Yes, you can pay bonuses and increase profits

You worry about the bottom line ... making it, making more, or wondering if there will be enough to go around.

Th 307713

by Bent Ericksen and Tim Twigg

For more on this topic, go to www.dentaleconomics.com and search using the following key words: bottom line, bonuses, bonus and incentive plans, profits, Bent Ericksen, Tim Twigg.

You worry about the bottom line ... making it, making more, or wondering if there will be enough to go around. You worry about how best to motivate your employees. Does any of this sound familiar?

Th 307713
Click here to enlarge image

Or, you have a vision of your successful and productive practice, but in trying to implement the changes necessary to accomplish your goals, you are met with resistance, resentment, and backbiting on the part of your team, who holds your success in their hands.

Like it or not, in many cases, the people who work for you do not see your practice as the business you know it to be.

Or, if they do, they don't relate the bottom line health of the practice to their own compensation. So how do you enlist the whole group in an undertaking that they see basically as yours?

Employee bonus and incentive plan

An employee bonus and incentive plan represents a great option for many dentists. A good bonus plan can accomplish the following: greater productivity, increased worker satisfaction, and more bottom-line income.

It is important to understand that bonus plans are not about people not doing their jobs, but rather about people working together to accomplish more and sharing in the growth and financial success of the practice.

Successful bonus plans

For a bonus plan to work and be successful, it needs to accomplish these four objectives:

  1. The plan needs to enlist and include all staff to stimulate and foster teamwork, business awareness, and a sense that by working together everyone will achieve more.
  2. The plan needs to be easy to use, understand, and administer.
  3. The plan needs to protect the practice's cash flow and overhead. In other words, no bonus is provided without the money to pay for the plan and cover expenses.
  4. The plan, as bonuses are achieved, should drive increased practice income.

Traditionally, bonus plans have been production-based, collections-based, gross profit-based, etc. These plans are either too narrowly designed or too complicated to administer, which often leads to unrealistic expectations or misunderstood perceptions, and ultimately results in the bonus plan failing.

A goal with any bonus plan should be to help staff think and work more like entrepreneurs, understanding that there is more money to take home only if there is more money in the pot. Besides providing psychic ownership for the staff, a good bonus incentive plan allows you to enjoy freedom from worry, as well as the benefits of reduced negative attitudes and behaviors, management uncertainty, and salary indecisions — all of which erode productivity and consume time and energy.

Fostering teamwork is also critical. If a bonus plan focuses only on production, then it will principally enlist only the clinical staff. What about the front office staff? If the practice wants to ensure everyone is working together for a common goal, then the practice should reward all staff for their contributions when that goal is met. Thus, every employee should be included in the bonus plan.

A major question about any bonus system is determining what parameters will “trigger” a bonus and how big it will be. We have found that successful bonus plans are built around comparing the practice's level of business to staff salaries.

Why salaries as compared to other choices? It's simple; salary expense is the largest piece of practice overhead outside of (hopefully) the owner's compensation. In addition, it eliminates potential resentments that may arise when bonus payouts are based on expenses the staff has no control over, such as rent, insurance coverage, etc.

Doing the math

If a bonus program includes staff expenses, and if the actual staff expense — on a percentage basis — exceeds the established acceptable percentage, a bonus will not be paid until the percentage has returned within acceptable limits.

Thus, by incorporating staff-related expenses, the practice can realize growth (higher production and collections), increase profits, and pay bonuses while protecting overhead costs.

In addition to salaries, the level of business must also be factored in. The level of business is technically the collections (known as revenue or gross income). But to promote team cohesiveness, the practice can include production as well as collections. A simple way to include the two is to average them together. Rather than just average each month, average two to six months together to alleviate seasonal ups and downs.

Bonus plan software programs, such as BonusPro from Bent Ericksen & Associates, incorporate these types of features and offer user-defined flexibility. Once set up on the computer, the ongoing administration of a good bonus program typically takes less than 15 to 20 minutes per month because the data tracking and calculations are all handled through the software.

While a successful bonus plan can be administered manually or with a spreadsheet, a computerized version eliminates the possibility of mistakes with any of the calculations.

Other advantages of bonus software programs include the ability to easily track and monitor “funds” or activities (retreats, CE, etc.) with bonus dollars, employee eligibility, or availability of a separate hygiene plan based on hygiene production.

Before launching your bonus plan, collect some historical data (production, collection, salaries, and hours worked) for the previous six months. This data is used to determine the current staff overhead percentage factoring in your designated rolling average period.

Next, you want to compare your current percentage to norms, recommendations, and/or guidelines for similar types of practices and determine the appropriate percentage on which to base your bonus plan. This percentage then becomes a guiding principle for the plan. For example, if the acceptable staff salary bonus percentage was 25%, then no bonus would be paid until and unless the ratio of monthly salary to rolling production plus collection was less than 25%.

One other variable to consider in establishing a successful bonus plan is what method bonus dollars will be distributed, if applicable for a given month. There are four ways to distribute bonus dollars:

  1. Proportionally based on individual hours worked
  2. Proportionally based on individual salary received
  3. In equal shares for all eligible employees
  4. As an arbitrary percentage for each eligible employee in the plan

Each one has its merits, although be careful to avoid discriminatory allegations with option No. 4. Deciding which method to use is a matter of best supporting your management style and philosophy.

Two important objectives

In summary, there are many bonus programs out there for you to consider. Just remember that the two important objectives of a good bonus and incentive plan are that it should cover additional overhead, as well as provide additional profit. Not to mention that simple administration and understanding can keep all staff motivated toward the common goal of increasing profits. A good bonus plan will bring about the results you want and benefit everyone.

Bent Ericksen is the founder and Tim Twigg is the president of Bent Ericksen & Associates. For more than 25 years, the company has been a leading authority in human resources and personnel issues, helping dentists successfully deal with the ever-changing and complex labor laws. Both authors are members of the Academy of Dental Management Consultants. To receive a complimentary copy of the company's quarterly newsletter or to learn more about their services, contact them at (800) 679-2760 or at www.bentericksen.com.

More in Practice