5.28.10 Issue #429 Forward This Newsletter To A Colleague

Nancy Caudill
Senior Consultant
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Bonus or Not to Bonus?

Dr. Sharon Strater – Case Study #216

Dr. Strater is a current client of McKenzie Management. Her practice analysis was performed a few months ago and she recently shared her eagerness to offer a “bonus plan” to her team.

Bonus plans historically are always a win/win for employees but a win/lose for the doctor. However, it was important to review the practice statistics, discuss what her objectives were for the bonus plan, what her team “expects” from a bonus plan and the most important element – Does Everyone Win?

Dr. Strater’s practice statistics:

  • Net collections are 98% of net production
  • Outstanding insurance claims are less than $1,000
  • Accounts Receivables (not including credit balances) is .96 times the monthly net production

All appears healthy so far. However, there are hidden dangers that she must be aware of before making a decision to implement a bonus plan of any type. Gross wages of the team compared to the monthly net collections AND the benefits that the practice pays for on behalf of the team. Before a bonus plan can be considered, these potential hidden dangers need to be reviewed.

Gross Wages as a Percentage of Net Collections
Statistics are an excellent guide to the performance of the practice, compared to observing Susie at the front desk carrying on a friendly conversation and thinking what a GREAT employee she is. This is not to imply she isn’t, but her friendliness shouldn’t be the only criteria, nor should she want that to be the only way the doctor determines her value. She also manages the schedule of the doctor to the daily goal 90% of the time!

So, numbers are the doctor’s best friend and should be to the team as well. In a family practice such as Dr. Strater’s, the gross wages for her team compared to the net collections for a period of time (we used the past six months because a team member relocated and was not replaced) was 22.8%. Standard in the industry for a practice this size, with 2 hygienists each working 4 days a week and 2 business and 2 clinical team members, a healthy guideline would be 19-22%.

Team Benefits:
In order to properly evaluate how Dr. Strater’s benefits-overhead compare to her net income, it was important to break down all the various forms of “benefits” that she offered her team. Unfortunately, most team members are not aware of how much their doctor invests in their benefits because it is never illustrated to them. I highly recommend that you break it down as follows for each of your team and present it to them in February of each year:

  • Vacation: Multiply the hourly pay x 8 hrs x # of vacation days = $ invested
  • Holidays: Multiply the hourly pay x 8 hours x # of holidays = $ invested
  • Sick Leave: Same as above x # of days offered = $ invested
  • Grievance Pay
  • CE
  • Uniforms other than what is required for OSHA
  • Dental Care
  • Retirement
  • Unemployment, Worker’s Compensation Premiums
  • Matching SS
  • Other benefits
  • Existing bonus pay, Christmas pay, etc

Again, standard guidelines in the industry are that no more than 3-5% of net collections should be allocated to team benefits.

Dr. Strater was happy to know that her benefit package was in order, but her salary overhead was high. Therefore, my recommendation to her was that if she was determined to offer a bonus plan to her team, the first goal must be to align her team wages to 19-22%.

Establishing Daily Production Goals
Since it is much easier to eat the elephant one bite at a time compared to one huge, choking bite, we determined how much the practice needed to collect over the next 12 months in order to see the wages at her goal of 20%. The collections goal was increased by the percentage of production adjustments that the practice has averaged over the past 12 months and this established the gross production goal. After breaking the practice goal down to daily goals for the hygienists and herself, the process began.

The entire team understood why and how the goals were established and that the doctor’s personal goal for the team was to implement a bonus program. However, until the practice statistics were healthy the practice could not afford to pay bonuses.

Her Bonus Plan
She also indicated to her team that once their salary overhead reached an average of 20% over a 12-month period, she would implement a bonus plan that would allow each team member to receive a portion of a “pool” of money determined by the gross wages of the team compared to the net income over a six-month period. For example:

Gross wages of the team after 6 months = $120,000
Net income for the same 6 months = $631,580
120,000/631,580 = 18.9%
Goal = 20% or less
Difference is 1.1% of net collections or $6,947.38 in the pool

Dr. Strater elected to disburse the entire pool amount to her team, based on their number of hours worked.  However, it was presented to her that an alternative would be to NOT disperse 100% of the pool but a portion and keep the other amount in a money market account.  This protects the practice should collections dip below goal because the doctor is required to pay the employee’s base salaries.

Results of Her Plan
By keeping everyone’s eye on production and collections, the entire team was able to realize that they can work efficiently and productively, with as few employees as possible, and still grow the practice. This truly is a win-win situation for everyone… it certainly proved to be effective for her!

In summary – if you are considering a bonus plan or maybe even have a bonus plan, please make sure that you have no “hidden dangers” reflecting that a bonus plan is not a good option for you at this time. Clean out your closet first and then re-evaluate.

If you would like more information on how McKenzie's Practice Enrichment Programs can help you IMPLEMENT proven strategies, email info@mckenziemgmt.com.

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