Compensation: Strike the right balance when paying your veterinarians

Only happy employees and team members can deliver excellent customer service, and remuneration packages do affect morale. With this in mind, take into consideration these quotes from the Harvard Business Review on Compensation:

"Managers who insist that the job won't get done right without rewards have failed to offer a convincing argument for behavioral manipulation. Promising a reward to someone who appears unmotivated is a bit like offering salt water to someone who is thirsty. Bribes in the workplace simply can't work." — Alfie Kohn

"A world without A's, praise, gold stars or incentives? No thank you Mr. Kohn. Communism was tried and it didn't work." — G. Bennett Stewart III

"Incentives are neither all good nor all bad. Although not the right answer in all cases, they can be highly effective motivational tools and should be employed under the appropriate circumstances." — Donita S. Wolters

Although academics continue the debate, out here on Main Street we know that compensation packages affect customer service, the business plan and, thus, the business' health. Depending on how you have them set up, compensation packages can enhance or injure your practice.

The trend in private veterinary practices is incentive-based pay, otherwise known as 100 percent production pay. But ask yourself this: How does compensation affect the morale and happiness of my workplace?

Although we have come to expect used- car sales personnel to work on commission — or incentivized pay — this pay concept is just as likely to hurt your practice as help it. Take the "spay" clinic, for example. Because more animals need to be spayed and neutered, you can offer incentives such as commissioned pay to encourage more of these "commodity" procedures without worrying about ethical issues. Yet, if you incentivize a special on gastric endoscopic examinations, you would anticipate a large percentage of those "spays and neuters" to need a pre-procedure endoscopic gastric assessment.

In a related situation, some human PAP smear pathologists are paid on "piece" work, i.e., the number of slides they review per day. Because they are trying to maximize their pay, the forced volume has led to many mistakes.

Between the extremes of set salary and 100 percent commissioned pay is a balance that will enable and nourish your practice. With the preceding ideas in mind, think about these four basic compensation plans, while keeping the checklist presented in Table 1 in mind.

Table1: Quick compensation checklist

Flat percent production pay scale

Pick a percentage that fits the clinic budget, let's say 25 percent. This will include vacation, benefits, retirement, continuing education and employer costs. You track the employee's production and pay the agreed upon percentage. The universal challenge with these pay systems is that veterinarians do not get rewarded for improved productivity. Improved productivity and patient care comes with expanded support staff duties and numbers. But the veterinarian guaranteed percentage cannibalizes the entire practice compensation budget.

Some practices cap support staff at 19 percent; yet, a veterinarian with a support staff budget of 30 percent can provide twice the services per veterinarian (but these veterinarians take a smaller percentage).

For some reason, folks on 100 percent commission believe that they should also be getting benefits, continuing education, health care and vacation. The commissioned concept means 100 percent commission: You generate income; you get paid. You can modify the plan so that 5 percent up-front goes to benefits and then 20 percent toward commission.

Straight hourly plus a benefits package

Remember that a benefits package will be about 20 percent of total pay, so for each $20 per hour, you must add $4 per hour. The pay then is $24 per hour. The employee "sees" only the 80 percent of the hourly rate and tends to discount the benefits value to the whole package.

These systems work nicely in most mature practice situations in which expanded growth and improved services are not a serious part of the business plan.

Straight salary, which includes benefits

A yearly salary divided by 52 weeks leads to the paycheck. These packages work well as long as you define the employee's duties and responsibilities in writing, take overtime into consideration and make allowances for the unexpected situations that happen in a practice.

The straight salary situation works nicely in teaching-specific situations because there is little accountability or responsibility to the underlying economic realities.

Hybrid pay systems

These types of plans are a winner for primary clinical medicine situations, even though they require more management communication and skills. These complex systems permit the greatest flexibility. They also inherently promote teamwork, encourage networking and promote the nurturing of clients, patients and staff.

The ground rules for hybrid pay systems are that incentives shall be 25 percent or less of the total pay package. More than 25 percent upsets the balance between security of appropriately recommended care to be delivered and "pressurized" selling. Such "up-selling" is not always in the best interest of the patient and sometimes flies in the face of "art of medicine" concepts. That said, consider a 75/25 compensation split so that basic compensation would be 75 percent set and 25 percent incentive.

The 75 percent set pay base can be salary or hourly. Hourly works well in a clinical-based situation because the schedule can vary widely and time is more of a pressing issue.

Salaried personnel tend to spend their time only on specific contracted duties, and employers tend to push the salaried personnel to accomplish more with ever-expanding hours. The best bet is to stick with an hourly model for the 75 percent base.

You can use a pay scale to assign the hourly rate. The following hourly template is a starting point: $20 per hour ($44,000 per year) $25 per hour ($55,000 per year) and up to $50 per hour ($110,000). You might vary the pay scale based on years of experience, specialized training and skills, specialized value to the practice and AVMA diplomate status.

You can be creative with the 25 percent incentive aspect of the compensation package, depending on your business niche. If the 25 percent of the total professional compensation were to become 5 percent of the veterinary gross per month, that number could be divided among the participating veterinarians by a variety of formulas, such as by part time, partial time and full time shares; by production; by years at the clinic; or by patients seen.

The 5 percent also could be broken into creating "pools" to be shared among the various in-house teams to create a consensus understanding.

Overview

Whatever you decide, it is usually a good idea to gain input about the payout system from the participants in the practice before implementing it. Here are some key considerations.

> Improve customer service to nurture practice growth by adding support staff to aid the veterinarian. Create a veterinary compensation package to reward improved productivity.

> The purpose of incentives in quality-driven practices is to promote teamwork. In these situations, the cornerstone value is time — time to talk, time to communicate, time at the "hand-off," time to network and time to dig into the more difficult and challenging cases. Do not let the veterinary compensation package shortcut these time needs.

> Be wary of the average client transaction (ACT). ACT tracks "piece work," and commissioned pay systems magnify the piece-work mentality. Excellent customer service takes time, and hybrid pay systems reward time spent.

> In the assessment of the quality practice, you must track services provided per patient annually instead of ACT numbers. Services provided per patient annually is also known as rabies ratios and rabies ratio targets.

Look for a future article on support staff compensation pay systems.

Dr. Riegger, Dipl. ABVP, is the chief medical officer at Northwest Animal Clinic Hospital and Specialty Practice. You can contact him at (505) 898-0407, e-mail him at Riegger@aol.com, or northwestanimalclinic.com. Find him on AVMA's NOAH as the practice management moderator. Order his books Management for Results and More Management for Results by calling (505) 898-1491.