Closing the Compensation Gap

Businesses are constantly on the lookout for economies of scale, which is why mergers and acquisitions are routine events. Getting bigger, merging home offices, cutting administrative overhead all are supposed to pay off, at least for owners, in higher margins and a better bottom line. Sometimes they actually do. Sometimes the results are painfully disappointing.

But what does bigness do for employees? The old conventional wisdom held that working for a large company was the route to a more rewarding career track, job security and the best benefits.

Small firms could treat you just like family, but they tended to fall short with health plans and other valuable aspects of compensation. And if they sold out to one of the giants, you could end up starting all over in the back of the line for promotions.

But small firms keep starting up in HME and seem to do quite well amid the big corporate chains. Depending on the talents of their owners or CEOs (often, of course, the same person wears both hats), they can be as tech-savvy and as skilled at sales and customer service as any local office of a regional or national chain.

Also, as health care management consultant Vince Crew, Reach Development Services, notes, they may actually offer more security than large corporations. “Someone working in a large company is more vulnerable in terms of their career than someone working in a small company,” Crew says, because big firms tend to react to bad times by laying off workers — whom the owners, of course, generally have never met. It’s harder to fire people who have worked alongside you for 15 years.

Now the big HME companies may be gradually losing another long-standing advantage: their ability to offer better benefits along with competitive pay. The data from HomeCare’s latest annual survey of HME compensation, taken during June and July, suggest that the benefits gap between small and large firms is closing, especially in the all-important area of medical insurance.

Among the 459 HMEs responding to the survey this year, the smallest providers were more likely than in 2004 to offer their employees medical coverage, dental plans and pension plans. The larger firms were cutting back in those areas.

While the survey also showed that smaller firms were somewhat less likely than large companies to hike employees’ pay, at the same time, they were more likely to give above-average raises.

The 2005 survey’s major findings about salaries, bonuses, raises and benefits follow.

Pay Rises with National Tide

For the HME industry as a whole, the survey showed wage and salary policies similar to those reported last year, as well as raises at or near national norms.

In both 2004 and 2005, 81 percent of the participating companies said they granted raises during the past 12 months. Among these, slightly more than half (52.8 percent) gave out raises in the 3 to 5 percent range this year, compared to 55.3 percent in 2004. The share of businesses giving raises of 6 to 10 percent was 17.7 percent, just over 17.2 percent in 2004.

Excluding those firms that did not grant raises, HME employees seem to have done as well as, and some much better than, the reported national averages for wage hikes in 2005. A recent survey by The Conference Board, a non-profit organization providing business research and data, showed the median salary increase budget this year was 3.5 percent for non-executive employees in U.S. industry overall. The projected 2006 median budget was the same.

Another recent survey of American business, by Mercer Human Resource Consulting, showed employers planning to grant average raises of 3.6 percent in 2005 and 2006. The average raise for HME employees reported this year across providers of all sizes was 5.7 percent, with the median at 4 percent.

But unlike HME, where HomeCare’s survey showed 14.4 percent of firms granting no raises, only 2 percent of the companies in the Mercer report were freezing pay this year.

The pay policies of both small and large HME firms in 2005 also followed a pattern similar to that seen last year.

Among the smallest providers participating in the survey (companies with under $1 million in sales), 67.5 percent reported giving raises in the past 12 months. Among mid-sized firms, with sales from $1 million to $3 million, 86 percent granted raises, while 91.8 percent of companies with sales of more than $3 million did so.

In size of raises, however, the small and mid-sized firms beat the large ones, with a median raise of 5 percent compared to 3 percent for the $3 million-plus group. Average raises were highest among the under-$1 million firms, at 7.3 percent.

Salaries Jump for Sales

From 2004 to 2005, the most significant change in pay scales reflected by the survey was the jump in salaries for sales and customer service jobs.

Outside sales and marketing reps saw a significant hike, with their median pay up 16 percent to $46,500. Salaried customer service managers and supervisors had an 11 percent increase to $40,000, while the median salary for presidents/CEOs rose 7 percent to $80,000.

The biggest losers were store/branch managers, down 10 percent to $45,000, and delivery technicians, down 9 percent to $26,500 (or down 6 percent in hourly wages, to $11.06).

The sharply rising pay for sales and customer-facing jobs suggests that home care companies are reacting to a climate of shrinking reimbursement by rewarding those who are good at generating new business, from either new or existing customers.

Wallace Weeks of Weeks Group, a longtime consultant to HME businesses, says executives and owners tell him these days that they need “good salespeople” most of all, along with rehab technologists (the latter, he says are in chronically short supply).

Dynamic Seminars and Consulting’s Louis Feuer, who specializes in sales and marketing, says “sales reps are more and more the crucial element” in HME, where passive marketing methods such as yellow-page ads are no longer enough to beat the competition. “You have to go out into the community; the community isn’t going to come to you,” he says.

Indeed, more than a quarter of providers (28.5 percent) in the survey said they plan to increase their outside sales staff within the next 12 months.

Other job categories experienced either modest changes or a mixed trend between salaries and hourly rates. Billing clerks were up 4 percent in median salary to $26,000 and up 5 percent in hourly pay to $11.54. Respiratory therapists had a median gain of 3 percent to $41,250 and a 10 percent rise in hourly rates to $19.71.

Showing mixed trends were accounts receivable managers (down 1 percent in median salary to $36,000, up 8 percent in median hourly pay to $13), and operations/warehouse managers (down 4 percent in salary to $38,449, up 15 percent in hourly rates to $15).

Pharmacists are the highest-paid group in HME by median salary and hourly rates; by average pay, presidents/CEOs top the list at $116,903.

