Please Note: The following article is intended to provide tips and guidelines for the practice owner who wishes to establish a team bonus. Many practice owners favor such a program in their practices, while other practice owners do not find bonus programs to be effective. Each practice owner must make the individual decision toward implementation of such a program, and CDA does not promote one philosophy over another.
It is important to note that there can be negative implications if the team bonus is implemented but not managed properly. The following article provides information to guide the practice owner toward establishing a successful bonus program if desired.
A team bonus is generally designed as a regular bonus program distributed to the dental team when specified practice goals are met or exceeded. The team bonus program is different from a one-time bonus that may be given around the holidays or at the time performance evaluations are conducted. There are many reasons why a practice owner would consider implementing a bonus structure within the practice, and it is important that the dental team understand your particular reasons. When facing the question of whether to establish a bonus program within your practice, first identify your reasons for wanting such a program. Some possible reasons for a team bonus include:
- To motivate the dental team to meet or exceed specified practice goals.
- To provide supplemental income to the dental team when raises are not possible or staff members have reached salary capacity.
- To help teach the dental team how each member contributes to the practice growth and well-being.
- To emphasize a collaborative work environment by establishing a common goal.
- To set tangible benchmarks in which to measure team and individual performance within the practice.
Once you, as the practice owner, have determined the reasons why a bonus program will enhance your practice, the next step is to determine whether your practice is ready. It is common for a practice owner to desire a bonus program for any of the reasons listed above, but not all practices are at a point where the bonus program will be successful. Bonus programs are most successful when the following is true in a dental practice:
There is a practice vision or strategic plan in which the bonus program goals are based. In order for the team to be motivated to reach bonus program goals, each team member should understand how he/she contributes to the "big picture."
Job descriptions and responsibilities are clearly defined, understood and followed by the dental team. If there are job responsibility gaps or too much crossover, a team bonus program will either create larger performance gaps or increase the level of inefficiency.
As a best practice, performance evaluations should be held on a regular basis (at least once a year). Throughout the year, staff members need to receive regular constructive feedback in order to understand how they can improve and in turn contribute to the practice's growth. Without performance evaluations and specific feedback on areas of improvement, staff members will not know how to help the practice achieve the bonus program benchmarks.
A bonus program is best suited for the practice owner that believes that they have a dental team that functions well together and all are in the appropriate positions that maximize their strengths. If there are issues of staff accountability or negativity, a team bonus program will only enhance these concerns.
Achieving the above is not easy, but in order for a bonus program to accomplish its' intended goals, the team must be functional, respectful and understand the practice vision.
Once you have decided your team is ready for a bonus program, here is some advice for structuring your program:
Keep it simple
Make the program easy for every team member to understand. Base the program on goals in which every team member can relate and measure. If the program becomes too complicated or is based on too many statistics or numbers, the team will lose interest. The bonus program should be calculated based on statistics that measure the financial growth of the practice.
Base the bonus on an average of production and collections
The most important statistic in which to base a bonus program is practice collections, as it tells us how much money is actually coming into the practice. Secondarily, it is important to factor in practice production, as it is the source of practice collections. Be sure the production figure used in the calculation is adjusted production (after all write-offs and adjustments have been made). If there is a significant discrepancy between collections and adjusted production, the practice owner should first evaluate the reason(s) for the discrepancy. Once the reason for the discrepancy has been evaluated or rectified, and there remains a significant discrepancy, the practice should evaluate the discrepancy and consider basing the bonus solely on collections.
Allow for monthly fluctuations
Collections and production month to month will inevitably vary. Although it is important to have monthly goals, do not pay the bonus on a single month of statistics. We all know that some months collections and production can be high due to surges in practice activity. Conversely, other months can be slower. If the bonus is given each month, some months the staff would receive an unreasonably high bonus and some months it may be difficult to cover the practice's basic expenses. Instead of creating these fluctuations, average monthly statistics over three- or four-month periods. Spreading the bonus out over several months allows balance for the expected collection and production highs and lows.
Know your break-even number
Before determining the collections and production numbers that must be reached in order to offer a bonus, you must know your break-even number – in other words, the number you need to reach to cover all practice expenses. If provider salaries vary based on production, take an average of the monthly salaries to build all payroll expenses into your break-even number.
Offer the bonus when goals are exceeded
Many practice owners make the mistake of offering a bonus when the collections and production numbers are met. However, the idea of a bonus is for it to be based on exceeding the numbers, not simply meeting them. Here's an example of how the calculation could work:
- Sample collections "break-even" figure for a four-month period: $300,000
- This means the practice has at least met its' break-even number needed to cover all practice expenses, including the provider(s)' salaries. Reaching this number does not offer the team a bonus.
