2.5.16 Issue #726 info@mckenziemgmt.com 1-877-777-6151 Forward This Newsletter

Can You Afford to Give Out Raises?
By Sally McKenzie, CEO

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Giving out raises can be tricky business. You know your team members want and expect pay bumps from time to time, but you simply can’t increase salaries if practice revenues are down. When you tell employees you can’t afford to give out raises right now, they become frustrated and even start to resent you. They’re convinced you’re keeping all the money for yourself and that you don’t appreciate everything they do for the practice.

There’s no question figuring out how to balance the financial needs of the practice with the financial desires of the staff isn’t easy, but it’s necessary. Why? Some dentists give in to employee requests for raises even though they don’t have the money for it. They think an extra few dollars an hour couldn’t hurt. Unfortunately, they’re wrong.

Unless you want to send your overhead costs soaring, employee salaries must not exceed 22% of average monthly collections. That means you can’t give out raises just because employees ask, or give everyone on the team a bump in pay just because a year has gone by since the last increase. You have to make sure team members understand how they can earn raises and when they will be discussed. And that, doctor, starts with managing expectations.

It’s best to manage employee expectations from the very beginning, not six months after a new employee joins the team. From day one, make it clear when raises will be discussed and under what circumstances they’ll be given.

Here’s what I suggest you say:

Cindy, I’ll review your salary on your one-year employment anniversary. At that time, any increase in salary will be dependent on your performance and contributions to the practice, as well as the financial health of the business.

With this statement, you’ve made it clear that team members won’t receive a raise just because another year has gone by. They must meet certain performance measurements to earn a bump in pay.

Employees also must understand how their role fits into the overall success of the practice. That starts with detailed job descriptions and guidance from you, the practice CEO. It also includes regularly scheduled performance reviews and a commitment to giving team members feedback throughout the year, whether you see them exceling in their role or doing something wrong.

Let me give you an example of what you should include in a job description. If Cindy is your new dental assistant, her job description should list various tasks, such as attending the morning huddle, reinforcing the quality of dental care delivered, completing post treatment care calls, quickly turning the treatment room around and converting emergency patients into new patients.

This is all great, but you also need to spell out exactly how performance will be measured. Be specific. In the job description, make it clear that you expect 75% of emergency patients to be converted to comprehensive exams, and the cost of dental supplies should be kept at no more than 5% of practice collections. That way, Cindy knows exactly what’s expected of her and what she needs to do to earn a pay raise.

The problem is, just because Cindy is a valuable, contributing member of the team doesn’t mean you’ll be able to afford to give her a raise. Of course you want to reward your employees for their hard work, but if revenues are down, you simply can’t.

When this happens, remind employees that raises are also contingent upon the financial health of the practice. Make sure they understand practice economics. If you and your team regularly review the numbers in the monthly meetings like we talked about in last week’s article, everyone should know exactly where the practice’s monthly collections stand, and should be working together to make improvements that will make raises possible.

Another tip? Before you give out raises, I suggest conducting an Employee Salary Review. The review will only take about 10 minutes to complete and is time well spent. Once you’re done, you’ll know exactly how much money you need to bring in to cover pay increases, helping to ensure you keep salaries within that industry benchmark – no matter how tempted you are to give out raises even when you shouldn’t. 

Here’s an example of why this benchmark is so important. If your current monthly collections are $48,325 and your existing salaries are $9,353, then a $2 hourly raise from $15 to $17 for your assistant, who works a 36 hour week, will increase existing salaries to $9,665. This is within the 20% industry benchmark.

But, if your current monthly collections are $39,000 and existing salaries are $9,353, that small $2 pay bump puts salaries at 24% of collections. That’s well above the industry standard and will leave you struggling to make ends meet.

Bottom line: You and your team members need to focus on strategies to bring in more money before the practice can afford to hand out any more. Need more guidance to help make that happen in your practice? Feel free to contact me. I’m happy to help.

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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