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Parkland's unique wage plan spurs employee pay discussion


By Bob Herman
Posted: June 13, 2014 - 8:00 pm ET
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What started out as a routine board meeting announcement at Parkland Health & Hospital System has turned into a major point of discussion among those concerned about employee compensation and retention.

The Dallas-based safety net health system Wednesday said it would raise the minimum wage of its entry-level employees to $10.25 an hour, effective July 1. The plan will cost $350,000 its first year and will affect about 230 employees who primarily work in environmental, linen and dietary services.

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The concept of employers paying more than the federal minimum wage for typically minimum wage jobs is not without precedent, said Michael Reich, director of the Institute for Research on Labor and Employment at the University of California at Berkeley. Several large companies, including Costco and In-N-Out Burger, have established hourly rates for employees higher than the $7.25 federal figure. This past February, clothing retailer Gap Inc. announced it was increasing its minimum wage to $9 an hour this year and $10 in 2015.

What makes the Parkland situation “unusual,” according to Reich, is how the wage hike is being funded. The cost of the new wages for low-income earners will be covered from an executive incentive pool, said Jim Dunn, Parkland's executive vice president and chief talent officer. And this is not a one-time event. Dunn said the new $10.25-per-hour rate will become system policy going forward, even if Parkland doesn't have executive incentives to cover the costs.

It sounds like a bold initiative for a safety net health system that nearly had its Medicare and Medicaid funding revoked, lost more than $450 million from operations in 2013, and is wrapping up construction of a new $1.3 billion hospital.

“If there is a year that Parkland does not have (incentives), Parkland will find a way to fund the increase through other efficiencies,” Dunn said. “We anticipate this will be very sustainable, post the move into the new hospital.”

“Our entry-level positions are just as valuable as our executives,” he added.

Experts at Equilar, the Healthcare Financial Management Association, Hay Group and other organizations that follow and track healthcare compensation trends said this strategy—boosting low wages through executive incentives—has rarely, if ever, been seen.

Jim Otto, a senior principal at Hay Group who works almost exclusively with healthcare organizations on executive compensation, said he has never come across a plan like Parkland's. But other systems may begin to take note.

“I would be surprised if it becomes some kind of large movement, but I would not be surprised if individual systems take a look at this and think seriously about doing something similar,” Otto said. “Just given how wages have stagnated for a good chunk of our employed population in the U.S., this may be the kind of innovative approach that boards and senior management would be interested in at least talking through.”

Indeed, salaries across the country have not kept up with inflation over the past several decades. If the minimum wage from 1968 were translated into today's adjusted dollars it would be almost $11 an hour, according to data from the National Employment Law Project. Parkland's move comes amid President Barack Obama's push for an increase in the national minimum wage which is opposed by Republicans.

Conservatives argue government-mandated increases to the minimum wage lead to job losses and disproportionately hurt states with lower costs of living. But Parkland's approach gets a different reaction.

Chuck DeVore, vice president of policy at the right-leaning Texas Public Policy Foundation and a former Republican California state assemblyman, does not agree with increasing the federal rate. But he said Parkland's plan could make business sense if their ultimate goal is to retain and attract high-quality employees in their market.

“It's perfectly fine if an employer responding to the market believes they can get an advantage competitively by increasing the minimum wage within their operations to reduce … employee loss and improve employee morale and training,” DeVore said.

John Patrick, secretary-treasurer of the Texas AFL-CIO who believes starting pay nationwide should be $15 per hour, said what Parkland is doing is more than just a business decision. The nonunionized system is investing in its community.

“If an employer wants to have employees that he or she can depend on for years, it pays to pay them a good living wage so people can provide for their families,” Patrick said.

Parkland's Dunn said he believes the measure will ultimately give the organization a competitive advantage and will eventually help reduce employee turnover, which was around 16% in 2013.

“That is our hope,” Dunn said. “Retention, employee satisfaction and productivity are the elements we're searching for and hoping for.”

Follow Bob Herman on Twitter: @MHbherman


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