- Sample average collections/production bonus goal needed for a four-month period: $315,000
- This number is the bonus goal baseline. In this example, the team must exceed this figure to get a bonus. It is not necessary to set the collections/production bonus goal so far above the collections "break-even" number, but it is nice to have some cushion between the numbers in case other investments need to be made or unexpected expenses arise.
- Sample actual average collections/production for a four-month period: $325,000
- This means the team has exceeded the collections/production goal needed and will be offered a bonus distribution.
In this example, the team has exceeded the collections/production bonus goal by $10,000. The practice owner needs to decide how much of the $10,000 "pool of money" will be distributed to the team as a bonus. Much of this will depend on how aggressive the practice sets the collection/production goals, the number of staff receiving the bonus, and how this bonus dollar amount figures into the team's total compensation package. For example, if the practice regularly exceeds the collections/production bonus goal and there are five staff who receive the bonus every four months, the practice owner needs to determine if the entire "pool of money" should go to the staff ($2,000/staff member, $500/month of the bonus time frame) or if a percentage goes to the staff and the remaining amount gets reinvested back into the practice (let's say 50 percent to the staff, or $1,000/staff member, $250/month of the bonus time frame).
A team bonus should go to the entire team
Often practice owners will exclude certain staff from the bonus program, such as hygienists who receive a higher salary than the rest of the team. A team bonus should be offered to the entire team if it is to successfully serve as a motivator for the team to be cohesive and work together. If the practice has part-time staff, the bonus distribution should be adjusted to reflect the part-time hours. Some practice owners distribute the bonus dollars based on hours worked for each employee or simply have one bonus percentage for full-time staff and another for part-time staff. Be sure to clearly define in your employee manual eligibility requirements for full-time, part-time and on-leave employees so there is no confusion when it comes to the bonus distribution.
All team members should know how they contribute
Many practice owners and staff wonder, "How does the entire team contribute to collections?" It can be fairly evident how the front office staff contributes to collections, but what about the clinical team? The clinical staff contributes to production, which in turn provides the money produced for the front office staff to collect. Without production, there wouldn't be collections. If the clinical team is caring for and building trust with patients, if the dentistry is being diagnosed, if the treatment plans are being accepted, if the patients are being scheduled, if the financial protocols are being followed and finally, if the customer service is being upheld consistently by all team members, then collections should reflect all staff members' contributions. The same argument can be applied to the front office staff when it comes to production – the front office staff manages the schedule, which in turn contributes to production. Tell each team member how he/she contributes to collections and production so each person understands they are a link in the chain and if one link is missing, the chain would be broken.
A bonus is a form of wages
There are generally two types of bonuses — discretionary bonuses and nondiscretionary bonuses, which the Department of Industrial Relations (DIR) defines as follows:
- A discretionary bonus is generally "in the form of a gratuity where there is no promise for their payment, for example, a holiday bonus at the end of the year."
- A nondiscretionary bonus "may be a contractually required payment where a promise is made that a bonus will be paid in return for a specific result, such as exceeding a minimum sales figure or piece quota or as an inducement to remain in the employ of the employer for a certain period of time."
- An employer must keep track of the amount awarded to each employee. For purposes of unemployment insurance, employers must keep payroll records for all employees for at least four years, and those records must include payments such as bonuses or gifts, the nature of the payments and the period of employment covered by each payment.
- In addition, nondiscretionary bonuses must be factored into the regular rate of pay for the purpose of overtime calculations for nonexempt (hourly) employees. Nondiscretionary bonuses also give rise to issues of final pay at times of termination.
- Employers also should remember that what they may think of as a "discretionary bonus" can turn into an implied contract to pay a bonus, and that the regular payment of a bonus in past years based on objective criteria may be considered an implied contract for compensation. For that reason, it is recommended that you have a disclaimer in your bonus program explanation that states that bonuses that have been paid in the past do not guarantee that bonuses will be paid in the future, nor does it guarantee that a bonus program will be continued into another year.
Discuss the bonus regularly
Measuring and discussing methods to achieve the bonus goals should be part of the regular practice meeting structure. Whether the practice discusses the bonus program at each morning meeting or chooses to make it a monthly meeting agenda item is up to the individual practice owner. When leading this discussion, encourage the group to contribute their thoughts on how the practice can improve collections to reach the bonus goal. After all, it's a team bonus program and should reflect the team's ideas.
The team must be lead and encouraged to reach the bonus program goals on a consistent and regular basis. If the practice owner does not demonstrate enthusiasm for the bonus program, then the bonus program will lose its luster and become more of a demotivator over time.
Make it fun
Talk about more than the numbers with the staff. Keep it light, fun and positive. The staff will pattern the attitude of the practice leader, so if you become too serious about the numbers, the bonus program will be more of a stress than it may be worth. When the bonus goal is not met, remind the staff that it's OK because that number is intended to be a stretch and isn't expected to be met each time.