clinical productivity, dramatically changed the distribution of total compensation in favor of junior faculty. Although not analytically investigated, the potential impact of these changes on faculty morale and distribution of faculty activities is discussed.

IMPLICATIONS: Academic anesthesia departments have provided faculty compensation in the form of rank-based salaries. Gradually, some departments have provided incentives and bonus systems. The authors’ department (University of California, San Francisco) found that adding incentives and bonus payments, mostly based on clinical productivity, induced increased variability in total faculty compensation and narrowed the financial difference between assistant and full professors. The potential impact on the mission of the department is discussed.

Department of Anesthesia and Perioperative Care, University of California San Francisco, San Francisco, California

Accepted for publication April 22, 2005.

Address correspondence and reprint requests to Ronald D. Miller, MD, Professor and Chairman, Department of Anesthesia and Perioperative Care, University of California, San Francisco, San Francisco, CA. Address e-mail to

Historically, compensation for academic anesthesiologists has been based on clinical effort. For most departments, base compensation has been determined on the basis of academic rank (e.g., assistant versus a full professor) or seniority. Other factors, such as amount of clinical time, night call, etc., have contributed to academic salaries. Grants are also a source of salary support for those faculty who have funded research programs. Until recently, there was little medical center support for medical direction and other administrative activities, the compensation being supported almost entirely by departmental clinical income.

Abouleish et al. (1) have determined that many academic anesthesia departments (71% of those surveyed) have defined financial incentive programs, which usually account for <25% of the total compensation. Most of these incentives are based on extra availability (e.g., added night call), usually defined as that time which exceeds the expected effort, on the basis of the negotiated salary. Also, most departments use an “availability” (i.e., amount of time available for clinical work) versus a “productivity” (i.e., amount of clinical care actually delivered) method for defining compensation for clinical activities.

While incentive-based compensation methods for calculating faculty compensation have been the focus of much discussion, their impact on the financial demographics of a department have not been reported. For example, what happens to the distribution of money if a change from a purely salary-based plan to one based on a combination of salary, incentives, and bonus payments is enacted? Furthermore, what happens to the department if these incentives and bonus payments are primarily directed towards clinical care? Will a system of incentives based on clinical work alter the distribution of total compensation by academic rank? Do financial incentives based primarily on clinical effort de-incentivize investigators and potentially reduce the research productivity and extramural funding of a department?

Over the past 5–10 years, our department gradually added a series of incentives and a productivity-based compensation plan based on the amount of actual clinical work performed rather than clinical availability. This analysis describes the impact of these systems on the distribution of departmental funds on a quantitative basis. Also, a qualitative description of the impact of this system is offered.

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The compensation of all salaried full-time faculty in the Department of Anesthesia and Perioperative Care at the University of CA San Francisco (UCSF) working at the UCSF Medical Center were studied. Faculty located at the Veterans Administration Hospital (Federal) and San Francisco General Hospital (City and County) were not included. These two institutions provide either part or all of their compensation to anesthesia faculty on a contractual basis. They are salaried independent of the amount of anesthesia delivered, and thus are not eligible for the incentive and bonus payments. A total of 58 faculty were studied. Their clinical responsibilities included operating room anesthesia, acute (postoperative) pain, preoperative evaluation clinic, postanesthetic recovery unit, and critical care units.

For more than 30 years, faculty salaries were entirely salary based, the amount of which was determined by academic rank and seniority (Fig. 1) With few exceptions, increases in salary were based on academic advancement (rank). Over the last several years, incentives were added on the basis of attendance at Grand Rounds and on teaching evaluations. Faculty could also volunteer for extra night call and/or relief of noncall residents in the early evenings, for which they would receive extra compensation. In addition, a system of “billable hours” was established for operating room anesthesia, the fundamental principles of which were described previously (2). Since then, this system has been extended to all aspects of clinical anesthesia, including pain management and critical care medicine. Basically, faculty must earn a predefined number of billable hours to meet their clinical commitment for their salary. When that commitment is met, additional billable hours are compensated over and above the faculty member’s base salary. These extra billable hours were either a result of extra clinical work to provide care for late cases, as a result of additional assigned night call, or by volunteering for extra clinical responsibilities.

Figure 1

Figure 1

For purposes of this analysis the basic salary alone, and with incentives and billable hours, were determined for each faculty. They were then grouped and compared by academic rank. To avoid reporting absolute total compensation, all faculty were assigned an equal and identical base ($) compensation, the amount of which is not disclosed in this manuscript. Then the specific dollar amounts of additional salary, incentives, and billable hours, are displayed for each faculty.

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When the total compensation is salary-based, the variability within a given rank is small, except for professors at a rank of > Step 4 (generally representing faculty who have been at the rank of professor for at least 12 years or more) (Fig. 1). These three professors varied widely in their seniority, which accounts for their variability in salaries. One assistant professor had an unusually small salary due to a voluntary increase in nonclinical time that was uncompensated.

Except for the three professors whose rank was > Step 4, absolute compensation increased, but variability within ranks did not change with the addition of incentives (Fig. 2). The three assistant professors, with a marked increase in compensation, received a $50,000 housing allowance that was included in the total compensation for this time period.

