12.30.16 Issue #773 info@mckenziemgmt.com 1-877-777-6151 Forward This Newsletter

3 Reasons Raises Need To Be Earned
By Sally McKenzie, CEO

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Long-time employee “Michelle” just asked you for a raise. She tells you she’s struggling to make ends meet and a small bump in pay would really help out. You say yes without even hesitating. You want to keep your employees happy, after all, and another dollar or so an hour certainly won’t hurt.

The problem is, that small raise really can hurt your practice, no matter how insignificant it might seem. Pay increases should be earned, not given out because another year has gone by or because an employee is experiencing financial troubles. That’s why it’s so important to give employees detailed job descriptions and clear performance measurements. That way they know exactly how raises can be earned and under what circumstances they will be discussed.

Still not convinced? Here are three reasons you should never give out raises unless they’re actually earned.

1. You’ll Send Practice Overhead Soaring
Payroll costs should be between 20-22% of your revenue, with an additional 3-5% to cover payroll taxes and benefits. If yours are more than that, I can pretty much guarantee your overhead numbers are also above the 55% of collections industry benchmark.

When you have high overhead, it keeps your practice from meeting its full potential. You’re worried about writing check after check each month rather than investing in top-notch equipment and practice upgrades that attract new patients and help you provide the best care possible. This could lead to lower patient retention and unnecessary stress on you and your team members.

To help reduce your overhead costs, create clear performance measurements and only give out raises when they’re earned. Trust me, this will go a long way in getting your overhead under control and growing your bottom line.

2. Your team members won’t be motivated to excel. Many dentists think if they give team members a bump in pay, they’ll work even harder and do their best to excel in their roles. Unfortunately, the opposite is true. Team members tend to think if you’re giving them a raise, they must be doing something right, so they don’t make any attempt to improve their performance. That means production rates stay the same while practice revenues remain flat.

If you want to motivate employees, give them clear goals. Outline performance measurements and let them know exactly what it takes for them to earn a raise. It’s also important to give them the training and tools they need to succeed. When they have direction from you, the practice CEO, they’ll take ownership of their systems and work toward the personal and practice goals you set together. They know they’ll be rewarded with a pay raise if they achieve those goals, which means they’ll work much harder than if they expect a raise no matter how they perform.

Conducting performance reviews will also help keep team members on track. Let them know what they’re doing right and where they can improve. Give continual feedback, both positive and constructive, and you’ll start seeing huge improvements in performance. Team members will not only earn their raises, they’ll start helping you increase practice production and revenues.

3. Team morale will suffer. In most work environments, there are employees who strive to do their best and there are employees who do the bare minimum to get by. If you give underperforming employees a raise every year no matter what, the other employees will notice – and they won’t be happy about it. This could lead to conflict among your team members and damage to your practice. Patients will feel the tension and might even opt to find a new dental home, while some team members might decide it’s best to look for a job elsewhere. If everyone has to earn their raises, this will help ensure the entire team performs at a higher level, reducing staff conflict and the problems it can cause. 

Giving out raises no matter what can be pretty damaging to a practice. Even small increases can cost your practice big and push your overhead over that industry benchmark. To avoid this, set clear performance measurements and make sure both current and new team members are aware of your policy on raises and how they can be earned. Employees might be resistant at first, especially if they’re used to getting a raise every year without fail, but they’ll soon find having and meeting set goals will be more rewarding, both professionally and financially.

Need help establishing performance measurements or talking to team members about your policy on raises? Feel free to contact me and I’ll get you started down the right path. 

Next week: The benefits that motivate employees more than a raise

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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