FMV Issues Surrounding A Sign-On / Retention Bonus Policy

November 17, 2019

Employment agreements with physicians in your organization often involves the payment of a sign-on bonus or a retention bonus. Questions often arise around how to handle these payments in terms of compliance. In answering these questions, your policy should consider the physician department/specialty as well as the amount of the bonus.  There is survey data available on the amount of sign-on bonus paid on a specialty basis that can provide you with provides guidance.  For instance, it may be within the 75th% to pay a sign-on of $75,000 to a Neurosurgeon, but only up to $30,000 for a Family Medicine physician.  Not saying that $75,000 cannot be paid to the Family Medicine physician, however, you would probably need to justify it given the potential survey data.  As a result, we would recommend that you set policy on a department-by-department basis and maybe even consider the status of the individual within the department (i.e. physician instructor vs Chair of Department).

Secondly, if you do choose to pay in excess of the survey data, you would want to consider the potential of the excess sign-on bonus being seen as a no-interest loan.  As such, the physician could be receiving an undue benefit.  Given this scenario, the physician’s total compensation will need to be within Fair Market Value (Fair Market Value Total Compensation > Physician Contract Compensation + Sign-on Bonus).  As such, we would recommend that you consider factoring in some amount for interest based on prevailing rates in these cases where the sign-on bonus amount is in excess of norms.  This interest amount can go against the available dollars left over for physician compensation

These examples above are for guidance. Our valuation experts have years of experience navigating the various ways these bonus payments are structured. It is through this experience that our clients can be assured that they meet the regulatory requirements to ensure compliance.

By: Joe Aguilar, Partner & Natalie Bell, Director

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