A Living Wage Methodist Hospital, a 400-bed acute care
hospital, is located in a low-income community in a city in the
Southwest. Like other urban hospitals, Methodist Hospital serves a
large number of Medicaid patients. As a result of national legislation,
the number of uninsured patients has decreased over the last three
years, but the hospital remains in a chronic state of financial
distress. Methodist Hospital was recently acquired by a hospital system.
The
hospital has just experienced a rather bad six months. The
problems started when a supervisor in the housekeeping department
repeatedly violated hospital policy and federal law by tampering with
time sheets for several employees. Three Latino women employees brought
this violation to the attention of the local NBC affiliate. The story
went viral, and within 48 hours it had been broadcast on CNN and MSNBC
and published in USA Today. The hospital’s director of public
relations apologized for this “clerical error” and the
supervisor’s misunderstanding about procedures. The employees
received back compensation for the mistake and were each given a gift
certificate to a local restaurant. The supervisor received a reprimand
but continued to work at the hospital. After the incident was resolved,
several other employees came forward with similar complaints, indicating
that they were afraid at the time to speak up. An internal
investigation of the situation continues.
Less than a month
later, Deborah, who earns $98,100 per year as director of
information technology at Methodist Hospital, was arrested on a DUI
charge after she struck and injured a mother and child at a crosswalk.
The injured mother, who was a dietary aide at Methodist earning $8.50
per hour, was on her way home after picking up her child from daycare.
This arrest was Deborah’s third in five years for DUI, and she had in
fact lost her driver’s license. Her husband, a prominent orthopedic
surgeon at Methodist, worked back channels with the board and the local
police to reduce the charges and keep her on staff at the hospital. The
hospital agreed to keep her on staff but referred her to an employee
assistance program.
A week later, the Wall Street Journal
published a story about wage discrepancies in a sample of inner-city
hospitals throughout the United States. The story was based on a study
conducted by a team of Wall Street Journal reporters working with staff
at the Urban Institute. Of 50 hospitals studied, Methodist Hospital was
cited as having one of the greatest wage disparities between white
and minority employees (at Methodist Hospitals, minorities were
mostly African Americans and Latinos). After controlling for job title
and job responsibilities, tenure in the organization, experience, age,
and other factors, the reporters found systematic racial bias in wages
over the past ten years. Methodist Hospital, in fact, was one of only
six hospitals studied exhibiting such profligate bias.
Following
these incidents, the hospital continued to be a center of
controversy, with repeated stories in the local newspaper,
television, and social media. In the midst of this uproar, the
hospital board met with the senior management team to discuss
how the hospital should repair the damage caused by these
incidents. A community hospital relations team, composed of hospital
staff, the vice president of HR, the director of public relations,
and several community leaders, was formed. After three weeks, the team
issued its report, which recommended several community outreach
initiatives, diversity training for hospital employees, and the
development of a stronger policy outlining expectations of hospital
staff outside of the work setting. Among the team’s additional
recommendations was something new to the hospital, an initiative
that the team highlighted as a way to get the community’s
attention and send a message that the hospital was truly com-
mitted to improving its relationship with the community and
contributing to the city’s economic development.
The report
proposed that the hospital adopt a living wage policy for its
employees. No other living wage policy was in place in the city. In
fact, the hospital would be the largest organization in the state to
adopt any form of living wage policy. The policy would likely
provide a substantial benefit to the lowest-paid employees of the
hospital, who were disproportionately African American and Latino.
After
reviewing the report, the senior management team and board were
very supportive of most of the recommendations but hesitated on the
living wage policy. Because of the policy’s financial
implications and the uncertainty about the precise meaning of a
living wage, discussion of the proposed living wage policy took up
most of the meeting.
The hospital president had little
familiarity with the idea of a living wage. He had heard about the
concept but had no idea what its financial impact would be or
how it would be implemented. In concept, he agreed that paying people
more would be a popular action. But what would be the financial
impact, and would it cause a ripple effect, increasing wages
through- out the hospital, perhaps resulting in having to decrease
staffing levels? He asked the vice president of finance and the vice
president of HR to develop a two- to three-page summary report
addressing the following questions:
- What is the definition of “living wage”?
2.
Has a living wage policy has been put into place in any jurisdictions?
If so, what was the impetus for the policy? What have been the
repercussions, both positive and negative?
- How is a
living wage calculated? Does it vary by location, family size,
and other factors? Are there different models or approaches to a
living wage policy?
- What is the impact of a living wage
policy on employees in the organization? Specifically, does a
living wage policy raise the wages only for people who are
currently paid below the living wage level? If so, how is the policy
likely to affect internal equity within the organization?
Alternatively, does implementing a living wage policy bump up
everyone’s wages?
- In comparison with other hospitals in the city,
Methodist Hospital’s pay structure is right in the middle, and the
hospital has been pretty successful in attracting and retaining
employees. How would the hospital reconcile a living wage policy with
its current compensation system, which is driven mostly by market
factors?
- What evidence is available on the financial impact of a
living wage policy on organizations? Does such a policy have ancillary
benefits that can be monetized, such as reduced turnover?
Sample Solution
