Transitions Roundtable

We ask two experts the same question to give you two different answers on a complex issue

QUESTION

“My associate asked me to increase her commission again. I have done so several times over the last few years, and cannot continue to provide increases. Is there another way to reward my associate?”

Gary Schaub

Associate compensation can be a very complex situation. It may help to step back and look at the overall goals that you and your practice have for your associate.

The first goal to determine should be, “What is the long-term result I expect from my associate?” If the role of the associate is to provide additional production for a very busy practice, or time for you to spend outside of the practice, then the compensation package should be designed as if the associate will always be an employee of the practice.

However, if the associate is being groomed to join the practice as a partner or to buy you out for a future retirement, then the compensation package needs to be oriented that way. For example, in lieu of an increase in the commission, perhaps an additional amount could be set aside as a future buy-in pot of money. Thus, if an additional 5% of her commission was set aside, then in a few years there might be $25-50,000 that she could use as a down payment on the buy-in or buy-out. This set-aside would only be available for purchasing your practice, and it is an excellent incentive for the associate to become an equity owner. If the associate leaves the practice, then the funds would be returned to the practice.

If no future buy-in or buy-out is contemplated, then we need to take a closer look at the compensation package. For example, a typical associate commission is 25-32% of associate production. Through six-month or annual patient fee increases, plus growth in the practice production, the associate compensation should automatically increase. This is with no changes in the associate commission rate.

If you are a general dentist, is your associate doing a broad range of procedures, or does she only concentrate on operative procedures rather than a mix of crown and bridge, implant prosthetics, etc.? Changing the mix could improve her compensation without changing the rate.

Can she offer additional clinical procedures that the practice does not do now, such as endodontic, implant placement, orthodontics, or oral surgery? Helping fund her Continuing Education for adding new procedures could increase both her income and your income.

Gary Schaub is the founder of HELP Appraisals & Sales Inc., a dental and medical appraisal and brokerage firm in Portland, Ore. He is a member of American Dental Sales and can be reached at (503) 223-4357.

QUESTION

“My associate asked me to increase her commission again. I have done so several times over the last few years, and cannot continue to provide increases. Is there another way to reward my associate?”

Tom Snyder, DMD, MBA

A good way to “incentivize” your associate is to offer a bonus program. Rewarding an associate for increasing performance is similar to you increasing your profit if you’ve had a great year. Our associate bonus program uses a breakeven analysis to set bonus goals. This approach will assure that you maintain your associate profit margin at a satisfactory level. To determine your breakeven point, you need to make an estimate of your associate’s estimated compensation based on his or her prior year’s performance. Add to that figure the salaries of all staff members who supported your associate, then divide that combined total of compensation by the associate’s variable expense ratio minus 1. The variable expense ratio is the sum of the practice’s overhead ratios for dental supplies, lab expenses, and office supplies. Once this breakeven point is determined, you can then set proper targets. For example, let’s assume that your breakeven point for the quarter for your associate was $60,000. Assume the associate’s collections for that period were $85,000. Therefore, the associate exceeded the quarterly breakeven point by $25,000. Next multiply this excess by 20%. In this example, the associate’s bonus will be $5,000. We usually start the bonus percentage at 20%. We recommend that the associate bonus be paid on a quarterly basis and be updated annually to reflect any increase in costs as well as any fee increases. A bonus program can be a great incentive for your associate while both you and the associate will benefit.

Tom Snyder, DMD, MBA, is the director of transition services for The Snyder Group, a division of Henry Schein. He can be reached at (800) 988-5674 or [email protected].