The Evolution of Healthcare Compensation: From Sign-On Bonuses to Student Loan Repayment and on to Financial Wellness
For years, healthcare organizations have competed for clinicians with the same basic strategy: Pay enough to get them in the door. When that wasn't enough, add a sign-on bonus.When that still wasn't enough, increase the bonus. But the healthcare labor market is changing—and so are the financial realities of the clinicians healthcare organizations are trying to recruit.
Healthcare organizations are competing for increasingly specialized clinicians and those clinicians are entering the workforce with increasingly significant debt. The shift is going from simply paying clinicians more to organizations partnering with clinicians to solve the financial consequences of becoming clinicians.
Because a $30,000 check is compensation but $30,000 towards a clinicians debt, combined with a retirement match and a competitive salary is something entirely different. It's a financial strategy that invests in long term financial wellness instead of addressing staffing issues. And healthcare may be moving towards this model.
The history of the sign on bonus: Recruitment 101
Hospitals need highly trained clinicians. Training those clinicians takes years and thousands of dollars. When there aren’t enough qualified people to fill the available jobs, employers need a way to stand out from the organization down the street.
Enter: the Sign on bonus.
A sign-on bonus is a solution to the age-old issue of supply and demand. This compensation strategy has been utilized by hospital systems more than the general workforce with the average bonus being offered between 28-35% of healthcare jobs vs 1-3% of all comers. The strategy is simple: Come work for us → receive a lump-sum payment → commit to staying.
Then Covid entered the chat and pushed this strategy into overdrive.
Healthcare organizations faced unprecedented staffing needs while clinicians were leaving traditional employment for travel contracts, locum tenens work, other organizations, or—in some cases—the profession altogether. Signing bonuses became a highly visible part of that competition.
And when clinicians began comparing opportunities based on who could offer the largest immediate payout, an unintended consequence emerged: the incentive designed to attract clinicians could also encourage clinicians to move from one incentive to the next. At the same time, the long term employees who had remained loyal to the institution felt de-valued and some even left the organization as these incentives were not offered to them. The intended solution for recruitment may have contributed to the problem of retention.
While the pandemic labor market has cooled and incidence of sign-on bonuses have decreased from their peak, they have not disappeared. Actually, sign-on bonuses have remained more resilient than wage growth which suggests that some employers favor one time incentives over permanent increases in compensation. But clinicians are asking for something more valuable than a one time pay out. Because the thing that makes someone sign a contract is not necessarily the thing that makes them want to stay.
The sign-on bonus works because it solves the immediate problem of “how do we get a prospective employee to choose us?” But solving a recruitment need does not address the employee retention problem - in fact it may make it worse.
A sign-on bonus isn't inherently bad. It's an alternative form of compensation—and compensation needs context. For example, a $30,000 sign on bonus is attractive and attention grabbing. But the number on the first page is not the only factor. Clinicians must learn to evaluate the entire financial package for the development of not only their career but their financial future. The bonus can distract from a fundamental issue: because it is a one time payment, it does not affect the base salary, nor does it increase future raises or retirement contributions that are tied to salary.
In some instances, this type of compensation is desirable. However, other options exist. Learn to evaluate the entire financial package for the development of your career and your financial future.
Loan Repayment Assistance Programs: Pay The Debt, Not Just the Clinician
The health care industry has two problems that intersect: clinicians have substantial education debt AND healthcare organizations compete aggressively for qualified talent. This intersection creates an opportunity to align recruitment and retention with financial relief.
In 2007, Public Service Loan Forgiveness (PSLF) programs were created with the purpose of encouraging people to work in public service areas by offering federal student loan forgiveness. While not specifically created for clinicians, healthcare workers have long utilized these programs as a means of helping to pay off large student loans in exchange for working for nonprofit or government employers.
While this benefit has great appeal, it was limited to non-profits and government organizations. Loan forgiveness programs have since evolved to reach more clinicians and to have less restrictions. This benefit is accelerating especially with the growth of third party platforms that handle the administrative infrastructure for the employer.
Historically, the complexity of student loan repayment programs has been one of the biggest barriers to implementing this benefit. Third-party benefits companies can help organizations administer student-loan repayment programs, communicate benefits to employees, and integrate them into broader financial-benefit strategies.
The cost of completing a degree is inflating at a much greater rate than salaries are increasing. Thus the concept of loan repayment could be far more attractive than the temporary boost a sign on bonus can provide to the employee carrying lots of student loan debt.
While one approach rewards you for signing on, the other helps you unwind the cost (i.e. the debt taken on) to become a clinician so that the job itself could become part of the strategy for eliminating educational debt.
The Future: Integrated Financial Wellness
Perhaps healthcare compensation is evolving towards a model that supports salary + debt elimination + wealth accumulation. The next generation of compensation benefits could eliminate the choice of “pay the student loan but build less retirement” OR “contribute to retirement but make slower progress on student loan payments”. Integrated benefits could address both of these issues. The difference isn’t just the amount of money a package offers. It's where the money goes and what problem it solves:
- The sign on bonus is primarily recruitment focused.
- Loan repayment can be both recruitment focused and a retention strategy.
- Integrated benefits go one step further.
As these benefits become more sophisticated, a new industry approach is emerging. The best benefit is not necessarily the largest benefit - it's often the one that addresses problems that both employers and employees are facing - for the clinician it could be educational debt and for the employer it is often retaining those employees whom they have recruited and on-boarded at great expense. For years, organizations competed for clinicians by putting more money at the top of the offer letter. Now they are beginning to compete by addressing what happens to that money after it reaches the clinician.
Imagine a future in which organizations compete for something more sophisticated. A generation of healthcare organizations that ask, “What will make this clinician better off financially as they build their career here?”. As you consider what the best fit for compensation might be, remember to compare the value, restrictions, implications and cost of the commitment. Consider seeking the organization that understands the difference between paying you more money and making you financially better off. That may be the future of healthcare compensation and the future looks bright.
Adjunct Professor and Lead Nurse Practitioner