8.17.12 Issue #545 info@mckenziemgmt.com 1-877-777-6151 Forward This Newsletter

Nancy Caudill
Senior Consultant
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Is Your Bonus Program Working For or Against You?
By Nancy Caudill

Human resource managers told Corporate America in years past that if they dangle a financial carrot in front of their employees, they can expect a tremendous increase in their performance. We have observed dentists paying out bonus monies when total employee costs are already beyond 27% of practice income (gross salaries 19.22%, payroll taxes and benefits 3.5%). Not only is this fiscally irresponsible, but it jeopardizes the life of the practice and the employee's job security.  While some management consultants continue to tell dentists to use bonus systems, McKenzie Management believes dentists should stop using them and use non-monetary techniques that are more effective at getting desired improvements. Bonus plans are unfair because they usually reward people equally, but the contributions to the business are not equal. What your employees give to the success of the business is different for each employee, and many times the success is just good fortune.  Bonus plans cause employees to focus on money.  It takes the focus away from the performance indicators of a particular job.  However, employees should be “rewarded” for performance that exceeds the performance indicator of their job description.

Step 1 - Daily Goal
Have a daily goal for each provider. Reference our Practice Management Library HERE if you would like to know more about goal-setting.

Step 2 - Determine a Budget for your Goal
Keep in mind that rewards are categorized as a benefit on your P&L and your overhead percentage goal for benefits should be no more than 3-5%, including matching Social Security, Unemployment Taxes, CE courses, vacation, sick leave, holidays, retirement contributions, etc.

Step 3 - Establish How to Calculate the Goals
Be sure the entire team understands how it works, and that they know each day or month if they are reaching their goals and what they need to do if they are not. BE CAREFUL! Establishing monthly goals based on production and/or collections that are based on monthly statistics can be dangerous if you are paying out a substantial amount. You can have good months and you can have bad months. You may pay out a large bonus on a really good month and then have 3 subsequent months that are not so good. If you were to average these months together, it is very possible that the monthly goal average is below your established goal.  The other thing to consider is that the success of a practice is not based on production / collections alone.

Step 4 - Reward Plan
Apply your reward plan based on your production and collection goals and incorporate the entire team. Omitting certain employees, such as the hygienists or the office manager, only creates a division in the ranks - when the purpose of a bonus is to encourage your team to work together to reach the practice goals. AVOID setting up a reward plan that is difficult to calculate and even more difficult to understand by the team. It is not uncommon to hear staff in an office say “We appreciate the generosity of the doctor but we have no idea how the doctor comes up with the dollar amount.” You might as well just pick random amounts from thin air when the team doesn’t understand what they are trying to achieve.

Step 5 - Keep it Simple, Sir
The KISS principal.  Below is an example of a “ping pong” reward that we recommend to our doctors that want to incorporate a reward plan into their practice. It is fun, easy and keeps the team motivated daily.

The Ping Pong Reward
Obtain 22 ping pong balls and write $20 on 7 of the balls, $10 on 7, and $5 on 7. The extra ping pong ball is the “mystery ball” and the doctor controls this ball. If you have a larger office with more staff, you may want to increase the values of the balls to $50, $30 and $20.

At your morning meeting, it is announced by the Schedule and Hygiene Coordinator how many providers (doctors and hygienists) reached their daily production goal on the previous day. If 2 providers reached their goal, then 2 balls are drawn from the container. As each ball is drawn, the value of the ball is entered on a log that is used to keep track of the dollar amount that is being drawn. Be sure to replace the ball once it is drawn so the chances of drawing the balls with the higher face value are always the same. If no providers made goal, then no balls are drawn. At the end of the month or when the pool reaches a pre-determined value, the pool is paid out, dividing it up among the team based on their hours or days worked. If there is a part time employee that works, they will receive a proportional amount.

As you can see, this is not a large amount of money to the office but it provides a way to celebrate each day that the practice reaches the goals established for the providers. Many dentists are not good “motivators” so this allows the doctor to participate indirectly without having to be a “cheerleader.”

The “mystery ball” is placed in the container at the doctor’s discretion and can be taken out at any time, as well. For example, let’s say that for the entire week, each provider made their production goal. The doctor may assign a value to the mystery ball Monday morning and state that the value is $100. It is placed on the container and if it is drawn, the $100 is added to the pool. The doctor may then remove the ball and use it at another time. Some offices elect to leave the “mystery ball” in if their doctor is not as participatory as they would like!

Have Fun!  That is what rewards are all about.

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

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