Show them the Money

Any business, not just those in home medical equipment, comes to recognize sooner or later that there’s no substitute for skilled, motivated employees.

For one thing, a strong workforce is a source of stability and competitive advantage in a business marked by perennial uncertainty on the revenue side (such as HME). If you can’t predict what the government will do next, at least you can try to build a good staff that rises to challenges and adapts to change.

Recruiting such people is not easy. Nor is keeping them. That’s especially so now, when economic growth and low unemployment have combined to create a market strongly tilted in favor of job-seekers. “Help Wanted” is a sign of the times.

For America’s labor force in general, the good news is that most people who want to work can find jobs easily, and that pay, after a long stretch of sluggish growth, is starting to spike upward. According to the U.S. Department of Labor, average wages rose at a brisk annual rate of 4.9 percent in the second quarter this year.

The bad news is that for employers, including those in HME, labor costs are going up, and competition for skilled workers is getting more intense. Businesses have to work harder now to find, motivate and retain workers. Along with competitive pay, they need to offer something worthwhile to hire the best. And in today’s competitive environment, they need the best to grow and stay profitable.

HomeCare’s latest Salary & Benefits Survey shows how this job-seekers’ market is affecting compensation at HME companies. The most obvious sign is a rise in the number of firms offering benefits such as disability insurance, bonuses, personal time, tuition reimbursement, profit-sharing and association memberships.

Also notable is the fact that, despite a continued rise in premiums, the share of providers in the survey offering medical plans stayed steady from 2005 to 2006. Among larger HME firms, the percentage actually rose. And pay raises among those companies reporting them continue at levels well above inflation.

If providers are competing more aggressively for workers, then who is winning? Time will tell, but the survey suggests that larger HME firms are able to spend more on benefits and training.

Larger firms also spend considerably more on employee training, an investment that benefits both employers and employees. Small HME companies still have certain non-monetary factors in their favor, such as the potential for a closer bond between owners and staff. But the larger companies seem for now to be ahead in the race to offer benefits that carry some sort of price tag.

Does Sales Pay Make Sense?

The survey’s bottom line on HME pay is that, on average, it’s going up at a healthy pace. Of the 246 businesses responding to the survey on this topic, most (203) reported giving employees raises in the prior 12 months.

The average raise was 5.6 percent, with 87 companies (43 percent of those giving raises) handing out pay increases of 5 percent or more. The median raise, representing the point at which half the reported raises were higher and half were lower, was 4 percent.

Pay did not rise equally for all jobs, however.

In general, positions that were already higher paid — due to wider responsibilities or required skill levels — saw the bigger hikes. Average annual salaries rose 36 percent for sales managers or vice presidents of sales; 25 percent for CEOs; 11 percent for both pharmacists and store/branch managers; and 9 percent for respiratory therapists.

The greatest exception was in salaries for outside sales reps, who saw average salaries drop 9 percent. And companies in the survey group did not appear to be making up the shortfall with higher commissions.

The percentage of companies paying their sales reps on a straight-salary basis actually rose in 2006, to 44 percent from 39 percent in 2005. Of those that paid a combination of salary and commission, the average base salary as a percentage of total compensation also rose. This suggests that average commissions were dropping even faster than average salaries.

In an industry where experts see the need to garner new business continually in order to succeed, the apparent trend to skimp on sales-rep compensation would seem to take HME in the wrong direction. In fact, some observers do see providers dropping the ball on sales, though the problem is not simply that salespeople are paid too little.

Alison Cherney, a Brentwood, Tenn.-based consultant, says the HME industry has work to do in matching sales skills with company needs. As Medicare reimbursement shrinks and managed-care business beckons as an alternative, Cherney says providers need salespeople adept at “systems selling” — pitching a company’s services directly to a third-party payer rather than to individual providers such as doctors and hospitals.

“There are a few very good managed-care salespeople,” she says, “but they’re really expensive.”

Cherney and others say home care businesses need to take a close look at the structure of sales-rep compensation, not just the overall amount.