Benefit Erosion Stops, At Least for Now

At the time of last year’s survey, medical insurance premiums were rising at double-digit rates, and employers were scaling back their health coverage benefits.

Among HME companies, the smallest (under $1 million) were retreating the most. The number of these providers offering health coverage, either fully or partially employer-paid, had dropped from 61 percent in 2003 to 46 percent in 2004. The drop-off was much less in mid-sized companies, and there was no significant change among larger firms.

It’s a different story this time around. Premiums continue to rise, but the erosion of health coverage for HME employees has stopped, at least for now, on an industry-wide basis. Most striking is the reversal of the decline among small firms, with 54.3 percent offering coverage in 2005.

At the other end of the HME spectrum, employers at bigger firms seem to be cutting back their plans. In 2005, 91.8 percent of $3 million-plus companies offered health coverage, down from 95.3 percent in 2004. The same pattern occurred with dental coverage, pension plans, 401(k) plans and life insurance. More small firms (though not yet a majority) are providing these than last year, while large companies are scaling back.

In bonuses, however, companies of all sizes moved in lockstep: They all cut back. Overall, the number of firms offering bonuses fell to 61.7 percent in 2005 from 73.8 percent in 2004.

Providers reported spending roughly the same proportion of salary on benefits — an average of 17.4 percent — in 2005 as they did a year earlier. So, the new data suggest a shift in priorities, away from bonuses and toward health- and security-oriented benefits.

Neither survey, however, recorded how much companies may have increased the amount paid by their employees for health or dental plans; employees in all industries have been footing more of the bill for these benefits in recent years.

Skill Gaps and Talent Raids

For the first time this year, HomeCare’s survey asked companies if they employed an information technology specialist, either on staff or under outside contract. Most (59 percent) said they did not. Here, not surprisingly, the larger firms were more likely to have an IT specialist or an outsourced service. But even a significant share of these — 40 percent — said they had no such dedicated function. And overall, only 1 percent of providers said they plan to add the position in the next 12 months.

Information technology is one area in which experts see HME coming up short in comparison to most American industries. “There is a growing need for a relationship with a technology professional, whether that person is an employee or a contractor,” Weeks says, but he sees too many HME businesses trying to get by without. Even in firms with sales over $10 million, he says, management sometimes relies on a “super-user” — an employee who may be a computer enthusiast but who lacks specialized training — to handle the company’s computer hardware and software issues.

Companies also need IT specialists to help get more out of their existing computer systems. IT isn’t just for billing and reimbursement anymore, Feuer notes. It can also be a powerful tool on the marketing side, helping companies track sales and manage customer relationships.

Rehab techs are even rarer than IT professionals. Of companies specifying a salary for the position, only 33 of the surveyed providers reported employing one of these specialists. (Salaries are not reported for either job category because results are not statistically valid.) In this case, the blame for the shortage may lie more on the supply side than with HME managers, who seem eager to hire rehab techs whenever they can find them.

According to Weeks, “As an industry, we haven’t created an awareness of the need for rehab technologists … as is the case with other health care professionals.” As long as they are in such short supply, he says, “the advice that I most often have to give is the obvious: Steal them from your competitors.”

About the Survey: HomeCare’s 2005 Compensation Survey was conducted by mail from June 16 through July 29, 2005. In all, 459 companies responded, including home medical equipment providers, hospital-based HME firms, retail pharmacies/drugstores with HME and specialty providers in areas such as home infusion and pediatrics. The companies ranged in size from under $1 million in sales (151 respondents) to more than $25 million (56), with 129 in the $1 million to $2.9 million range; 79 from $3 million to $9.9 million; and 24 from $10 million to $24.9 million.

All regions of the U.S. were covered, with 20.1 percent of the participating home care companies located in metropolitan areas with populations of a million or more, and 43.6 percent in areas with populations of less than 100,000.

More than half of the respondents (52.9 percent), or 243 companies, said they operate only one location, though the survey also includes 44 companies that operate 100 locations or more.

Survey methodology conforms to accepted marketing research methods, practices and procedures and the guidelines set forth by American Business Media. Not all respondents answered every question, and some totals may not add to 100 percent due to multiple responses or rounding. Results in the full research report are tabulated by revenue, number of locations and area of operation. To purchase a complete copy of the survey, visit www.homecaremag.com.et

Survey Fast Stats

About Salaries

• The average salary increase given by responding companies was 5.7 percent.
• On average, 71 percent of employees working at companies giving raises received a salary increase.
• Of responding HME companies, 81 percent said that at least some employees received a raise in the past 12 months.
• More than half of the providers surveyed (51 percent) link salary increases to performance goals, while 27 percent link salary increases to revenue goals.
• Thirty-nine percent of respondents pay their sales staff straight salary only, while 38 percent pay on a salary-plus-commission basis. Four percent of respondents pay their sales staff commission only.
• Of surveyed companies that pay salary-plus-commission, the average guaranteed base salary on a percentage basis is 35 percent.

About Benefits

• Providers responding to the survey spend an average of 17.4 percent of salary on employee benefits.
• Eighty-five percent of respondents offer vacation time, while 77 percent offer medical insurance and 62 percent offer bonuses.
• More than half of responding companies that offer bonuses do so to all employees (63 percent). Thirty-eight percent do so for managers. Thirty-four percent offer bonuses to sales staff, 22 percent to billing/back office employees and 22 percent to customer service reps.
• Of responding companies that offer bonuses, 65 percent say the bonuses are linked to revenue goals, while 52 percent link them to performance goals. (Some companies base bonuses on both goals.)
• Only 18 percent of respondents offer their employees a pension plan. Seventeen percent offer a profit-sharing plan.

RESPONDENT PROFILE

SALARIES & BONUSES

RAISES & BENEFITS