BONUS PLAN BASED ON A PERCENT OF COLLECTIONS

Several factors have worked together the past five to ten years to create a perfect storm that has buffeted the dental profession:  the economy has declined so that fewer consumers are seeking regular dental care, participation in managed care has increased thereby reducing practice income, and overhead has continued to require an ever-greater percentage of gross income.  Such factors mean most dentists, no matter how much they would like to do so, can no longer afford to give annual raises.  Bonus plans have gained favor as an alternate way to increase staff compensation so that the increase is fair for staff members and the practice as well.

The plan described below is based on the premise that staff compensation including wages, payroll taxes, and benefits is a set percentage of gross collections.  Note it is based on collections, not production---the office operates only on fees collected.

A survey of 2014 costs and profit by a dental practice management company I respect and depend upon to have true current data shows that staff compensation varied almost 10 percentage points--28.2% in General Practice; 27.7% in Pediatric Dentistry; 25.5% in Periodontics; 21.9% in orthodontics; 20.4% in Oral Surgery; and 19.2% in Orthodontics with no figures available for Prosthodontics.  For ease of calculation, I’ll use 22% of collections allotted for staff compensation in the following example.

            Collections:

                        April                           $75,000                                 

                        May                              69,350                

                        June                              72,800               

                                                         $217,150 total collections ÷ 3 months = $72,383/month

                                                                                    average collection

            Staff Compensation compared to Collections:

                        Actual staff compensation/month

                                    Dannie           $4,167

                                    Heidi                2,917

                                    Laura               2,500

                                    Melanie           3,125

                                    Khloe              2,333

                                                        $15,042

                        $15,042/month staff compensation for previous 3 months                                                                  Average collections/month for previous 3 months = $72,383

           

                        $15,042 ÷ $72,383 = 20.8% = actual staff compensation : collections        

                        Staff allotted compensation = 22% of collections

                       

            Bonus Calculation:

                        $72,383 x .22 = $15,924 for staff compensation

                                 $15,924 = 22% of collections = designated staff percentage

                                 -15,042 = actual staff compensation percentage

                                      $882   to be shared as monthly bonus

                         The incentive money may be divided among staff based on the number of                                   hours each works per month:

                        Dannie           154 hours

                        Heidi              138 hours

                        Laura              138 hours

                        Melanie          154 hours

                        Khloe               86 hours

                                               670 hours total

           

            $882 total money to be shared    =   $1.32 per hour worked

             670 total staff hours worked 

                        Dannie            154 hours x $1.32 = $203.28

                        Heidi               138 hours x $1.32 = $182.16

                        Laura              138 hours x $1.32 = $182.16

                        Melani            154 hours x $1.32 = $203.28

                        Khloe                  86 hours x 1.32 = $113.52

Include all staff members in the incentive plan; new staff members may participate upon completion of their training period.  Base calculations on collections, not production.  As production and collections increase, keep the percentage allotted for staff compensation constant until a new analysis of practice overhead percentages proves the percentage should be changed.  Pay bonuses with separate checks, apart from regular paychecks, so that the extra pay stands out, seems like a true bonus.

When to give raises? 

Increases to base salaries may be made periodically in order to stay commensurate with similar jobs in your community.  Since the bonus is a group reward for increased-production-and-therefore-increased-collections, recognition of an individual’s improved  job performance can be reflected through an increase in her/his base salary.  If no raises at all are given to base salaries year after year, staff members may feel unappreciated even if bonus dollars have been paid monthly.  Many dentists now evaluate base salaries every two to three years, varying dates of raises to individual staff members in order to avoid “blanket raises”.  “Blanket raises” given to all staff members at once seem automatic and, therefore, lose the value of expressing appreciation to an individual  team member for a job well done.