Transitions roundtable

Feb. 1, 2011
We ask two experts the same question to give you two different answers on a complex issue

We ask two experts the same question to give you two different answers on a complex issue

Question: I have had an associate for the past three years who will not become a partner. I have already increased the commission rate and now she is asking for another raise. Is there an alternate way to incent her while placing a cap on the commission rate?

By Lynne Nelson

When running a business, how do you keep raising compensation while maintaining a healthy overhead? Dentistry is part of health care, and as caregivers we have the tendency to shy away from looking at it as a business model. If you don't look at it from a business perspective, you could soon be overrun by your overhead expenses, which can lead to frustration and burnout. Keep your emotions out of it.

The answer to this question is another question: What can the practice afford? If the associate can produce more, she will be compensated more. Certainly you can set goals and offer a bonus if she hits the goal, but sometimes that can lead to a situation where she is chasing a carrot that eludes her more than motivates her. If you can compensate her more and stay within a 38% to 40% net, and you truly wish for her to stay, then it is not unreasonable to compensate her at a higher rate. This is totally at your discretion and what you want to do.

I would recommend that you sit down with her and explain your business decision based on the numbers and let her know that there is a ceiling that all associates will reach regarding compensation. This is the difference between ownership and all the risks that come with it, and being an associate dentist.

Another idea is to offer benefits that she might appreciate as much or more that might be less expensive or more beneficial from a tax standpoint. I would discuss this in detail with your accountant and act accordingly.

Lynne Nelson is senior broker at Consani Seims, Ltd. ADS Northwest, and cofounder of Practice Management Associates, LLC. For more information contact her at [email protected].

Question: I have had an associate for the past three years who will not become a partner. I have already increased the commission rate and now she is asking for another raise. Is there an alternate way to incent her while placing a cap on the commission rate?

By Tom Snyder, DMD, MBA

We recommend a bonus plan based on rewarding the associate for increasing her production over a baseline goal.

Our associate bonus is based around the concept of using breakeven analysis. Breakeven analysis determines the point at which you will generate a profit after you have paid the associate's commission, paid affiliated staff, and paid various expenses such as lab and dental supplies. Using this approach, you can project the annual revenue an associate must generate so you can maintain a reasonable profit margin.

Once you have determined a breakeven point (BEP), project your associate's annual collections. Any dollar generated in excess of this BEP less the combined percentage of your variable expenses is profit. It affords you the opportunity to provide additional income as a bonus without affecting your profit margin.

Creating a bonus program that works - We suggest the bonus be paid quarterly. At that time your associate will receive a percentage of the excess revenue over the baseline BEP. Practices just starting bonus programs typically start at 20% of the differential revenue between the breakeven baseline and what they have generated in collections. You can provide small increments annually, i.e., 2% increments with a cap at 30% of excess over your annual baseline BEP.

For example, assume your associate's quarterly BEP is $70,000. Let's assume your associate generates $80,000 in that quarter. This puts her $10,000 over her BEP. Paying her 20% of that excess, for example, will give her a bonus of $2,000. Remember, she still gets paid her commission rate on the entire $80,000, but gets the additional $2,000 for a job well done!

Bonus programs are not for everyone, of course, but for long-term, loyal associates they can be major motivators for achievement and success. In this scenario, both owner and associate win.

Tom Snyder, DMD, MBA is the director of transition services for The Snyder Group, a division of Henry Schein. He can be reached at (800) 988-5674 or [email protected].

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