Has anyone ever participated in a bonus system in a dental office that did the exact opposite of motivating you? A bonus is extra income ‒ perhaps even unexpected ‒ you don’t count on for your monthly personal budgeting.
A bonus is typically designed to complement your base pay, reward you for reaching certain milestones or achievements, or as a means of profit-sharing from the owner. It should not be used in place of annual compensation increases based on the area’s cost of living and wages.
So how could it go wrong in dental establishments? It can and does go wrong quickly when not structured properly. There are a number of bonus options dental employers can choose from as a means to reward their dental hygiene employees. Selecting the right system is critical for motivation. All bonus structures should incorporate the following:
- Encourage dental practice growth
- Reward exceptional performance
- Motivate the dental team to attain goals
- Protect the practice’s philosophy of care
- Ultimately benefit patients, the team, and the practice
Guidelines for Successful Incentive Programs
The first step is to determine the goal of the incentive program. If a dental practice is struggling to gain new patients, for example, the program may be focused heavily on increasing this metric. If the objective is to provide profit-sharing that allows the owner to share profits when the profit margin reaches a certain benchmark, a different program is set in motion.
Regardless of which system is selected, the reward should be significant enough to be meaningful to employees while not exceeding the overhead practice goals. The hygienist will need to trust the owner dentist to create a meaningful bonus structure. The structure of the bonus program needs to be transparent and routinely reviewed so that the hygienist and other team members can monitor and adjust their performance in order to reach the goal
Most bonus systems are successfully communicated and even paid out on a quarterly basis. Waiting until year-end can result in losing momentum throughout the year. If a profit-sharing goal is selected, it needs to be defined by collections, not production, and account for months with more/fewer working days and increases/decreases in staff. For example, February has fewer working days than October; calculating the goal based on the number of days per month makes the goal more attainable. The goal would also need to be adjusted if a hygienist quits, resulting in fewer providers.
A bonus system should also protect the philosophy of care of the practice. An incentive based on increasing non-surgical periodontal therapy could push the dental practice into a more aggressive patient care approach than intended. The philosophy of care is most protected in a net income approach without selecting a narrow criteria that might create a heavier focus on a single parameter than intended.
The hygienist, as well as the rest of the team, must be able to understand the incentive program and how and when it is paid out. It should be easily and accurately measured; without this transparency, it can be difficult to institute an incentive program that fully motivates the hygienist because there will be constant uncertainties and questions over the results.
If individual goals are made, they need to match job descriptions, be measurable, and be within the control of the employee. A metric for a hygienist to not have any last-minute cancellations in his/her schedule is only partly within his/her control, making that an ineffective goal. An argument could be made that the hygienist can reduce future no-show appointments by creating enough value in that return appointment for the patient. However, other systems highly impact scheduling, such as the confirmation system, short call lists that can be actively used to fill those openings and a highly skilled administrative team that has a focus on keeping the schedule full. Rewarding individual teams (administrative, hygiene, and assistant teams) on individual criteria dictates that the criteria are well planned and equally easy or difficult to reach.
Team morale can suffer if one team consistently reaches the bonus while the other two don’t. These examples highlight the need to select the correct incentive structure to avoid incorporating a well-meaning bonus system that, unfortunately, demotivates the team.
Four Effective Incentive Program Options
- Net Income ‒ An increase in revenue is offset by an increase in overhead ‒ a losing proposition for the owner. A net income incentive system factors this potential offset. Using the profit-and-loss statement, calculate the total practice overhead. This should not include the doctor’s or associate’s salary or benefits, depreciation, or amortization as part of the overhead. Hygiene wages must be competitive with the market. Dentist/owner wages are determined by the dentist and may or may not be competitive with the market, which is why the calculation removes their compensation. The profit earned by a dental practice is determined by deducting direct expenses from collections for treatment provided. Depreciation and amortization are not direct expenses and therefore left out of the formula for the net income bonus.
Set a reasonable goal based on healthy parameters for the practice profit margin, generally between 30% to 40%. When the practice realizes an increase in net income, a percentage of that increase forms an incentive pool to be shared with the staff. This system is effectively managed on a quarterly basis. For example, if the goal is to achieve a 40% net profit and the practice reached 42% net, the additional 2% goes into a bonus pool for distribution. It is most often distributed based on quarterly earnings for each employee. In this example, each employee would earn a 2% bonus on the quarterly earnings in which the calculation was made.
