Medical pay: reaping your just rewards?

In British health policy, the relationship between doctors and money has often been close. Government ministers’ comments have been memorable in summarising their view of the relationship. For example, former health minister Ken Clarke described how doctors reached nervously for their wallets when he spoke of reform. The NHS’s first minister, Nye Bevan, claimed that he had “to stuff doctors’ mouths with gold” to participate in the fledgling NHS. It was, in effect, the price to be paid to stop doctors migrating to the private sector.

‘The numbers of awards, their costs and evidence about the effectiveness such schemes have often been unquestioned or unchallenged’

This famous quote referred to the merit and distinction awards, which were later renamed clinical excellence awards. At a time of such financial austerity, it comes as a surprise to many that a “bonus” scheme for certain doctors has been in place since the start of the NHS in 1948.

Most hospital consultants and some academic clinicians are eligible for financial “awards” that range in value from £2,957 to £75,796 (2011 figures) across 12 categories. Awards are rarely withdrawn and are pensionable. Clinical excellence awards are divided into national awards paid by the Department of Health and local awards paid by local NHS organisations. It is the only scheme in comparable countries to reward doctors in this way.

Perhaps more surprising is the extent to which debates about these awards have remained largely hidden to a wider audience. The numbers of awards, their costs and evidence about the effectiveness such performance related pay (PRP) schemes have often been unquestioned or unchallenged. To redress this, we examine the research evidence on PRP, assess the current state of the awards and consider policy options for the future.

An evidence based policy?

PRP has often been used by businesses to remedy the limitations of incremental pay structures, and to improve recruitment and retention of staff. Increasingly, it is being applied across the public sector.

However, this model can also weaken such intrinsic motivation (the internal desire for job satisfaction), especially if it is too closely associated with managerial objectives. Creating a sense of ownership (such as setting the criteria for PRP or involvement in their distribution) might have the reverse effect. However, the evidence on PRP is partial because it often involves experimental designs and rarely looks at professional groups.

‘Doctors who spend more than half their career as a consultant have clinical excellence awards as a de facto career ladder’

Research by Royal Holloway and Manchester University has assessed the evidence on PRP published over many years and examined its relevance to clinical excellence awards. Traditionally, professions are characterised by intrinsic motivation such as professional pride, a vocation and a service ethos. Extrinsic motivation (usually monetary incentives such as PRP) is typically not considered applicable in a professional context. While the awards might “crowd out” the intrinsic motivation of doctors, they may also provide a financial benefit to those doctors who were not influenced by additional monetary rewards (the “free riding” problem).

PRP schemes may not have a linear relationship between financial incentive and impact such that clinical excellence awards may be insufficient to change their motivation above a certain level. Doctors often have a target income that signals their comparative status or prestige with other professions (such as lawyers or accountants). Awards may offer marginal incentives assuming that senior doctors’ pay, which increased by 24-28 per cent in 2004 under the new consultant contract, is at or around their target income.

The impact of the awards may therefore not be the monetary amount itself, but rather the social value within and beyond the medical profession that acts as the incentive.

Despite their widespread use in the private sector, the benefits of PRP schemes in professional field of the public sector have often failed to be achieved and may instead have unintended side effects.

The current picture

The proportion of consultants with awards has crept up in recent years − 61 per cent of the 40,000 consultants now get some form of award. Such a position indicates that they may have become the norm, possibly creating a sense of entitlement rather than simply a reward for past performance. This fits with the idea that the awards are an alternative pay scale for doctors. Doctors who spend more than half their career as a consultant therefore have clinical excellence awards as a de facto career ladder.

Estimates about the cost of awards have been scarce or incomplete. The separation of national and local awards, the announcement of new awards and the exclusion of National Insurance contributions and pension liabilities in some costings, for example, might contribute to this partial picture of clinical excellence awards. Such obfuscation hampers analysis of awards.

