Texas health system hits nerve by raising entry-level compensation with money from executive bonuses

When Dallas-based Parkland Health & Hospital System announced last week that it would bump up its entry-level pay to $10.25 per hour using the first pool of funds earned by executives as part of a new pay for performance plan, it tapped into a much larger national debate about executive pay, minimum wage levels and income disparity.

The announcement that a large public hospital system — Parkland has 861 adult patient beds and 107 neonatal patient beds — was changing its executive compensation package to tie pay to performance and more closely mirror other health systems in its market normally would only be covered by select business publications. However, because the move included redirecting the first pool of executive bonus cash toward the lowest paid among its employees, the news has also been covered by liberal leaning media like ThinkProgress.org.

Including an entry-level pay bump with an executive compensation change may also be a shrewd move as the government has been paying attention to the rise in executive compensation. According to the Department of Health and Human Services (HHS) Office of Inspector General (OIG), the 2014 workplan includes looking at how much Medicare might potentially save if it capped the upper limit of healthcare executive compensation.

Meanwhile, adding to the political nature of the move is the fact that Texas, where Parkland is located, is one of only 19 state governments that has not yet moved to raise its minimum wage above the federal minimum wage. For the Dallas area's leading community health system to say $10.25 per hour is a living wage and not the $7.25 per hour that is the federal minimum wage is attention grabbing.

However, Parkland, which employees more than 10,000 people, says it was not out to create headlines or distract from its changes to executive compensation. It just wanted to do what was right for its patients as well as for the 230 employees earning its lowest salary level. In addition, it wants to make sure it was attracting the best people to its open positions by offering fair compensation at both the entry level and executive level.

“The Pay for Performance Plan rewards and encourages clinical excellence, attention to patient safety and personal accountability,” stated Paula Dobbs-Wiggins, M.D., chair of the Parkland Board’s Employee Relations Executive Compensation Committee, in the health system’s press release. “It is the right thing to do and is consistent with industry best practices. I am particularly pleased that we have tied this action for our executives to raising the salary of our entry level employees to a ‘living wage’ thereby recognizing the importance and value of all our employees in fulfilling our mission.”

Going forward, Parkland’s leaders will receive salaries tied to specific performance goals. Roughly 75 percent of these will come from targets approved by the Board, many based on publicly available national industry data on safety and quality of care. The remaining 25 percent of goals will be based on individual performance goals the CEO has approved. The Board plans to review executive performance based on these goals annually before approving any compensation.