I, along with many others, have heard you speak and followed your online newsletters for years. I don’t know why, but I have always felt as if you were more practical, on target, down to earth and honest than most of the other “high powered” consultants I have observed. It is because of my intuition I am asking you for guidance on this most delicate and yes, always reoccurring topic.
I have recently hired two new employees who will be starting in two weeks. With new people coming in, I would like to seriously entertain the idea of a bonus system. Besides the obvious of knowing your BAM and going from there, what types of percentages do you allocate to the bonus system? Who is eligible, only full time people? Do you pay it on the efforts as a group only? What happens if you have a significantly less motivated individual who doesn’t contribute as much as the others? Is there a way of calculating and rewarding for individual efforts in addition to the group bonus? I would like to calculate it quarterly since I am the only dentist and I would not want the staff to feel that if the doc isn’t here for a few days there is no way they will make bonus so, let’s not even try this month.
My goal is to present this in the best way possible so I don’t make an error. It is so hard to retract anything once you say it.
Thank you for taking the time to read this and respond.
Hi Dr. Pamela,
Thank you for taking the time to write and for the kind compliment. I come from very humble beginnings and I believe that one should never forget that, no matter where you go in life.
Bonus systems, plans, etc. came out in the 80’s via the corporate culture and took a few years to get to dentistry. Human resource managers told Corporate America that if they dangled a financial carrot in front of their employees, they can expect a tremendous increase in their performance.
Going in to dental practices as a consultant throughout the U. S., I began to observe many, many flaws in its being successful for a small business like dentistry.
The biggest flaw is that they are always a “win-win” for employees. That is, the employees always get their base salary even if revenues go down. If revenues go up, they get their base + bonus. For the employer, it is a “win-lose”. If the revenues go up, the dentists gets more. However, if the revenues go down, the dentist still has the liability of paying the base salaries to the employees. This is just not a fair situation. It is making the employees business partners, but they are not willing to take the downside, i.e., reduced paychecks should the revenues go down.
Bonus plans are unfair because they usually reward employees equally, but the contributions to the business are not equal. Your dental practice can increase because a new employer moved to town, you took a treatment presentation course, you had a management consultant in the practice, you contracted with an internet marketing company, one employee brought in two families as new patients, etc.
Bonus plans cause employees to focus on money. It takes away from the performance indicators of a particular job. For example, at team meetings they talked about working a little harder and the rewards of the bonus would be there even though they really didn’t understand the “formula” of how the bonus was calculated. In the meantime, their patient retention dropped from 95% to 82%. This told employees that a downturn in job performance is satisfactory as long as more money is being made.
Believe me, dentists become resentful writing out bonus checks when they know that they sold more dentistry, but they continue to keep bonus systems because they are now afraid of a mutiny.
If you pay bonus, it has to be paid on “profits”. Then, you are going to have to explain to your employees how you calculated it and run the risk of becoming trapped by the “IRS auditor” syndrome. To be honest, the staff does not even want to know that information. All they want to know is, “Are we going to get our bonus this month because I’ve already spent it.” And you said it below…..try taking the bonus away from them.
Listen, employees expect to be paid a fair wage for the job they do. And yes, I certainly believe that employees should be rewarded for performance that exceeds their job description. If Susie brought in two families this month, she should be rewarded. What’s the reward? Whatever you want. $100, gift certificate for a massage, next Friday off with pay, dinner for two. Take them to a dental convention and CE course, for example. But, please think twice about giving them stock in your business.
Having said all of the above and you are still set on a bonus plan, allow me to give you some suggestions. The industry average for employee wages is 19% to 22% of monthly collections. Payroll taxes and benefits are an additional 3% to 5% for a total of 22% to 27% of collections. If yours is higher than 27%, you should NOT even consider it until these costs are in range. Let’s say that your employee costs average $8,850/month and you desire to pay no more than 20% of your collections for gross salaries. $8,850/month is 20% of $44,250 in collections. Let’s say next month your collections are $47,250. 20% of $47,250 is $9,450. This is $600 difference in what you are paying now for employees. Instead of dividing the $600 evenly among employees, consider dividing 75% of the $600 and put 25% in a “pool” that can be used for employee costs on those months when collections go below goal. If there are any monies left at the end of the year in the pool, then throw a party for them! Employees should know from their hire date that the goal is reevaluated every month and can be raised, lowered or abolished at any time.
However, my final word is… reward for performance that exceeds the job description and no bonus plans.
For further information on this subject, consider getting my book, How To Reward Your Dental Team.
Let me know if you have any other questions,