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Competitive compensation in dentistry: What is it and how do you offer it?

May 7, 2023
Offering competitive salaries is a major factor in how successful you are at hiring and retaining employees. But what constitutes "competitive"? And how do you go about structuring it? Sharon Weiss has the details.

You want to hire an employee. (Who doesn’t these days?) But how do you know what salary to offer that will attract someone without overpaying? Or, perhaps your team is pressuring you to give raises. How do you decide what to give them that would be both affordable and motivational?

Dentists, like all employers, like to boast that employee salaries are competitive, but what does that really mean? Is “competitive” the salary that everyone else is paying? Is it more (and if so, how much more)? How do you learn what the going rate is? And finally, most important, how do you know what you can afford to pay?

Also by Sharyn Weiss: Do dentists have a self-esteem problem?

How to determine your version of competitive compensation

“Competitive” is like “nice”; no one is going to object to the term, but it’s so overused that no one is going to jump up and down, either. Generally, a competitive salary is defined as what the market is paying in your area or above. This is not a helpful definition. What really matters is how you define competitive.

Here are some things to consider:

  • The compensation package you offer—which includes more than cash, by the way—must be commensurate with the type of employee you want to attract and your vision of your practice. If you perceive your dental office to be the same as every other practice in your area and you are looking for “good enough” employees, offer salaries around the median. If you perceive your practice to be above average and you want better than average employees, offer salaries to reflect that.
  • Align with your fee schedule. If your fee schedule is at the 80th percentile because that fee reflects the quality of your service and team, then your salaries should also be at that high range.
  • Consider the skill level and personal attributes of the people you want to employ. If you think those types of employees would leave you because they can get the same quality of life but better pay elsewhere, then your salaries need to be at the high level of competitive for your area. If you like training newbies and growing them, then your salaries can be at the lower end. But compensation isn’t only about cash, and great employees will accept a lower wage if there are other benefits that they value. We will circle back to this issue because it’s key.

How to learn the going rate

You have two avenues for research: online resources and personal connections.

Online resources

These are free, national websites where you plug in your job title and town (or zip code) and see salary ranges in your area.

Personal connections

When you compare your compensation plan to that of another practice, make sure you are comparing like to like. You need to control for things like geography, size, specialties, and business structure. Here is who you can talk to:

  • Study club friends
  • Accountants/bookkeepers/financial advisors if they serve other local dentists
  • Dental supply companies
  • Payroll services
  • A great compensation plan underscores the philosophy that your employees are acknowledged and appreciated for their contribution. Your compensation system does not need to break the bank to be motivational, and it must be affordable for your practice. Let’s examine this issue of affordability.

How to determine what you can afford

Many consultants advise that your employee expenses should be between 20%–25% of collections. I understand this reasoning, because collections are literally money in the bank.

I take another approach, measuring compensation against production. Your expenses are determined by how many patients you see and the production they generate. Your lab fees, dental supplies, number of team members, and the size of your facility are all determined by your production needs. Your landlord doesn’t charge you based on what you collect, and your dental supplies rep doesn’t care if you have 20 insurance plans or zero when you order supplies. Because your expenses are generated by your production, not by collections, I evaluate payroll against production.

In general, employee expenses should be between 28%–38% of production. Why such a large range? This is a nationwide statistic. In my area, hygienists are making over $55 per hour, while in your area it may be $38 per hour. Hygiene salaries should be between 30%–40% of their production.

In order to determine what is affordable for your practice, you will need to know your practice’s statistics, including:

  • Monthly/annual total office production
  • Daily/monthly/annual hygiene production
  • Employee gross salaries (plus the cost of benefits, payroll taxes)

When I work with dentists one-on-one, we use a compensation worksheet to analyze payroll costs at a glance and to calculate the cost of raises. Before you award raises or hire new staff, you need to ensure that your payroll costs are affordable.

What to do if your current salaries are outside the norm

If your research determines that your salaries are high for your area and for your practice, I don’t recommend decreasing compensation. Doing this will lead to morale issues. I do recommend that you and your team plan on ways to grow the practice so that the current compensation level becomes more affordable.

Frequently, dentists ask me what to do about individual employees who have reached a ceiling in their compensation. How do you still reward them if you can’t give a cash increase? This leads to my final, possibly most important lesson:

Compensation is about all the ways an employee feels rewarded and acknowledged in your practice.

You will not make an unhappy employee happier with more money; you will only create a well-paid, unhappy employee. But if you have happy, committed employees and you want to acknowledge them without being locked into a pay raise, here are some ideas. The key is that whatever you do, your acknowledgment must match the desire and personality of the employee.

Alternatives to cash raises

  • Additional time off
  • Surprise certificates for a performance achievement
  • Gift certificates to a place the employee frequents (e.g., nail/hair salon, gym, restaurant)
  • Shopping spree
  • Contribution to child care, gas
  • Tuition and travel to an out-of-state continuing education course
  • One-time check enclosed in a thank-you card
  • Health benefits (e.g., contribution to an HSA)
  • Retirement benefits

Your compensation system should reflect your vision and values as a leader. Ideally it should underline the culture you want to create at your practice. And, because employees are also seeking emotional, social, and spiritual growth, a competitive salary is only one element of a competitive compensation system. 

Editor's note: Originally posted in 2021 and updated regularly

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