TO BONUS OR NOT TO BONUS
This is one of those topics that I have written about many times yet is still one area that doctors seem to struggle implementing successfully. I will assume that you want to create or fix a bonus or as I prefer to call it, Profit Sharing. It seems that most doctors consider a “bonus” system as a need to have, check the box, I haven’t arrived, must do item to feel that they are successful. In their haste to have it, they forget that timing and benchmarks are controlling factors affecting their decision. Is a “bonus” or profit sharing strategy right for every office? Of course not. You need to have the business acumen to really understand the when and how of a bonus system. Just for the record, I have a problem with calling this strategy a “bonus” system. In reality it is a “profit sharing strategy” that will pay a huge return on your investment. If you want consistent double-digit growth every year, you need to share the wealth.
Benchmarks in a practice management sense are paramount to this timing concern to make a bonus system work. In my book The Super General Dental Practice, you can find a chapter dedicated to benchmarks and overhead, so we will not go over them here. You should consider benchmarks as a cautionary prerequisite for a successful bonus plan. I don’t expect for you to hit every one, but you should be able to check a majority of the boxes prior to implementing a bonus system. While having these benchmarks all in place would be nice, but difficult, there is a way to make a modified monetary bonus until your benchmarks show improvement. In other words, each and every benchmark or overhead item need not be perfect, but you should share these with the staff and establish a plan to add each one to your goal list. I say this so that you understand that a bonus or profit sharing scheme must be a strategic step that insures a decrease in overhead, while inspiring your staff to raise productivity. Without most of the benchmarks we refer to in The Super General Dental Practice in place, you will struggle and probably fail to make this profit-sharing strategy successful. With that being said let me add one warning: Be sure that whatever system of bonus or profit sharing you implement is actually less than you are willing to give. What I mean is that this money must be an amount that will not need to be modified or taken away from your staff in the future. It is far easier to give something away than it is to stop it at a later date. You can always increase the amount if it proves successful, but it is devastating to the morale of your staff if you are forced to revoke it due to poor planning, or for any reason at all you decrease the amount or change the conditions by which it is obtained. The second thing for you to keep in mind is that a bonus system is an addition to an already well-run practice. It is not a substitute for the areas that you fall short in. Consider a bonus system to be a multiplier to an already successful practice that wants to take it to the next level.
We will give you a step-by-step approach. I assure you that each step is important. Get it right the first time, and this will be a cornerstone to taking your practice to the next level. Stumble and you enter the ranks of most offices that have failed to inspire their staff by sharing in the increase of production and profitability. It is very difficult to recover from mistakes in a strategic plan like this. Fail and you will see an increase in stress, staff turnover, overhead, and a general loss of esprit-de-corp. Great profit sharing strategies are key to a viable culture.
Before we start to explore what a successful bonus system looks like, let me refer you to one more place in The Super General Dental Practice book. It deals with staff. It is titled the Staff Owned dental practice. This chapter explores the foundational principle of ownership by your employees in a dental setting. It was the number one essential ingredient in my success for our offices. So, take the time to read and internalize its strategies and culture. You start with the right staff: They have incredible people skills and walk through the door already motivated to be the best. Never make the mistake of hiring based on a resume touting vast experience. Without motivation and people skills you will have a mediocre staff member that you will never be able to elevate to ownership mentality. This bonus system is not designed to motivate your staff. You can incentivize them, but money will not motivate a person that is not already motivated. In a sense, you should hire for people skills and self-motivation because these are the two skills that are paramount to adding a high-level employee to your team and they are the two traits that you cannot train or teach. Anything else can be learned, but not motivation or people skills. You would do well to understand that your job is not “motivating” your employees. Your job is hiring and keeping motivated team members.
We are going to break down the areas of successful bonus principles over the next few pages in order for you to go back a read a couple of chapters about benchmarks and staff ownership in the Super General Dental Practice Book (free at www.supergeneralpractice.com ). Don’t try to short-cut this. You are robbing yourself of experiencing a quantum leap in productivity by not implementing these two areas prior to adding a bonus system.
