What to Consider Before Giving Out Raises

By Sally McKenzie, CEO Printer Friendly Version

Balancing the financial needs of the practice with the financial desires of the staff isn’t easy. You want to keep your team members happy and to reward them for all their hard work with an occasional bump in pay, but you can’t increase salaries if practice revenues are down. It’s a difficult balancing act, but one you must master if you want to keep your practice thriving.

All too often, dentists give out raises even though they can’t really afford them. They convince themselves an extra dollar or two an hour won’t hurt the practice but could do wonders for a loyal team member who is having trouble making ends meet. But that seemingly small increase in salary will likely send overhead costs soaring, resulting in significant financial damage to the practice and keeping you from investing in new technologies or making upgrades to your office.

I don’t want that to happen to you. If you give out raises just because another year has gone by or because an employee has asked, it’s time to rethink your compensation policy. Here’s what you should ask yourself before giving out pay increases:

Has the raise actually been earned?
Dentists tend to think giving out raises will motivate employees to excel but, unfortunately, that usually isn’t the case. In fact, the opposite is true. They have no motivation to improve their performance because they know they’ll get the raise no matter what. Plus, the fact they got a bump in pay tells them they must be doing something right. So, rather than looking for ways to improve their performance, they continue to offer the same amount of effort—which means production rates stay the same while practice revenues remain flat.

Instead of giving out raises just because, I suggest you sit down with team members to establish clear goals. Create detailed job descriptions that outline their responsibilities as well as performance measurements. Your team members will take more ownership of their systems as they work to achieve personal and practice goals you set together. And knowing they’ll be rewarded with a pay increase when they meet those goals is pretty motivating.

Can you afford to give out a raise?
It can be awkward when an employee asks for a raise out of the blue. Many dentists will say yes without really thinking about it, mainly because they want to keep employees happy and figure a few extra dollars an hour is a small price to pay. But even a small raise can have a significant impact on the practice.

How can you determine if giving a raise is financially feasible? First, figure out what percentage of your revenues/collections is currently going to payroll. To do that, add up your gross payroll, which includes all employees but the dentist. Next, take an average of your last 6 months of collections. That gives you your percentage, which should not exceed 22% of the average collections amount (the industry benchmark, with an additional 3 to 5% for taxes and benefits).

Afford Raises

From there, I suggest you conduct an Employee Salary Review. This clear, simple mathematical tool tells you how much money you’ll need to collect every month to cover pay increases. Using this tool ensures you make an informed decision regarding raises, rather than an emotional one. You can access McKenzie Management’s Employee Salary Review here.

Once you know how much money you need to cover raises, it’s time to determine how you’re going to bring that money into the practice. Sit down with team members to come up with a plan, which might include strategies to improve patient retention and case acceptance.

How will it impact team morale?
Some dentists give out raises once a year no matter what. Everyone gets the same amount at the same time, regardless of performance. While this might seem like the easiest way to handle raises, it could lead to conflict in your practice. Employees who work hard to exceed expectations will receive the same reward as employees who do the bare minimum. Those hard-working employees might become resentful and lose their motivation to perform at their best, and that hurts the practice.

Giving raises based on performance eliminates this problem. Team members only get raises when they’re earned, not just because another year has passed by. I also suggest you calculate raises based on a certain percentage of each employee’s pay, rather than actual dollar amounts. It’s easier to rank employees in terms of who gets what percentage. For example, your best performer might get 3 percent, while your average performer gets 2 percent.

Establishing a compensation strategy takes leadership from you, the practice CEO. Let team members know from the beginning what it takes to earn a raise and under what circumstances they’ll be discussed. Conducting a Salary Assessment as well as a Salary Review will help you determine how much of a raise you can afford, and if even a small bump in pay will send you over the 22% of collections industry benchmark.

Need more guidance? Feel free to contact me. As always, I’m happy to help.

Next Thursday: Need to motivate your team? Give them the benefits they want Share this Newsletter

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