Wage Dispersion and Financial Performance of Nonprofit Hospitals

Abstract

The strategic use of wage dispersion in compensation policy can be a double-edged sword for health care organizations, with a performance-enhancing potential that increases under certain conditions (i.e., tournament and risk-taking incentives) but decreases under other conditions (i.e., perceived unfairness and inequality and lack of team cohesiveness). We use the data set of employee wage and financial statements of 48 nonprofit hospitals in Maryland to examine the relationship between employee wage dispersion and hospital financial performance. We find a positive effect of wage dispersion among low-skilled health care workers (e.g., lab assistant and phlebotomist) on hospital profitability and a negative effect of wage dispersion among high-skilled health care workers (e.g., nurse manager and occupational therapist) on profitability. The staff size in each skill category tends to offset the original impact of wage dispersion on the hospital’s financial outcomes.