Successful Bonus Principles
- Money is a reward, not an incentive. For someone to own this process, and they must own it to make it work, they must understand the “Business of Dentistry”. Your Cash Flow Statement and Profit and Loss Statement should be shared with the staff each month. They need to start to develop an “ownership” mentality: A way to make them feel that this is their practice and a career, not just a job. They decide when people are hired or have their “future freed up”. You consult with them on overhead and profitability. You constantly revisit the reason for the “bonus”, and why and how it is paid. They are your partners in this business, and as a partner they should share in the spoils. The bonus is their monetary reward for going the extra mile (not simply repeating what they have always done). Money is not an incentive. Your culture, mission, and purpose as a team is the incentive. Money is just a way of measuring the amount of service you deliver to your clients. Don’t be misled into thinking that you can “motivate” your staff with just money. You must become a great leader and a better manager. Like it or not, if a practice is floundering, it is always the doctor’s fault. Forget the economy, demographics, staff, patients, dental IQ, all the other common lame excuses doctor’s use. It is always the doctor who is at the center of any challenge in your practice. By commission or omission, the doctor has created the situation he finds himself or herself in. It is my job to put a mirror in front of each doctor and, for many of you, for the first time to help you see the real reasons and solutions to your practice challenges.
Every successful practice we have worked with has mastered the bonus strategy.
Before we start discussing the second principle for a successful bonus plan, let me remind you that a bonus system will not fix a broken practice. As we said before, it is a multiplier for that good practice. Let me say that if you are using a different bonus system for different positions or doing some iteration of the fishbowl, draw out a dollar amount reward, you will want to move away from this short-term poor way of incentivizing staff. It is fine for a month or so, but it is not a long-term strategy. In fact, it creates groups of workers rather than a team. This may get them to comply in the short haul, but it does not create commitment in the long run. If the practice does well, everyone should benefit. Everyone is responsible for this growth curve. When you reward individuals, you take away the culture of having staff self-policing the group. Owners won’t allow mediocrity in their midst. Staff ownership gives you what you always wanted: less stress, longevity of staff, and consistent growth.
- Staff must feel in control of practice development. Your job is to hire for attitude, train for a skill level, give them the authority and permission to do their job, and get out of the way. What’s funny is that most of you will hire for skill level or number of years in a dental office, only to be disappointed again and again. Dentistry is a small consumer driven business. Our staff’s main job is to inspire people, not suck spit. Sucking spit and using a computer is just what takes place while they are doing what I hired them for. They were hired to escort my patients through our practice and their appointments in such a way as to create a bond with a patient who always shows up, pays us, and refers everyone they know. Some of my worst hires have been those who looked great on paper because of years in the profession, only to find out that they were constantly changing our successful systems back to the way that they did it in their previous office and had extremely poor people skills. Most of my best hires were staff with incredible people skills and the desire to learn. No preconceptions, no changing our systems, just a hard worker whose goal in life is to make our patients love us. It is this special esprit-de-corps that drives your culture. Don’t shortchange yourself for settling for mediocrity in staff and systems. In our offices, the staff had the last say on who we hired and when we hired them. They knew the business of dentistry and always seemed to understand who we should be looking for and how they would assimilate them into the team. They even made the decision on every associate and ultimate partner I had in my offices. It truly was a partnership in our team.
- No way to manipulate the plan. Our profession is littered with offices that started a bonus plan, set a goal, and then after the staff successfully completes the gauntlet, finds that the doctor changes the rules so that they get no bonus. Kind of like playing cards when you were a little kid with your older brother or sister. No matter how you think you understand the rules to win, you always lose because the older sibling changes the rules after the fact. You must think this through and make sure you never ever manipulate the outcome of your bonus plan. Integrity in everything you do is paramount. You need to model the actions and commitment you expect from your staff. There should not be a double standard where you show up late, leave early, and countermand every system you expect others to follow.
