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4 Reasons Bonus Plans Donít Work
By Sally McKenzie, CEO

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You want to reward your team members for their hard work. They play an important role in your practice’s success, after all, and you want to keep them both motivated and happy to come to work each day. That’s why you decided to implement a bonus plan in your practice.

The problem is, bonus plans simply don’t work. In fact, they can actually harm both your practice and your employees. Over the more than 30 years I’ve worked as a dental consultant, I’ve seen dentists pay out bonuses when total employee costs were already beyond 27% of practice income (gross salaries 19.22%, payroll taxes and benefits 3.5%). Not only is this fiscally irresponsible, it jeopardizes your practice and your employees’ job security. 

If you use a bonus system to reward your team members, I suggest you stop and turn to other techniques instead. Here’s why.

1. Not all employees contribute equally. The fact is, you have some employees who contribute more to your practice’s success than others, which is why bonus plans are simply unfair. Through bonus plans, everyone on the team usually gets the same reward, even if they weren’t directly involved in bringing in 10 new patients last month, or reducing accounts receivable by 10%.

If everyone gets the same reward no matter what, it could lead to resentment. The team members who are actually responsible for the practice’s success get the same recognition as employees who do the bare minimum when they come to work each day.

Another reason bonus plans aren’t fair? Sometimes practice success is simply good fortune. Here’s an example. A new business moves to town, and many of the employees become patients, mostly because your practice is so close to the office. That means your production and collections go up, yet your team members did nothing extra to generate that business. Does it make sense to give employees bonus money for that increase in business? No. You’ve absorbed all the practice’s financial risk, so it's unfair for the employees to benefit from this good fortune.

2. Bonus plans put the focus on money. Offering your employees extra money will not improve their performance. In fact, it actually takes the focus away from their job’s performance indicators.

Let me give you an example of what I mean. I recently consulted with a practice that held weekly meetings to discuss how close they were to making that month’s bonus. At the time, long-term patient retention had dropped from 95% down to 90%, but short-term production was increasing. That meant the team still got a bonus, sending the message that a downturn in job performance is OK, as long as more money is being made.

3. The doctor becomes resentful. Often times, an increase in business is a direct result of something the doctor has done, whether it’s investing in continuing education to improve skills and offer more services, or purchasing new equipment that attracts more patients. Even though the team has really done nothing to increase business, they benefit. The doctor, who’s been performing all the extra dentistry, becomes resentful, yet keeps the bonus plan in place because he/she’s afraid of how employees will react if it is taken away.

4. Bonus plans make doctors and employees financial adversaries. Bonus plans paid on the practice’s profitability keep you from taking full advantage of tax laws to minimize annual tax payments. This creates conflict between you and your team members. As the business owner, you want to minimize profits to avoid paying taxes, but your team members want you to report as much profit as possible. Why? It increases their bonus.

To avoid this, some doctors pay bonuses based on production. This is also a bad idea. You can produce $500,000 a year, but it might have cost you $550,000 to produce it. Paying bonuses on production, irrespective of production costs, makes no sense at all. 

When team members go above and beyond, you want to reward them for their efforts, but bonus plans just aren’t the best method. Employees end up receiving bonus money for practice successes they had nothing to do with, leading to resentment and sending the message that performance really doesn’t matter. This doesn’t motivate your employees to excel in their roles. In fact it does the opposite, putting the focus on money and how they can ensure they get that next bonus.

There are other ways you can reward your employees for a job well done. Next week, I’ll give you more reasons to avoid implementing bonus plans in your practice, and I’ll follow up with two articles that outline both monetary and non-monetary ways you can reward your team members individually.

Next week, 3 more reasons not to give out bonuses.

For additional information on this topic and more, visit my blog: The Lighter Side

Interested in speaking to me about your practice concerns? Email sallymck@mckenziemgmt.com
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