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:
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
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%.
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
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
Gross wages of the team after 6 months = $120,000
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
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.
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