- Doctor is accountable as a team member. You are not above the law. You are one of the troops. I always was the first one there every morning and the last to leave in the evening. At the end of the day, I was taking out the trash and helping to suck that soapy solution through the vacuum lines. We were a team, and I held up my end of the deal. I never asked anyone to do something I had not done or wouldn’t do myself. If you let the team down, you need to apologize and do better. The yardstick you use to measure the performance of your team should be even more challenging for you. Leadership and enthusiasm filter down from the top, not up from the bottom. I always thought that if I was flying back from a speaking engagement, and the plane went down, they would go the funeral and be back the next hour producing just as much without me as they did with me. I was just a pair of hands and a member of the team. You can always tell when the staff embraces your bonus system and owns the process. When this happens, they push you to produce more, and they come up with ideas to manage the practice. They even self-police their ranks by not allowing mediocre employees to be hired or stay if they are not committed to our vision. They will even be upset when you take time off from the practice. A successful bonus system is built on a new commitment from the doctor. You must show up and deliver every day regardless of the noise and challenges. It is show time all day long. The staff will take their cue from you. Don’t start this process if you don’t have the energy and commitment to take it all the way.
You will notice that we have started pointing the finger at the owner doctor/leader and we continue that line in the next principles for a successful bonus system. Once again you can find foundational information in the free book, The Super General Dental Practice, in the chapter dealing with Doctor Leadership (Chapter 22).
- Doctor places the bonus ahead of his/her income. Remember the overhead chart in the chapter on Benchmarks and Overhead in The Super General Dental Practice? If not, go back and memorize it. You get everything below the line. Our bonus checks were always paid on the 10th of every month. Their normal checks were cut on the 1st and 15th of every month. That bonus check was paid separately so that the staff would understand that it represented an effort and skill that went beyond their salaries. That bonus check should be something you look forward to writing. We had a doctor from Chicago a few years back who went from $30,000/month, to giving a bonus and producing over $100,000/month. I got a call about 9 months into this super successful strategy from her: “This bonus thing is just not working at all. I had to pay $7,000 in bonuses last month. I’m paying way too much money to my staff,” she said. I asked her if she was following our bonus strategy exactly. I reminded her that while the amount she spent on her staff was increasing, the percentage of the collections dedicated to staff compensation was actually going down and lowering her overhead. She said: “Yes, but that is just way too much to pay a staff. They do not deserve it. None of the staffs I know make that much”. I asked if she was just paying 15% to the staff above their base or BAM number (Bare Ass Minimum). She said: “Yes”. I reminded her that while she was giving them 15%, she was adding 85% to her take home pay. Even though I tried to show her the insanity of removing the very strategy that tripled her production, stopped staff turnover, and dropped her overhead by 17%, she did away with the bonus. It only took 45 days for her production to drop back to about $40,000/month. The money you spend on a successful bonus system will be the best ROI (return on investment) you have ever made. Make sure there is no way you can mess this up.
- Doctor has the goal of having the highest paid staff in town. I modified it so that my staff was one of the highest paid staff the United States. I was proud that my staff helped me maintain a low 50% overhead while allowing them to make more than any staff I had ever seen. They were averaging an extra $3,000/month/employee in addition to an incredible base salary, 401K, health insurance, 2 weeks paid vacation, uniform allowance, continuing education, and a cruise or destination trip. The average staff was with us about 14.7 years. Most were with us for 20 plus years. That is a commitment and a sign of a healthy practice. Even with all that they earned, my overhead for anything pertaining to staff was 25% or less.
- Doctor is committed to all changes necessary to facilitate the bonus. This could include changing the hours, incorporating new systems, hiring a consultant, making a new level of commitment personally, freeing up some one’s future, or spending money on the facility. Get you a T-shirt that says: “Whatever it takes”. That is your new commitment. To reach the next level in practice productivity and profit, you must establish a new level of commitment on you and your staff’s part. You are where you want to be. If not, you would change. Every practice works at capacity. If you want a different result, you must do things differently. Take responsibility and make it happen. Excuses are overrated. My concern here is that you just read this and did not hear and understand the level of commitment that a successful bonus system requires. I am afraid that you think a bonus system will fix your failed strategies and you are approaching this as something to check off of your to do list. A bonus will never fix a broken practice, it is an adjunct to a good practice moving to greatness. A half-a__ attitude will get you what you are already getting. This is the tipping point for any change in your practice. It begins with you and without your “all in” commitment there will be no commitment from any of the staff.
Next, we tackle the most difficult areas of successful bonuses and successful dental practices. Don’t fall behind on reading the chapters in The Super General Dental Practice. Chapter 24 gives you another chance to figure this out. This will turn your practice around.
The Nuts and Bolts of the Bonus System
$65,000 MARCH $64,000
$65,000 APRIL $65,000
$53,000 MAY $50,000
$61,000 (AVG. PROD.) $59,667 (AVG. COL.)
