I’ll be blunt. If you’re wondering whether you can afford the salary of your next employee, or how you can financially justify raises for your current team, you may not have a compensation system.
If you approach compensation in any of the following ways, you have a method, not a system.
- You mechanically give every employee an annual cost-of-living increase and hope for the best.
- You hide out until employees approach you for raises.
- You dole out raises piecemeal at each employee’s anniversary date.
- You use a bonus plan in lieu of raises and hope that will satisfy employees.
- You give new employees any salary they demand just to fill an opening.
When you don’t have a compensation system, you don’t understand your true payroll costs, and your salary decisions can be reactive, subjective, and unfair. Without a system, everyone approaches compensation gingerly and with a similar amount of dread.
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Tenets of a healthy compensation system
Like any other operating system, a compensation system should be perceived as fair, objective, and transparent. It should support employees’ financial, social, and emotional well-being and, crucially, it must be affordable for the practice.
A healthy compensation system is based on these beliefs:
- Compensation matches the attributes/skills of the employees you want to attract and retain. The way you compensate employees should reflect your values and business philosophy. For example, if your fees are in the 80% range, then your salary levels should be as well.
- Raises are linked to employee performance. This belief is controversial but also essential if you want to ensure that payroll is affordable and tied to employee efforts. To earn a raise, an employee must improve their contribution. Simply doing the same thing year after year may keep someone employed, but it doesn’t merit an increased investment from the practice. Raises should award growth, not longevity.
- Raises must be affordable for the practice. Due to inflation, in the last few years many dentists have given everyone a cost-of-living increase and justified it by increasing fees. But doing this every year is not sustainable. (I can introduce you to a long-term dental assistant who makes $90,000 a year.) In general, raises should be given only if the practice is profitable and an employee merits it by their performance.
- Affordability is determined by an increase in collections. A practice is defined as profitable if there is an increase in collections compared to the previous year and if the amount collected exceeds expenses. This means that raises are considered at the same time of year for everyone once the final collections number is in.
- Raises are drawn from a salary pool created from a portion of the collections increase. Dentists choose how much they want to allot toward a salary pool, with the rest of the collections increase reinvested in the practice.
- Employees understand the compensation system and how the dentist determines raises. Employees must know if the practice is profitable enough to offer raises and the standards used to determine whether an individual merits a raise. For this system to succeed, there must be frequent, individual feedback so that employees can achieve their performance goals. It also means that the team can track practice production and collection numbers.
Does your team expect annual raises?
It’s healthy and normal to want to make more money and be recognized for your performance. Partner with your employees and explain that if they want raises, they need to collaborate to ensure that they collect more this year than last year. This will generate a salary pool for the whole team. If they want a larger slice from that pool, they need to develop and achieve performance goals.
Here’s what happens when the team truly grasps this:
- They pay more attention to practice statistics.
- They comprehend (and are usually shocked) by the impact of reduced fees.
- They commit to helping the front desk team collect.
- They connect their daily actions to their compensation goals.
- They stop knocking on your door throughout the year to ask for raises.
- They begin to think and act like entrepreneurs.
Do job applicants want higher salaries than you expect?
Don’t do what this dentist did. I work with a dentist who felt backed into a corner and agreed to pay a newly hired hygienist $93 per hour. This meant she made more than $800 per day when benefits were factored in. Since hygiene salaries are ideally 30% of the hygienist’s production, she needed to produce $2,400 a day, which was $1,000 more than the other hygienists produced, and this wasn’t going to be achievable.
If an applicant or employee asks for more money than you can afford, use the request during the interview process. You can say things such as:
- Hmm, that’s interesting. What led you to ask for that amount?
- That salary is much higher than I pay the other hygienists. If I were to offer you that, what would you do in my practice to merit it?
- Hygiene salaries are typically about 30% of the hygienist’s production. Walk me through how you will produce the amount required to keep you within a healthy range norm.
- Aside from the salary, what are other reasons you would accept or not accept a position in our practice? What else are you looking for?
- How willing are you to consider a lower salary in lieu of other benefits?
These types of questions communicate that you want to pay employees fairly but that you also expect they’ll provide a return on your investment in them.
What are your true payroll costs?
Many dentists and employees equate compensation only with an hourly wage. When I ask dentists how much they spent in payroll taxes, most of them respond with wide-eyed confusion. (It’s generally 8% of an employee’s gross salary.) Dentists, like their employees, often underestimate the value and costs of benefits.
This means that when employees declare they’re underpaid, it may be because they don’t appreciate benefits such as the dollar value of their dental treatment at the practice, sick and vacation benefits, health benefits, retirement benefits, CE classes and certifications, holiday bonuses or gifts, or uniforms.
Interestingly, employees might not know the value of these benefits because the dentist doesn’t either. This underestimation leads to all sorts of misperceptions and problems.
The Dental Wage Planner tool
Ideally, dentists show employees the value of their entire compensation package during annual salary review conversations. I developed a Dental Wage Planner tool to help dentists:
- Identify the total payroll costs of every employee, including taxes and benefits.
- Detect any compensation inequities between employees.
- Forecast the financial impact of new staff or of raises, and compare this to production and collection.
- Experiment with different salary scenarios to ensure affordability.
To assist you on your quest to develop a healthy compensation system, I’m happy to send the Dental Wage Planner to any reader who requests it. Knowing and communicating each employee’s total compensation is essential; but remember, that compensation is not just about money. A robust compensation system includes all the ways an employee is rewarded and recognized.
Editor's note: This article appeared in the February 2024 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.
Sharyn Weiss, MA, is the CEO at Weiss Practice Enhancement, a practice management firm serving dentists nationwide. She has worked with hundreds of dentists during the last 20+ years with a focus on patient and team motivation. Her mission is to help dentists become confident leaders of a profitable practice. To get the Dental Wage Planner too, visit weisspractice.com/dental-wage-planner/ or contact Sharyn at [email protected].
