What Are Bonuses? | Compensation & Contracts

Evidence based insights into physician compensation, RVUs, contracts, healthcare economics, and personal finances. For residents, fellows, and early-career attendings.

Life and Finances, in Medicine.

Bruno F. Casanova, MD
Founder, MD&D: Medicine, Dollars & Decisions

What Is This About?

Imagine you reach that long-awaited moment of getting a job offer as an attending. The first thing most doctors will do is look at the compensation offer. It’s like nothing else in the contract mattered more than that number with all those zeros behind it. But the truth is that there are other aspects of the contract that are as important or more, than the compensation. One of these is the bonuses.

Why Should Medical Professionals Care?

Compensation packages often include multiple forms of payment. Signing bonuses, productivity bonuses, or retention bonuses, for example. They can add tens of thousands of dollars to your compensation. But they all come with strings attached.

One of the most important things to understand is that a bonus is not simply extra money. Some bonuses must be repaid if you leave early or do not reach a goal. These repayment provisions can become very expensive if you do not understand them before you sign the contract. So, let’s go through the most common types of bonuses.

What Is a Signing Bonus?

A signing bonus is the money you get when you accept a position. These types of bonuses are frequently used to attract physicians, especially in competitive specialties, or positions that are difficult to fulfill (i.e. remote rural areas) or in situations where the physician may have several offers. It is a way to sway your interest to join a practice. And like in any other negotiation, the more leverage you have (i.e. if you are one of the few experts in your field), the more power you have to negotiate your bonus.

Signing bonuses can be paid in different ways:

When you sign the agreement, and/or
When you begin working, and/or
After a certain time in your job (i.e., 6–12 months)

For physicians, the range can be wide, from modest amounts to tens of thousands of dollars, depending on the recruitment situation.

So far it all sounds very nice and dandy. But, what comes attached to that bonus? And what do I have to do to keep it?

Many signing bonuses contain repayment provisions. What does that mean?

For example, imagine you receive a $30,000 signing bonus with a three-year contract that automatically renews after that. The contract might say that you must pay back the bonus if you leave the position before those first three years. The provision may also say that the bonus will be forgiven gradually. If the forgiveness is prorated evenly, approximately one-third of those $30,000, meaning $10,000, disappear each year.

Now let’s imagine that after joining the practice, you find that the job was not what you had in mind and you want to leave early, let’s say after one year. Then, you may still owe about $20,000 of the bonus. And this is assuming the repayment is prorated. Some companies use an all-or-nothing approach. That means, if you leave before the established date, you must pay back the full amount of your bonus.

These provisions can turn what initially looked like a beautiful and very convenient additional compensation, into a significant liability.

What Is a Retention Bonus?

A retention bonus is different. In this case, you are already part of the organization, and this retention bonus is designed to encourage you to stay with the organization.

For example, your employer might offer $40,000 if you remain employed through September 30, 2030. Then, the structure matters tremendously. Some bonuses are paid only after you reach the required date. Others are paid in advance but require repayment if you leave before the retention period. Just as I explained above in the case of a signing bonus.

These arrangements are very financially different. If the bonus is paid only after you complete the required period, there is usually no money to repay if you leave early. You simply don’t get the bonus. But if you get the bonus in advance, the contract may contain something called a clawback, requiring you to repay the bonus. That means the bonus may function like a conditional loan. And like many loans, it may have interest attached to it, that you must pay in case you leave the job ahead of time.

What Is a Productivity Bonus?

A productivity bonus is a completely different type of bonus. It is compensation tied to how much work you perform. And to measure your performance each company uses a different type of metric. Some of the most common metrics are:

Work RVUs - Your production
Collections - The money received from insurance payers and patients.
Professional revenue - The money left after costs are accounted for.
Number of encounters - Your patient volume.
Quality measures - More common now with CMS push toward quality metrics.
A combination of productivity and quality

I will focus on the last two examples of metrics.