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- Staff overhead ‒ Select a reasonable goal for total staff overhead as a percentage of collections. Healthy ranges for staff overhead are 20% to 30% (depending on managed care participations and fee structure) and include wages, payroll taxes, and health insurance. It does not include retirement benefits or doctor/associate salary or benefits.
Healthy benchmarks vary from one consulting firm to another. Keep in mind most of the variance is due to what they include in staff overhead. Suppose the owner doctor decides to include additional benefits in staff overhead (such as a retirement contribution). In that case, the percentage for the goal has to shift to account for that decision, or the goal to offer a bonus substantial enough to motivate the team deteriorates.
Simple systems will set a healthy range at 20% to 25% but only include staff wages (not payroll taxes or health insurance). Practices with a higher level of managed care tend to be on the higher end of staff overhead costs unless systems are in place to reduce this overhead, such as an assisted hygiene model of care. This is due to a higher rate of write-offs for insurance participation.
Calculate the actual staff overhead each quarter. If the staff overhead is lower than the goal set, the difference creates an incentive pool. It is generally paid out in a similar fashion to the net income program listed above.
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- Individual incentive programs ‒ This system is based on performance-related goals rather than profit-related goals. Careful consideration must be made to select performance goals to increase net profit and make the system viable. An example of this type of system would be to determine an hourly production goal for a hygienist, aging accounts receivable goal for the insurance coordinator, a scheduling goal for the scheduling coordinator, and post-op calls goal for the dental assistants.
These programs work well when set up in a tiered system. Several parameters are measured, and the employee has the opportunity to meet one, two, or three separate goals. Ideally, the hygienist takes part in the discussion when selecting the goals that will make up the bonus structure.
It is generally paid out based on the parameter met and doesn’t fluctuate based on compensation. For example, if all team members met all parameters, the payout is the same; this would be a much higher percentage of compensation for lower compensated employees.
This system allows a partial incentive when a couple, but not all, of the parameters are met, whereas the net income and staff overhead systems are “all or nothing” programs. Sample goals could be based on:
- Treatment case acceptance rates
- Reappointments for all patients in the practice
- Hygiene pre-appointment rates (scheduled for recare in advance)
- Same-day treatment added to the schedule
- Accounts receivable aging
- Hourly production goals
- New patient goals
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- Random incentives ‒ This is less of a program and more of a “surprise” incentive system. The ultimate goal is to motivate and reward team members when the practice reaches growth goals. Behavioral studies suggest random rewards are enticing. Who doesn’t like a surprise reward or gift? Casinos’ entire business models are based on random rewards for continued behavior.
This type of system can be especially effective for startup practices that are operating outside of healthy benchmarks as they build a patient base in the first year or two. Setting a goal based on healthy benchmarks for an established practice can set up a startup practice to create goals that are not attainable for staff, creating a disincentive system.
Random incentives also remain in the owner’s complete discretion based on their individual goals that may shift rapidly and available cash flow. For example, the owner may provide an incentive to the staff when the patient base reaches 500, the new patient numbers were particularly high one month, or a team member who went above and beyond in their duties.
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A popular bonus structure, the fishbowl, where cash is placed in a fishbowl when goals are met, and employees randomly draw out a monetary note (could be $20, $50, or $100) is similar to a random incentive in the sense the employee doesn’t know what their reward will be but can create dissatisfaction over time as the reward is not based on individual performance.
Once an incentive program is set in motion, it can be hard to change. Best practices would be to stick to the system selected for the year and evaluate at that time to make sure it is still meeting the ever-changing needs of the dental practice. If the system is not creating the desired motivation for the team, select something different for the next year.
Each system listed ‒ net income, staff overhead, individual incentives, and random incentives ‒ can both work and fail miserably based on the individual practice and employees. The net income system, for example, only works if the owner is communicative and updates employees throughout the quarter as to how well the practice is performing. If this step isn’t done, it basically becomes a random incentive since no one understands the structure and may even question the numbers. When done well, the net income structure is a highly effective means to reward everyone on the team.
This author would love to hear about the bonus structures ‒ both successful and failed ‒ used in your dental practices!