Louis Feuer, who heads Pembroke Pines, Fla.-based Dynamic Seminars & Consulting, thinks providers have been getting the message in recent years about the value of incentive pay. The real problem, he explains, is that firms set pay levels without a clear idea of the rep’s actual value to the company and how much revenue he or she produces.

“I get people calling me all the time asking, ‘If I pay a rep X amount of dollars, am I paying too much?’” says Feuer. “I ask, ‘Why aren’t you asking about your return on investment?’”

A Widening Benefit Gap

The bigger the firm, the better the benefits. That’s the conventional wisdom, and this year’s survey data bear it out. The gap between mom-and-pops and larger rivals distinctly widened in health coverage, probably the one benefit that workers value above all others.

Among larger firms, about 96 percent said they offer medical insurance, up from 92 percent in 2005. But among companies with revenue under $1 million, the percentage offering health plans fell to 43 percent from 54 percent. A similar trend showed up in pension plans and in long- and short-term disability insurance.

In other words, the rising cost of benefits that insure against the costs of disease, disability and old age does not seem to be affecting all businesses equally. Some, generally the larger ones, are able to pay more.

In one survey question, firms were asked what percentage of revenue they spent in the past year on employee health benefits. The overall average was 6.9 percent. But companies with less than $1 million in revenue paid less — 5.9 percent — while those with $6 million or more in revenue paid considerably more, at 8.5 percent.

Does Training Get Its Due?

Large firms reporting this year also outspent small ones in training new employees. All companies, on average, paid $3,129 per employee. But larger firms spent an average of $4,520, while smaller companies spent only $2,367. Is this another advantage of company size? The answer depends on the importance placed on training.

For Mike Marnhout, president and CEO of Lexington, Ky.-based Bluegrass Oxygen, training is fundamental to the hiring process. In fact, Marnhout says he prefers hiring people who need to be trained so that they don’t have to “unlearn” bad habits and can be schooled in his way of doing business. “I would much rather, in most positions, that [new hires] not know about the DME business,” he says. “I would much rather train them myself.”

Training of new hires becomes more necessary as the labor market tightens and it gets tougher to find people with the ready-made skills that HME employers need. Training of veteran employees is also a benefit valuable to both workers — it gives them skills that help their careers — and their employers, serving the obvious purpose of fitting employees to the demands of their jobs.

One form of training, employer-paid education, seems to be catching on with large and small firms alike. In the 2006 survey, the percentage of firms with tuition reimbursement plans jumped to 31 percent from 21 percent.

Such numbers back up a point made by consultant Vince Crew of Naples, Fla.-based Reach Development. “Recognizing continuing education, training and development as a benefit is really starting to get more play among HME owners,” he says. “There was a time when owners considered training only as a perk when times were good. Now they see it as a benefit that will make employees more loyal and more valuable.”

Recruitment and Retention: Are Companies Doing Enough?

While they may be looking at investing more in the employees they have, the survey results show HME companies are generally not contemplating big staffing increases in the coming year. In fact, nearly half of those that expect to participate in competitive bidding (46 percent) say they’re prepared to lay off workers if they don’t win contracts.

However, a significant number of companies said they do plan to add staff in certain areas, such as outside sales (40 percent) and billing and collections personnel (33 percent). Will they find the people they need? And will they be able to keep employees now in those positions?

Either way, they’ll have to work at it. The word from both consultants and successful firms is that talent doesn’t just walk in the door (maybe it never did). Good employees are hard to find and hard to replace. Recruiting, in particular, demands real effort and creativity.

Crew, for instance, urges companies to do more “non-traditional advertising,” such as enlisting outside sales reps in the recruiting effort. “As long as they are prospecting for customers, they should be putting out feelers for potential employees,” he says.

As for retention, Crew says there’s still no substitute for cash. “Where money’s concerned, do the best you can whenever you can,” he advises. Even small amounts can help, Crew says: “A $50 or $100 bonus or gift certificate can go a long way.”