Quality measures vary by specialty. In my speciality, GYN, for example, it may include ordering gonorrhea and chlamydia tests, or mammograms after a certain age. Organizations may receive additional reimbursement, savings, or incentive payments from insurance when you meet these performance benchmarks, which is then translated into a bonus for you.

Now, let’s address bonuses based on productivity. Imagine your base salary covers the first 5,000 wRVUs. Any wRVUs above that amount are paid as a bonus at $45 per wRVU (your conversion factor). If you generate 6,000 wRVUs:

1,000 additional wRVUs × $45 = $45,000 productivity bonus.

In each of these scenarios you need to understand exactly how the calculation works.

If it is based on production or a hybrid: Which RVUs count? Are RVUs measured quarterly or annually?
If it is based on volume: Who receives credit for shared visits?
If it is based on collections: Are adjustments made for denied claims?
If the bonus is based on quality measures: What are the specific benchmarks to meet?

A bonus is only as good as the formula used to calculate it.

What Is a Clawback?

A clawback is a clause in your contract requiring you to repay your bonus under certain circumstances.

I would like to focus on one scenario that can be especially frustrating for physicians. Bonuses can have interest attached to the repayment. Especially when the bonus is structured as a loan, an advance, or a promissory note.

Clawbacks are particularly common with:

Signing bonuses
Retention bonuses
Relocation assistance
Educational loan repayment
Fellowship stipends
Recruitment incentives

When Words Matter

It is important that you understand the different scenarios when you have to pay back a bonus. So far, we have focused on time commitment. But there are multiple other scenarios:

If you get fired for a cause
If you fail to begin employment
If you fail to get or keep your license
If you fail to get or keep hospital privileges
If you fail to meet certain requirements of your contract.

The most important issue here is what happens if you leave due to something outside your control. For example:

What happens if the employer fires you without a cause?
What happens if the practice closes?
What happens if the organization eliminates your position?
What happens if you become disabled?
What happens if you can’t get hospital privileges because the hospital changed its requirements?

These details are very important. You do not want a contract requiring you to repay regardless of why the job ends.

Is a Clawback Negotiable?

Often, yes. Not every employer will change the provision, but the terms are absolutely something that you should review and, if necessary, negotiate.

These are some examples:

You can negotiate the repayment obligation. A $36,000 signing bonus tied to a three-year commitment could be forgiven at $1,000 per month. That way, you only repay the unvested portion instead of losing credit for months you have already worked. In this scenario, after 18 months, half of the repayment would already be gone.
You can also negotiate shorter commitment periods. If the contract requires a three-year commitment to fully earn the bonus, you may be able to negotiate it down to two years, for example.
If your employer terminates you without cause, ideally repayment should not be required.
You can negotiate what happens if you become disabled or God forbid, you die before the required period ends.

Contracts are written for what happens when things do not go as planned.

Gross Repayment vs. Net Repayment: Taxes Matter

There is another issue many physicians sometimes overlook: taxes. Suppose your employer pays you a $30,000 bonus. Payroll taxes were withheld, so the amount deposited into your bank account was substantially less than $30,000.

Now imagine you leave several months later. How much do you owe? The gross $30,000? Or the amount you received? The answer depends on your specific agreement. Taxes can become very complicated, especially when repayment occurs in a different tax year from when you received the money.

The Bottom Line

Signing bonuses, retention bonuses, and productivity bonuses can significantly increase your compensation. But the dollar amount alone does not tell you what the bonus is worth. When you evaluate any bonus, ask questions. Understanding the answers can prevent an attractive bonus from becoming a very painful and expensive experience.

Key Takeaways

1. Not all bonuses are earned immediately.

2. Read the clawback provision carefully.

3. Negotiate the repayment terms, not just the bonus amount.

“Price is what you pay. Value is what you get.”

Warren Buffett

MD&D Quote of the Day

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