Figure 2

Figure 2

The influence of billable hours on base salaries was separately analyzed (Fig. 3). The most striking change was the large increase in variability in compensation within the ranks. Also, the mean total compensation for assistant and associate professors was virtually identical.

Figure 3

Figure 3

When total compensation (Fig. 4) (i.e., base salary, incentives, and billable hours) is compared with base salary alone (Fig. 1), some striking differences result. While the absolute salaries predictably increase with the addition of incentives and billable hours, the mean difference in total compensation narrows between ranks. The mean difference between assistant and > Step 4 professors was $79,000 for salary alone, while only $30,000 for total compensation. Also, the variability in compensation to faculty was increased in all ranks, especially at the assistant professor rank. In fact, one assistant professor received the second largest compensation of any faculty member in the department (Fig. 4).

Figure 4

Figure 4

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The addition of incentives, especially billable hours, had a dramatic impact on the distribution of compensation in our department. Some of the most striking changes included increased variability of total compensation, which occurred within a rank (Fig. 4). Furthermore, the difference in total compensation decreased between the ranks (e.g., the difference in compensation between assistant and full professor was decreased.)

In our department, individual base salaries are the same at a given rank and are not individually negotiated. The increase in the variability in total compensation as a result of incentives, and especially billable hours, obviously reflects individual motivation to perform additional clinical activities and receive larger compensation. In contrast to a pure salary system, the addition of incentives and productivity-based compensation has realigned our compensation system to reward the most clinically productive faculty in our department. Although not shown in our data, individual faculty may have their total compensation vary substantially from year to year on the basis of the amount of clinical work performed. This system then gives the individual faculty member the power to change personal compensation from year to year without having to renegotiate salary with the chair. It also allows the faculty member to have more control over how they spend their time and how they are compensated.

What the ideal difference in compensation should be between ranks (e.g., assistant versus full professors) is probably controversial. On the basis of conversations with many chairs, retaining junior faculty is often difficult. Certainly, providing a larger fraction of the total departmental compensation to assistant professors, and providing them with the power to change their compensation, seems to be an effective motivation for them to remain in an academic anesthesia department. Our goal to reward clinical productivity hopefully results in increased retention of junior faculty. The success of this goal will require a multiyear analysis.

A major argument against a pure clinical bonus system (e.g., billable hours and incentives for increased clinical work) is that research and teaching may be adversely affected if comparable financial incentives are not provided for those efforts. While that argument has merit and could undermine the value of this system, during this same time period, our National Institutes of Health and other extramural funding sources have dramatically increased, our residency has flourished, and our medical student rotation ranks among the best at UCSF. The members of our faculty have been consistently acknowledged for their outstanding teaching efforts in both the preclinical and clinical years. In fact, one of our faculty won one of the highest awards for teachers of medical students that UCSF has to offer. While educators and researchers do not receive financial rewards, they do receive additional nonclinical time, which is an incentive in its own right. Furthermore, they tend to be promoted more rapidly, which increases their base salary. These other incentives allow the faculty to make personal choices about how they will spend their time and how they will be compensated for clinical and other academic activities.

Lubarsky (3) suggests that incentives should be directed towards superior performance. “Superior” performance can be defined in a number of different ways. Lubarsky defines it on the basis of quality of effort. A different kind of superior performance could be defined on the basis of willingness to fulfill onerous responsibilities. An argument could be made that delivering anesthesia in the middle of the night is a form of superior service, if not performance. With our billable hours system, the credit provided for night and weekend coverage is larger than the credit for weekday hours. As a result, to fulfill one’s clinical expectations requires fewer night calls than daytime hours. Clearly, the increasing incentives (i.e., more billable hours than required) for those activities that are viewed by the department as a whole as less desirable allows for compensation to be used as a mechanism to reward desired behavior and fulfill the obligations of the department.

The benefits of a productivity-based salary and incentive program have already been briefly described (2,4). The fundamental principle is that such a program will reward and encourage professional activities and attitudes most helpful to the department. This study from one department using one reward system indicates that the variability in total compensation increases among faculty. It also demonstrates, at least for this department, that junior faculty (i.e., assistant professors) are the most likely to take advantage of such a program. It would be beneficial to the academic anesthesia community if a wide variety of incentive programs were objectively analyzed. Having a variety of models for comparison will allow new chairs and those interested in implementing an incentive system to have a variety of alternatives to consider and be able to evaluate the impact of implementation on their own departments.

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1. Abouleish AE, Apfelbaum JL, Prough DS, et al. The prevalence and characteristics of incentive plans for clinical productivity among academic anesthesiology programs. Anesth Analg 2005;100:493–501.
2. Feiner JR, Miller RD, Hickey RF. Productivity versus availability as a measure of faculty clinical responsibility. Anesth Analg 2001;93:313–8.
3. Lubarsky DA. Incentivize everything, incentivize nothing. Anesth Analg 2005;100:490–2.
4. Miller RD. Academic anesthesia faculty salaries: incentives, availability, and productivity. Anesth Analg 2005;100:487–9.
© 2005 International Anesthesia Research Society