Raises, how to do the right thing?

Dec. 1, 1998
Recently, I had a telephone conversation with a dentist from the Midwest about a tricky - and all-too-common problem - with one of his team members. It involved his newest assistant, who kept dropping hints about a raise. "After all," she told him, "I have been here a year. It`s time."

Sandy Roth

Recently, I had a telephone conversation with a dentist from the Midwest about a tricky - and all-too-common problem - with one of his team members. It involved his newest assistant, who kept dropping hints about a raise. "After all," she told him, "I have been here a year. It`s time."

He then shared his dilemma. Although this assistant has progressed substantially in the first year of her employment, she has just begun to perform at the level of his initial expectations. He believes she is just now beginning to earn her salary because she required an unusually long transition into the practice. She believes that this change in her performance entitles her to a raise.

The dentist also knows that practice production and profitability haven`t increased from a year ago; so, no new funds are available for a raise, even if he did feel it was appropriate in her case. He wants to keep her motivated and positive about her future in the practice, but doesn`t want to placate her or set an unhealthy precedent. He asked me to help him sort out the mess because he wants to do the right thing.

The issues of compensation in general - and raises in particular - are two highly complex subjects that are further complicated when the employer and/or employee are uncomfortable talking about these matters. All too often, compensation (comprised of salary plus benefits and other forms of remuneration) is not addressed specifically and comprehensively, and this can lead to problems ranging from a minor embarrassment to the more serious loss of a good employee.

Like other relationships, the success of the employer/employee relationship is related directly to how clearly mutual expectations are defined and agreed upon from the beginning. Here are a few important guidelines to help you avoid the types of conflicts that could be easily avoided with forethought.

1. Compensation agreements must be made and confirmed in writing before hiring is complete.

If I had a dollar for every time a dentist hired an employee without salary, benefits, vacation, and other agreements in writing, I could single-handedly underwrite the research to find a cure for the common cold. Failing to address these and other relevant questions is just sloppy management, which inevitably leads to disastrous misunderstandings, hurt feelings, and other problems. As the owner of the business, you must understand that it is not up to your new employee to initiate this discussion; it is your obligation.

You must become clear about what you are able and willing to pay for a given set of qualifications and experience before you begin the hiring process. Although this probably would not be the first topic of discussion, you should be prepared to introduce the subject at the appropriate time in the interviewing process.

What should you do with your current employees? If you failed to completely handle these matters, you would be well-advised to do so now. Although awkward after-the-fact, dealing with it now is better than not dealing with it at all.

2. Salary increases only can come from increased profits or the owner`s pocket. There are no other sources.

Everyone must understand that increases only will come when the business is more profitable, unless you choose to lower your own compensation to fund raises. Although there are many opinions about what percentage should be allocated for staff salaries and benefits, I believe that each dentist must make his or her own determination on this percentage. Think of it this way: you must allocate a sufficiently high percentage to attract, retain, and provide a future for the very best employees you can find. Yet, simultaneously, you must believe that you`re getting your money`s worth from each employee and you must feel good about these costs.

Try this experiment: Next pay period, determine the combined amount of your employees` gross pay and gather that amount in cash. (Yes, cash!) Look at it. Feel it. Let it sit in your pocket all day. Count out the cash representing the salary for each team member and ask yourself how you feel about paying that amount. Checks somehow sanitize in a way cash doesn`t. You`ll likely find that you get a better sense of whether you feel you are getting your money`s worth from each member of your team.

Simultaneously, each team member should develop a clear understanding about how his or her efforts make a difference in the profits of the practice. Sometimes that difference is direct; but, don`t overlook indirect contributions. A support person who manages the sterilization area so efficiently that you stay on time (and can stay focused on your patients) contributes in a very important way, albeit indirectly. I believe that regular team meetings - not just private one-on-one lunches during which you discuss each team member`s contribution - are essential. This is a great way to build respect for one another and learn how one`s efforts contribute to the greater good.

3. Salary increases must be based on performance, not longevity.

Behaviorally strong, as well as clinically-competent dental practices, must be meritocracies of high-caliber talent. This means that performance that translates into profits will determine the monies available for raises, not the calendar. The days of yearly automatic raises are over.

This makes particularly good sense in businesses as small as dental practices, which have very few employees. In these circumstances, each person must make a big difference, and no practice can afford to have an employee who makes anything less than a profound impact. There simply isn`t any room for people who are poorly skilled, undertalented, unmotivated, or ordinary. A mediocre employee may get lost and survive in a Fortune 500 company; but, in a small group, that person`s marginal impact makes a huge, negative difference. Each team member must grow in skills and contributions for the practice to increase profitability, and no one can be rewarded financially for staying in the same place. Team members must understand that their efforts are vital to the success and prosperity of their practice, and that continued employment and additional financial reward comes as a result of their efforts.

