The details of my Bonus/Incentive Plan

Ten days ago I wrote about the underlying philosophy of starting a bonus/incentive plan in a dental practice. Here are the details.

Hold a team meeting to announce you are introducing a plan that will allow all staff members to earn more money based on increases in production and collection. This plan is not for eternity. I suggest that you commit to nine months, and then re-evaluate at the discretion of the doctor.

The plan rewards the staff as a whole – it is not an individualized bonus. The mission is to create a team working well together and not to create animosity or an atmosphere of competitiveness if one individual receives a bonus and another doesn’t. Plus it is often difficult to measure individual performance for non-income producing staff like dental assistants.

Major point – the plan is NOT based on profitability. It is based only on production and collections because these are the areas that staff can influence. “Profitability” decisions are not decisions that staff are involved in, nor do we want them to be involved. Profitability can only be controlled by the doctor. For example: the team busts their butts to collect and produce — performance data goes way up. But the doctor decides to perhaps hire another staff member, or buy a necessary -in his mind- piece of equipment, or invest in some new technology. He reports to his staff that his  “profitability” is down or remains the same because of increased costs. You know that argument doesn’t play very well! In their mind, the practice would have been profitable if the doctor hadn’t spent any money. Then there would be money for a bonus for them. Therefore I feel you incentivize staff by measuring only what they can control.

The bonus plan is set up to be paid monthly — not quarterly. You want to have a measurable and immediate cause-and-effect relationship between increased performance and getting a reward.

The starting point — the entry-level to begin comparing performance — is to   use an average of the last four months of production and collection totals. I weight collections twice as much as production because you can’t pay a bonus with receivables!  The formula is P+C+C divided by 3. So if we are going to start the bonus program in May, the target number to exceed will be calculated by adding up the formula for January through April and then divide by four. That number is the goal — the target — to exceed. That number represents what is currently happening in your practice and what you want to improve. When you have hit a plateau, you don’t pay a bonus for maintaining current levels.

For every dollar collected over that number, the staff gets paid twenty cents. So as an example, if the office collected $5000 more than the target — and there were five full-time employees — then this staff would split $1000. Full-time and part-time employees will get pro rata shares of the bonus money based on the hours they worked. The bonus money is paid in the first pay period following the end of the month and is taxable to the employee.

We will be using a four month rolling average. So the target for June will be an average of the last four months (February through May). As performance hopefully increases as a result of the incentives, the target number will be increasing and is a bit more difficult to achieve going forward. Very important — if the office does not hit the target, you cannot pay a bonus for the following month until that shortfall is met.

The target number is a known entity on day one of the new month. I advise doing an update every 10 days or so to let staff know where they stand. You can post the updates in the staff lounge. You will be amazed at how everyone perks up and tries harder when the goal is in sight.

So I hope you will give this a try — you have nothing to lose. You only pay a bonus when performance data improves. Please feel free to call me if you have any questions about the mechanics.

PS — Another advantage — in my experience, the team seems to police itself. Ineffective or  lazy team members get the word from the hard-working folks that they better step it up. How nice that you the doctor don’t have to play nursemaid any longer!