Case study: Bonus and incentive plans

April 1, 2006
Adentist routinely provided his team with annual pay raises. When the practice experienced a decrease in production, the dentist did not give the raises that the team had come to expect.

A dentist routinely provided his team with annual pay raises. When the practice experienced a decrease in production, the dentist did not give the raises that the team had come to expect. The employees were disappointed and angry. Three resigned, including the office manager of seven years who was a key employee. This caused the doctor major staffing and patient scheduling problems.


There are times when not giving raises may be justified, such as when production and collections are down, job performance is not up to par, or an employee becomes overpriced in the job market. But many dentists mistakenly assume that if conditions warrant not giving raises, then the staff will understand. Wrong! In fact, most team members count on that money to pay their own increasing expenses. In many cases, the people who work for you do not see your practice as a business. They do not necessarily relate the bottom-line health of the business to their own compensation. Given that every employee wants the opportunity to earn more money, the solution is to come up with compensation alternatives that won’t exacerbate a practice’s financial challenges and, at the same time, are motivating for employees.


The easiest way to achieve these goals is through a well-designed bonus plan. The plan must be “self-liquidating,” meaning it must be paid for by a percentage of the increased revenue it induces. Bonus plans are not about people not doing their jobs, but rather about people working together and accomplishing more, thus sharing in the growth and financial success of the practice.

A good bonus and incentive plan removes the arbitrariness of raises and supports greater productivity, increased worker satisfaction, and more bottom-line income. For a bonus plan to be successful, it needs to accomplish these four objectives:

1)Enlist and include all team members to foster teamwork, business awareness, and a sense that by working together everyone achieves more.

2)Be easy to use, understand, and administer. Everyone in the practice needs to be able to follow and track the plan, with no secrets, “black boxes,” difficult calculations, or hidden agendas.

3)Protect the practice’s cash flow and overhead - i.e., no bonus without the money to pay for it and cover expenses.

4)Drive increased profits as bonuses are achieved.

A goal with any bonus plan is to help team members think and work more like entrepreneurs who understand that there is more money to take home only if there is more money in the pot. Besides providing “psychic” ownership on the part of the team, greater profits, and freedom from worry for the doctor, an added benefit of a bonus plan is a reduction in the backbiting, second-guessing, salary hassles, and other staff/money issues that erode productivity and consume time and energy.

Successful bonus plans are built around comparing the practice’s level of business to staffing costs. The level of business is typically the practice’s collections (revenue or gross income); however, to promote further team cohesiveness, the practice can include production as well as collections. A simple way to relate the two is to average them together. But rather than just averaging each month, average two to six months together to alleviate seasonal ups and downs.

Hopefully staff-related expense represents the largest piece of practice overhead outside of owner’s compensation. Using staff-related expenses eliminates the resentments that crop up with other bonus plans which include expenses that the team doesn’t have any control over, such as the amount of rent, insurance coverage rates, etc. If the actual staff expense percentage exceeds the established acceptable percentage, then a bonus is not paid - and will not be paid - until the percentage is back within acceptable limits.

A well-thought-out bonus system provides a built-in raise mechanism, eliminating the uncomfortable negotiations that often occur. The practice can realize growth (higher production and collections) and be able to pay bonuses, while at the same time protect overhead and increase profits.

Contact our office for a detailed bonus plan reprint or to learn more about the popular BonusPro program.

Bent Ericksen is the founder and Tim Twigg is the president of Bent Ericksen and 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, contact them at (800) 679-2760 or at

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