In addition, the team must work together to conserve precious resources and use them wisely. Waste is a killer in a small business, and everyone must be aware of how to use every asset to its fullest extent. Making wise use of time, as well as focusing attention on patients and the details of the job, are essential. When everyone on the team pays attention to the things that really matter, overhead is controlled, assets are fully used, and the business can prosper and become more profitable. When that happens, everyone can benefit.

4. Bonuses are great. Bonus plans are not.

It feels great to give an unexpected bonus to a team member who has made an extraordinary effort or contribution. And it feels great to receive an unexpected bonus when you know you have been working especially hard or contributing in a unique way.

But bonus plans are a big mistake. They are ineffective in continuously motivating marginal employees and they are incomplete in rewarding high achievers. Moreover, they inevitably are regarded as an entitlement, thus losing any motivational influence they had. People don`t work harder for something they think they`re already earning or are entitled to receive. I always am sad to hear employees calculating production mid-month, only to be disappointed or angry that no bonus will be given (again). What follows is frequently a combination of anger, resentment, and apathy.

I believe it is a far better proposition to set a highly rewarding and competitive compensation agreement with each team member. Then, award a bonus when extraordinary performance has resulted in more profits to share.

5. Ignorance is not bliss.

When the dentist chooses to withhold vital information about the expenses of the practice, team members will have little understanding of the economics of the business. This is not good.

Don`t kid yourself! Your employees know precisely how much money the practice takes in. They charge the fees, enter the payments, and calculate the deposits. Because those numbers can be high, they will have a distorted picture of the practice finances without the balancing information found in expense reports, profit/loss statements, and balance sheets.

If they don`t initially understand the numbers and their meaning, don`t give up. Find someone to help them learn. An accountant may have difficulty putting concepts into lay language, so look for someone who can teach on a practical (high school) level. Then, keep sharing information each month until every key employee understands what the numbers mean.

I know this concept runs afoul of common advice. Professional practices have been accustomed to keeping financial secrets. The result often has been a team of employees who are clueless about the status of the business. They learn the practice is in trouble when the dentist is in a bad mood, pressures them to pressure patients, or when paychecks bounce. Information is power and if you want powerful employees, you must give them access to all of the information. Don`t censor anything.

By the way, you won`t be able to do this if there is any funny business in your bookkeeping. Bartering, cash payments which go unrecorded, or other trickery is just plain wrong. They distort the production, collection, and profit figures and put you in legal jeopardy as well. If you`re reluctant to share figures for this reason, fix that first, and then include your team.

6. Compensation agreements should be open to all.

I know the old rule is that people`s salaries are private, and to that I say, "Horse Hockey!" First of all, people likely know what other members of the team are making. Secrets like that are hard to keep.

But more importantly, what is the compelling reason to keep these matters secret? If people are properly and fairly compensated, why make remuneration a clandestine subject? In a meritocracy, each person`s compensation is based on his or her qualifications, skills, work ethic, responsibilities, and contribution. If one employee makes more than another does, there should be a legitimate reason. If that reason is greater responsibility, more advanced skill, a stronger work ethic, or higher dedication, every other member of the team should know that and honor the special contribution. Secrets beget mistrust, idle speculation, and petty jealousies. The truth is just the truth.

That raises the subject of owner draw, perks, and benefits. Many dentists are afraid to let their employees know their compensation. Sometimes, this is because they think the team will be resentful or not understand why the number is so big compared to staff salaries. Frankly, I find that the strongest practices have dentists who are open about these matters and team members who are committed to the dentist`s financial success as well.

In many cases, the team members think you are compensated more highly than you actually are. If your compensation is comprised of a salary for your work as a dentist, a fee for your role as manager and CEO of the business, and return on your investment of capital in the business, most dentists` compensation is too low. Your team must understand these three roles you have. If you have mature, healthy team members, they surely can take it and likely honor this private-business information. Give them a chance and you`ll find out if this is true.

I hope these guidelines have been helpful. Perhaps it is time to address this subject with your team. Lay the cards on the table and have an open discussion about compensation, expectations, and raises. You`ll release a lot of anxiety, I suspect, and perhaps reach some healthy understandings with members of your team.

Establishing priorities during the interview

Plan to have a complete discussion about each of the following:

- your expectations for the position and what growth you expect

- when and how performance will be reviewed

- when and for what reasons salary will be adjusted

- specific details of all benefits, including medical coverage, dental services offered to employees, insurance, licenses, subscriptions, uniforms, and the like

- how continuing-education tuition and expenses will be handled and whether the employee can expect to be paid a salary for learning days that fall outside of the normal work week

- detail about how overtime will be handled (being sure to comply with state and local regulations)

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