Dallas Jackson, owner of Vacaville, Calif.-based Jackson Medical Supply, says his firm tries every advertising and recruiting venue available — including five newspapers, online classified ads, a county jobs program and contacts at high schools — and he still has trouble finding people for entry-level jobs. Recently he was trying to fill two driver-tech positions and had “very few applicants,” he said, adding that he got more response when advertising for a management-level position.

The problem, as he sees it, is a labor pool divided between two groups actively looking for work — “virtually uneducated people and very highly educated people” — with no one in between. That middle group of less experienced but motivated people is a prime target for employers such as Jackson. He notes that he “would like to get someone young and hungry who would like to start a career, but we have trouble pulling such people in.”

Marnhout says he meets his recruiting challenge with word-of-mouth advertising and keeps an eye out for new college grads (his headquarters, Lexington, is the home of the University of Kentucky). But hiring talented up-and-comers has a cost. “They’ll be here two or three years,” he says. “I know I’m going to lose them because they can’t make the big bucks here.”

But even as ex-employees there is an upside, Marnhout concludes: “A lot of them stay in the state and say good things about Bluegrass Oxygen.”

About the Survey: Data for the Salary & Benefits Survey were collected June 23-Aug. 9. Percentages are based on responses from 246 companies. Of those reporting, 51 percent have one location, while 37 percent operate between two and nine locations, and 7 percent have 10 or more locations. The median revenue of respondents’ companies is $2.3 million. Thirty percent reported revenues of $1 million or less, while 15 percent have revenues of $10 million or more. Not all respondents answered every question, and some totals may add to more than 100 percent due to multiple responses.

RAISES

Did any of your employees receive a raise in the past 12 months?

On average, 76.8% of responding companies’ employees received raises in the past 12 months.

5.6% was the average raise, and 4% was the median (the point at which half the raises reported were higher and half were lower).

Providers in this year’s survey group spend an average of 31% of revenue on salaries, commissions and bonuses for company employees.

Survey Fast Stats

About Salaries

• The average salary increase given by responding companies was 5.6 percent.
• Of surveyed companies, 83 percent said that at least some employees received a raise in the past 12 months.
• Salary increases are most frequently linked to merit/performance (80 percent).
• Forty-four percent of respondents pay their sales staff straight salary only, while 44 percent pay on a salary-plus-commission basis. Less than 2 percent of respondents pay their sales staff commission only.
• More than half of responding companies that offer bonuses do so to all employees (59 percent). Forty percent offer bonuses to sales staff; 38 percent to delivery personnel; 37 percent to managers; and 36 percent to billing/back office employees.

About Benefits

• Providers responding to the survey spend an average of 13.1 percent of salary on employee benefits.
• Eighty-seven percent of respondents offer vacation time, while 77 percent offer medical insurance and 70 percent offer bonuses. Sixty-three percent offer cell phones, while 13 percent supply Blackberries/PDAs.
• Only 19 percent of respondents offer their employees a pension plan. Twenty-five percent offer a profit-sharing plan.

About Staffing and Plans

• The largest segment of companies reported that staffing will not change in 2007, but a significant percentage do plan increases in: outside sales, 40 percent; billing/collections personnel, 33 percent; showroom/CSRs, 30 percent; and service/repair staff, 20 percent.
• Companies that participate in competitive bidding but are not selected said they will likely lay off employees (46 percent); require employees to pay a larger share of health benefits (29 percent); and/or freeze salaries (28 percent).

ABOUT EMPLOYEES

BENEFITS

ABOUT SALARIES & BONUSES

ANNUAL AND HOURLY SALARIES

*The mean, or average, figures presented refer to the statistical mean, which is defined as “the value obtained by adding all the numeric answers given for a particular question and then dividing by the total number of respondents answering the question.” The median is defined as the value that is exactly in the middle of all answers, or the point where half of the responses lie above and half of the responses lie below the value. **Use these figures with caution, as fewer than 30 companies reported they employed dispatchers. Of those that did, most were paid hourly. The maximum salary reported was $20 per hour; the minimum reported was $9 per hour.