HCS/341 Week 5: Compensation, Benefits and Retention, sample paper

A New Graduate Paid Almost as Much as a 14-Year Veteran: Costing a Pay Compression Fix for 22 Respiratory Therapists Against the Price of Losing Them

[Student Name]

University of Phoenix

HCS/341: Human Resources in Health Care

Week 5 Assignment

[Instructor Name]

[Date]

The hospital, staff, pay rates and figures are a composite written for a model paper.

The respiratory therapy department of a composite 300-bed hospital has 22 full-time therapists. In the past year, five resigned, a turnover rate of about 23%. Three had more than eight years of experience, and two joined a competing hospital across town. The department has covered vacancies with travel therapists and overtime. When the director reviewed pay data, she found a pattern: a therapist hired last month earns $31.50 an hour, while a therapist with 14 years of experience earns $33.20. Fourteen years of experience was worth $1.70 an hour, and every experienced therapist in the department knew it. This paper analyzes the compression, costs a correction and compares it with the cost of turnover.

How Compression Happened

Two years ago, the hospital raised its starting rate for respiratory therapists to match the regional market, which had risen quickly as demand for therapists grew. Existing staff received the same 3% annual increase as all employees, but no adjustment for the new starting rate. Over two cycles, new hires' pay approached that of experienced staff. Today the department's range runs from $31.50 to $34.00, a spread of only about 8% between a new graduate and a therapist with 20 years of experience.

Why Compression Drives Turnover

Adams (1963) proposed that employees judge fairness by comparing the ratio of their outcomes, such as pay, to their inputs, such as experience and effort, with the same ratio for others. When experienced therapists see new colleagues earning nearly the same pay for less experience, they perceive inequity and may reduce effort or leave. Hom et al. (2017), reviewing a century of turnover research, found that perceived unfairness and better alternatives elsewhere are among the most consistent predictors of voluntary turnover. The exit interviews support this: four of the five departing therapists cited pay, and three specifically mentioned that new hires earned nearly as much.

The Proposed Pay Scale

The director and HR proposed an experience-based scale: a starting rate of $32.00 for a new graduate, with each year of experience worth 1% more, compounded, up to 15 years. The formula is $32.00 multiplied by 1.01 raised to the number of years of experience. Under this scale, a therapist with 5 years would earn about $33.63; one with 10 years, about $35.35; and one with 15 or more years, about $37.15. No therapist's pay would decrease.

Applied to the 22 therapists' actual experience and current rates, the scale raises pay by an average of about $1.89 an hour. At 2,080 hours a year, the total increase in base pay is about $86,400. Payroll taxes and benefits tied to pay, estimated at 22%, bring the annual cost to about $105,400.

The Cost of Turnover

To compare, the director estimated the cost of each departure. The largest cost is covering the vacancy: a travel therapist costs about $88 an hour compared with about $40 an hour for a staff therapist including benefits, a premium of $48 an hour. At 36 hours a week for an average of 14 weeks to fill a position, the premium is about $24,200. Recruitment, including advertising and a sign-on bonus, costs about $3,000. Orientation takes four weeks, during which the new therapist's time, about $5,800, is only partly productive, and a preceptor spends about half of her time with the new hire, about $2,900. The total cost per departure is about $35,800.

Last year's five departures therefore cost about $179,000. If the pay scale reduced departures from five to two a year, closer to the hospital's average for other departments, the savings would be about $107,500, slightly more than the cost of the scale. The estimate leaves out harder-to-measure costs, such as overtime fatigue among remaining staff and the loss of experienced therapists who precept others and handle the most complex ventilator patients (Fried & Fottler, 2018).

Benefits and Non-Pay Retention Measures

Pay alone rarely solves retention. The exit interviews and a department survey pointed to three other issues: unpredictable schedules, limited professional growth and weekend coverage falling unevenly on senior staff. The plan adds three measures. First, self-scheduling within set rules, with weekend shifts distributed equally regardless of seniority. Second, a clinical ladder with two advanced levels, earned through certifications such as the adult critical care specialty credential and roles such as precepting, each carrying a pay differential of $1.00 an hour. Third, tuition support for the bachelor's completion degree, which many therapists wanted and the hospital already offered to nurses but not to therapists.

These measures cost less than the pay adjustment. The clinical ladder, if six therapists reached an advanced level, would add about $12,500 in base pay a year, and tuition support is capped at $5,250 per person a year, the amount employers can provide tax-free.

Fairness Across Departments

HR raised one concern before approval: other departments with market-driven starting rates, such as the laboratory and imaging, may have the same compression. Adjusting one group could create new inequity comparisons across the hospital. HR therefore recommended a hospital-wide review of the spread between starting and experienced pay in every job family with a recent market adjustment, with the respiratory therapy scale serving as the model. Explaining the formula openly to staff, rather than granting individual raises, also makes the new scale easier to defend as fair.

Monitoring

The director will track turnover quarterly, the number of travel therapist weeks, time to fill vacancies, overtime hours and results from a short annual engagement survey. The pay scale will be reviewed each year against regional market data so that starting rates and experience steps move together, preventing compression from returning.

Recommendation

The hospital should adopt the experience-based pay scale at an annual cost of about $105,400, implement self-scheduling, a clinical ladder and tuition support, and review the scale annually. The cost is roughly offset if the plan prevents three departures a year, and it addresses the fairness problem that exit interviews identified.

Conclusion

Raising starting pay to meet the market without adjusting experienced staff compressed the respiratory therapy pay range until experience was worth little, and experienced therapists left. Costing both a correction and the turnover it aims to prevent shows that an experience-based scale roughly pays for itself if it cuts departures modestly. Combined with fairer schedules, a clinical ladder and tuition support, it gives experienced therapists reasons to stay.

References

Adams, J. S. (1963). Toward an understanding of inequity. The Journal of Abnormal and Social Psychology, 67(5), 422-436. https://doi.org/10.1037/h0040968

Fried, B. J., & Fottler, M. D. (Eds.). (2018). Fundamentals of human resources in healthcare (2nd ed.). Health Administration Press.

Hom, P. W., Lee, T. W., Shaw, J. D., & Hausknecht, J. P. (2017). One hundred years of employee turnover theory and research. Journal of Applied Psychology, 102(3), 530-545. https://doi.org/10.1037/apl0000103