‘Clinical excellence awards have become a firmly established feature of medical politics and medical careers in the UK’

Our research has calculated that the overall cost (including national and local awards and existing NI and pension liabilities) is £507m a year. This is the equivalent to the annual revenue of two medium-sized district general hospitals, and contrasts with the government’s “benefit cap”, which it expects to save £110m a year.

If the awards were to be shared equally among all consultants, this would imply an additional £12,848 per consultant, which would represent 11.8 per cent of a consultant’s (median) salary of £109,000 (2012). This is much higher than the usual value of PRP schemes, which tend to be no more than 5 per cent of salary. Of course, awards are given to 61 per cent of consultants so the value of those (as PRP) is that much higher. An equal allocation would, of course, overlook the relative contribution of each consultant.

Criteria for allocating awards have changed over time but since 2001 greater emphasis has been placed on “delivering and improving local and health services”. The growing link between awards and NHS objectives has been complemented by rising managerial and lay representation on award committees. That said, doctors still account for 50 per cent or more of the representation of these committees.

Time for reform?

Clinical excellence awards have been modified over the years. The recent consultation of the Review Body of Doctors’ and Dentists’ Renumeration and the current contract negotiations point towards a new era for the awards and the recent public accounts committee report might prompt imminent reform. Although individual reforms would be significant, the extent of overall reform remains, however, to be seen. However, the DH is probably unlikely to introduce major changes to this long established feature of medical pay. 

In the meantime, we offer an alternative set of strategies:

• Reward all NHS staff, not just consultants. NHS Trusts could deploy their awards spending of more than £200m in more innovative ways to reward all staff, not just consultants.
• Criteria for awards. The criteria have changed over time but, as awards have now become the norm, modifications need to make the criteria reflect “exceptional performance”, as the public accounts committe recommends. Aligning awards to the NHS’s goals is necessary and so becomes implicated in rewarding team based approaches.
• Explore non-financial mechanisms to improve staff morale. Relying on awards as the main or only form of reward is a blunt instrument in improving staff morale. Indeed, it may not be helping at all. Trusts need to explore new mechanisms to engage staff in local decision-making and in improving their morale.
• Greater openness and transparency. All parties seem to call for greater transparency; this must be a requisite of any new version of clinical excellence awards. However, a recent Hospital Consultants and Specialists Association survey found that 16.7 per cent still disagree that changes need to be made to the awards process to ensure openness, transparency and fairness. A start towards transparency would be to include awards as part of doctors’ pay.
• Modify value of the awards from 12 per cent of salary currently to 5 per cent. The OECD found that PRP for public employees were usually below a maximum of 5 per cent. If this was applied to clinical excellence awards, this would save nearly £300m. Arguably, the NHS is paying more than comparable schemes. The current scheme offers scope for “free riding” − some doctors benefit without being motivated by additional financial rewards.
• Address anomalies in the awards scheme. For example, consultants are able to retire on existing awards and return to work. The DH has proposed rectifying this anomaly.

We recognise that there are political dimensions to each of these strategies. Clinical excellence awards have become a firmly established feature of medical politics and medical careers in the UK. To alter it in anything more than a marginal way will lead, as the recent DDRB consultations revealed, to strong feelings (especially among the medial profession).

There is also scope to learn from alternative strategies in Northern Ireland and Scotland, where schemes have been suspended. Students of pubic policy will understand the awards as a classic example of path dependency − the continuation of a policy which, at face value, is not necessarily fit for purpose; the forces retaining a (modified) status quo outweigh reforming efforts.

Moving out of this particular path into a new, or even revised, scheme will be challenging. However, the scale of the challenge should not be a reason to avoiding this significant issue. It might be essential to make the social contract between the state and profession suitable for an NHS in the 21st century.

Mark Exworthy is professor of health policy and management at Royal Holloway University of London, Paula Hyde is senior lecturer in organisation studies at Manchester University, and Pamela McDonald-Kuhne is a masters student at Kingston University