Collection/Production must be at least 98% (Your goal should be 100+ %)
If not, we use collection average only (<97%)
If 98% or greater, we use the average of collection/production. We want to encourage production, but nothing counts except collections.
$120,667/2 = $60,333
-$50,000 Base or “BAM”
$10,333 X 15% = $1550/5 staff members = $310/each
Above, in outline form, you see the Summit Bonus System: A system that was used in my own office and has been presented to thousands of offices through the years. It has survived with little or no modification for over 35 years. Let me explain step-by-step what and how we arrive at the systems and how to apply the numbers. The bonus is paid each and every month on or about the 10th. As you can see, even though the bonus is paid monthly, it is averaged over 3 months. This has the effect of taking out the highs and lows in production and creating a more consistent bonus number. It also prevents staff, after seeing that this month is doing well, from deciding to have the last couple of day’s productive patients just pay when they come back next month. In this way, they get a running start on the next month. This violates our collection systems and is not what we want. Averaging the 3 months prevents the staff or the doctor from manipulating the system. In this example we will be paying a bonus for the month of May. We go back and add the Production and Collection of March, April, and May to get a 3-month total for each. We divide by 3 to get the average Production and Collection figures and then divide the average collection by the average production. We are trying to create a system that emphasizes a collection rate of 98% or greater. If fact, it was unusual for our collections (after any adjustments) to be less than 100%, and most times it was greater than 100% due to our pre-treatment payment discount. In this example the ratio of Collection/Production was greater than or equal to 98%. Because of this we will use the average of the sum of the Production plus Collections. If it had been less than 98%, we would have used only the Collection figure. You cannot pay money out for something you did not collect. The staff will understand, and your collection rate will climb dramatically. Once we have our final number, we subtract the base or BAM.
How do we arrive at your BAM or base? Remember we are shooting to lower our overhead to around 50%-60% (Note that the national average is 67%-75%). Let me give you a couple of ways that do not usually work but are an option. The base is the amount that must be exceeded before any bonus is paid. You either produce the base or do less and there is no bonus.
- If you double your operating overhead, you will have the exact amount that would give you a 50% overhead. Simple, but almost unobtainable in most offices. It is too great a difference between reality and the goal. It also would not motivate your staff if the amount of increase before bonus was so high as to be unimaginable for them to reach. NOTE: I find that profit sharing at amounts of less than $150 per month will not move team members to that ownership mentality.
- Figure out the overhead for staff compensation and multiply by 4. This would give you a compensation overhead percentage of 25% which would be your ideal goal. In most offices the main category of overhead that most struggle with is compensation. Get this in line and you are 75% of the way toward the perfect overhead. Once again admirable but when 90% of the offices are overstaffed or drastically under producing for the number of staff that they have, you are most likely creating a demoralizing base that the staff will find impossible to obtain. We must figure out a way to do this so that the base is obtainable, motivating and inspiring without dragging us down.
- We could figure out what the average production/collections per month were over the last year and add about 10% and use that as our base. They do not deserve a bonus if they do what they did last year so 2x adding about 10% to the average to take care of any unexpected expenses in the future, might make sense. If you think about it, this formula really does not take into account the benchmark and goal of our ideal overhead model. It is done without considering the goal of lowering your overhead to a particular overhead target percentage. It would affect different office overheads and challenges differently.
In an office with a very high compensation or overall overhead, we could figure the base this way but limit the difference between the base and amount above the base to a lower percentage. In other words, if the overhead was good, we would use the 15% number. If we had a very poor overhead, we might use maybe 5% for the first 5 or 10 thousand dollars over and then go to 7-10% for the next $10,000 and finally when we got the ideal production number, we would max out at 15%. We figure out a ramp to make this work by rewarding their progress but not killing our overhead. The percentage and dollar amount would be designed to pay bonus with the target overhead goal in mind. This sliding scale allows you to give a monetary bonus while inspiring staff and working toward a future production goal and overhead amount.
There you have it. We have laid out the matrix and foundation for a successful bonus system that you will not have to alter as you grow. I know there are a lot of questions so feel free to give me a call and we can cover each and every one of them. This is how you Summit.
Michael Abernathy, DDS