It’s offer letter season for residents and fellows! If you have an offer (or two) in hand, congratulations! The many years of studying and delayed gratification are finally going to be rewarded by a big paycheck, benefits, and for many of you, the reality of taking the next steps in your life, such as homeownership. But, of course, the number nearly everyone looks for first in the offer letter is the one that tells you how much you are going to make. It is going to be a substantial number, often several multiples of what you have been paid thus far as a resident or even as a fellow.
You are thrilled and ready to accept! With this offer, you can finally start living and spending more liberally on things you have deferred for a long time.
In other words, ask questions and treat the offer as an invitation to begin a dialogue. Consider not only the compensation but all the tangibles and intangibles that will assist you in deciding as to whether to accept this offer as is, negotiate for better terms, or even move on and decline the offer.Author’s note: Since the majority of physician job seekers concentrate on the initial compensation figure, I am going to limit this post to information on how to evaluate this number.
My clients often ask, “How did they come up with this number?” and “Is it fair?”.
Physicians and their compensation are amongst the most regulated areas of our healthcare system and our legal system in general. There are myriad rules and statutes that control and limit what a physician can be paid. So naturally, employers are reluctant to run afoul of these rules, which can result in civil and even criminal penalties.
Unfortunately, the answer to that is inexact and not always transparent. Occasionally, the employer will hire a consultant to determine the “fair market value” or “FMV” of a particular offer. However, that can be quite expensive and not practical for every recruitment. So typically, the strategy is to develop an FMV-compliant compensation range well before active recruitment of the position begins.
The most common method to ascertain the FMV range and ensure it is aligned with the current market conditions of supply and demand is to refer to and participate in annual salary/compensation surveys. There are several companies and organizations that put out these surveys, such as Medical Group Management Association (MGMA), American Medical Group Association (AMGA), Medscape, and SullivanCotter. In addition, some staffing companies, such as Merritt Hawkins, also conduct annual surveys.
Surprisingly, quite a few data points can be found aside from salary. Please remember that total compensation is not just your salary but also may include incentives like bonuses for quality and productivity, recruitment incentives such as a sign-on bonus, moving allowances, student loan assistance, etc. There is also information as to whether employers are offering other valuable insurance and retirement benefits. The value of these benefits can be over 30% of your total compensation.
These salary/compensation surveys slice and dice the responses they receive into many categories, including geographic, practice setting, years of experience, etc. There is also a differentiation of the results into statistical terms of mean, median, average percentiles, etc. In my experience, most offers start at the 25th percentile for recent graduates. Again, the range that can result in a gap of several thousand dollars to several hundred thousand dollars.
It is wise to ask your recruiter, or whoever is making the offer, what their source is and if they can share a copy of that specific source. The surveys often cost the organizations many thousand dollars annually, so they may be reluctant to share this data with you. Another way to get more information is to ask what percentile of the most recent MGMA survey this number corresponds to. They will usually oblige. Once you have that information, you can better decide whether you want to negotiate further.
Please keep in mind that COVID-19 has skewed productivity and thereby resulting compensation; therefore, 2020 and 2021 surveys may not be as reliable as surveys from past years.
Now you know how most employers determine what salary to offer you. The next two questions I hear are, “It is fair?” and “Should I ask for more?”. The answer to that is more subjective. An offer can be fair even at the lowest part of the range, especially if attractive intangibles are attached (think flexibility, high profile institution, growth potential, etc.).
Remember, they made you an offer because they want to hire you. Even with the physician shortage we face, most employers have choices, as do you. But unlike most other negotiations, the offering party in a physician employment transaction has a regulated range. It is up to you to ask questions to understand and know what your value and worth are and respond accordingly. Ask your colleagues and program directors if they are willing to share any compensation information. Make sure you compare apples to apples. Salaries can vary quite a bit by geography, setting, and payor mix.
You can also consult with a healthcare attorney who has experience and access to physician compensation as part of an overall contract review.
So, when you get that offer, please pause, pat yourself on the back and then educate yourself about its origin, context, and flexibility. Know your worth!
We are grateful to Anu Murthy for sharing her knowledge and expertise and partnering with Spaugh Dameron Tenny on a series of blogs around healthcare contracts and negotiations, physician compensation, non-compete contracts, and RVUs.
We encourage you to reach out to your trusted advisors – your healthcare attorney, accountant, and financial planner – and do your own research before signing a contract. They can provide guidance specific to your situation to help you financially prepare before starting a new role. Please reach out if Spaugh Dameron Tenny can be of assistance as you plan your financial future.
Anu Murthy is a healthcare attorney and consultant who focuses primarily on physician, dentist and advance care practitioner employment contracts, partnership agreements, and other practice-related matters. Anu also advises companies in the areas of business formation, corporate matters, and brand protection. You can contact her at email@example.com and 704-860-1305.
For over 50 years, Spaugh Dameron Tenny has provided comprehensive financial planning for physicians and dentists across the U.S. In addition to providing personalized advice, we walk our clients through their options to help maximize finances and maintain financial security.
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