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Team incentive bonus plans

May 1, 2008
For the past 35 years, I have been a strong advocate of team incentive bonus plans.
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For the past 35 years, I have been a strong advocate of team incentive bonus plans. When I saw the last practice where I worked break all production and growth records for a start-from-scratch practice with only three-and-a-half employees, it made a believer out of me. Six years later when I started hiring employees for my own company, I knew bonus incentives were going to be part of my management model. Again, records were broken because of happy and dedicated workers. Without goals and rewards, work is just that — W-O-R-K. With incentives, work becomes fun and exciting ... that is, for most practices.

After personally consulting more than 1,000 practices in three decades, I can tell you that incentives for the team do work, but of course, some ground rules must apply. In a handful of those practices, I have recommended not having an incentive bonus plan because it was obvious after a few days of working with the owner/dentist that he or she was not really in favor of sharing the practice growth with the team. Bonuses can backfire and actually demotivate when the ground rules are not fully understood and adhered to throughout the duration of the bonus plan(s).

Rules to make bonus plans work

Here are four rules that will help bonus plans work better:

Rule No. 1 — The plan must be simple and understood by the team. It must be administered or figured monthly by the team and checked for accuracy by the owner/dentist.

Rule No. 2 — The goals must be realistic and increased slowly as the plan moves forward. Staying the same for too long is not a challenge; it becomes unfair to the employer and becomes part of the compensation. After three months of consecutively reaching the goal, increase both the goal and the reward. If after a year or two the practice maxes out and it has been months since a goal has been met, design a new bonus plan based on fair and new goals. Some practices max out on a bonus plan in four to six years; others in 18 to 24 months. A different plan can be implemented at that time.

Rule No. 3 — The doctor and spouse, if there is a spouse, must be the happiest people in the practice when the goal is reached and the rewards are to be shared. Delaying bonus checks will not only dampen the motivation and morale, but it will make the team feel as if the person(s) preparing the bonus checks is not exactly happy sharing the practice growth, so they will stop trying. The team quickly reads negative body language and behavior.

Rule No. 4 — The distribution of bonus checks should be on time and somewhat ceremonial if the owner is truly excited and grateful that the team went the extra mile. If it is a separate check (with deductions taken out, which is law), it is truly a bonus. If it is part of the paycheck, it normally goes into the family bill-paying account and is not personal to the employee like a separate bonus check.

Incentives that work best

There must be more than 100 bonus formulas in dentistry, and some practices have tried many of them with lukewarm results. The bonus plans that work best in our client practices are those that are based on net production (NP) after write-offs plus collections (C) divided by two, then divided by the number of days the doctor saw patients. If there are two or more dentists, take the total net production plus collections and divide by two. Then count the total number of doctor days by doctors A, B, and C, then divide by 2.5 if one dentist works two days per week but the other two doctors work four days each.

Setting the first goal

Go back to the past three months or the last same quarter of the year (if your practice is seasonal). Add the net production plus collections, then divide by two. Then count the number of doctor days for that three months and divide the doctor days into the average of the NP + C divided by two. This becomes your target per day figure. Note: If you figure bonuses only on production, collections will not be as good. If you figure the bonus on just collections, the entire team blames the financial coordinator if the bonus is not made. This way everyone plays a very strong role in bonus achievement throughout the month.

To set your first goal, at LLM&A we recommend setting the goal $100 per day higher (per doctor) than the per day figure that is your starting point. If you have a staff of more than 10, your plan may need minor adjustments with a goal of $200 per day (per doctor), because there are more team members on the receiving end. The reward starts at $100 per full-time team member.

Reaching the goal

When the goal is reached, I highly recommend distributing checks during the monthly team meeting, which should always be held the first week of each month. This is a time to discuss the previous month's successes and challenges. Remember: The dentist/owner must be the happiest person on the team that day because it is a celebration when bonuses are distributed. Otherwise, they are not effective.

When the daily goal, on a monthly average, is reached or exceeded three months consecutively, it is time to set a new goal. Example: If your daily goal is $4,995 and the past three months ended up being $5,088, $5,138, and $5,322, you would add those three numbers together and divide by three. Your average is now $5,183 (rounded off). It is a solo doctor practice, so your second daily goal is $5,283 (for three consecutive months) and the reward goes from $100 per full-time employee to $150 per full-time employee.

Additional recommended rules

Here are some additional rules to keep in mind:

  1. New team members are not on the bonus plan for the first 90 days of hire.
  2. Part-timers are always on the team incentive plan and are prorated based on number of days of participation the previous month.
  3. In fairness to those who work extra hard to achieve the bonus plan monthly, if an employee misses a day of work that is not his or her designated earned day off (vacation), the employee loses 25 percent of the bonus for the month. If the employee misses two days not designated as earned time off, he or she loses 50 percent of the previous month's bonus; if three days, loses 75 percent of the bonus; and if he or she misses four days, forfeits the entire bonus.
  4. Associate and owner dentists can be on the bonus plan too.
  5. If a support team member is paid on commission, he or she is not part of the team incentive bonus plan.

Frequently asked questions

Following are some questions I am often asked:

Question: Is there a limit to the amount the bonus checks go to?
Answer: Typically the bonus checks max out at the $250 per month per employee level. Because you must reach or exceed the goal three consecutive months in order to increase the goal and the reward, it can take many months and perhaps years to get to that level of reward.

Question:What happens when it is not a bonus month?
Answer: If the goal is not reached, it is not a bonus month, which leads to a discussion on how the team can avoid the same pitfalls in the current month so the goal can be reached. When the goal is not met — regardless of being in the first, second or third round — after not reaching the goal, the goal remains the same but starts counting at month one again. The bonus reward does not go down. If the new goal is not met, there is no bonus that month. If you made bonus months one and two at the new level but missed month three, you now are back to the same goal but month one again for counting purposes.

Question: Does the team ever wish not to reach the goal the third month knowing it may be more difficult to reach the new set goal after the third month?
Answer: Quite the contrary. Because the reward also goes up $50 per employee when the new goal is set, the team is more than happy and wants the goal to change.

Question: What has the success rate been with this model during the 30 years you have consulted?
Answer: We have seen practices double in 12 to 24 months and believe sharing the practice's growth truly is the catalyst for this type of phenomenal growth. Not only does a practice reach its full potential and then continue to grow at perhaps a slower rate, but the doctors and team members are happy. Patients notice this type of work environment, which results in a great marketing tool.

Some dentists complain that they stopped having bonuses "because the team started expecting them." My answer to that is "I hope my team expected them because this meant our business continued to grow!"

For a complimentary copy of the LLM&A Motivating Incentive Bonus Plan, send an e-mail to Linda Miles at [email protected]. For the reward of a lifetime, be part of the LLM&A SCN/SunFun Cruise to Cozumel, Mexico, Feb. 19-23, 2009. Watch the LLM&A Continuing Education Trip Kitty Incentive video at http://www.youtube.com/watch?v=HviW0gLb2U4.

Linda Miles, CSP, CMC, of Virginia Beach, Va., is an internationally recognized consultant, speaker, and author on dental practice and staff development. She is a successful businesswoman who founded LLM&A, a leading INC 500 dental management consulting firm in 1978. In addition, she founded the Speaking Consulting Network, now in its 12th year. Miles is known as the speaker who instinctively understands and loves to share the business side of practicing dentistry. She's a 26-year member of the National Speakers Association, a member of the Institute of Management Consultants, and serves on the board of the Academy of Dental Management Consultants. She believes dentistry should be fun, exciting, and rewarding for patients, dentists, and the entire team.

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