Salary VS. production

ASK THREE CONSULTANTS WHAT'S THE best way to compensate associates, and you'll get three different answers. Some say salary. Others stick by paying based on a percentage of production. I go for the best of both worlds with an approach I call the ProSal formula. With this approach, you pay associates based on a percentage of their production but offer a guaranteed base. So they can't make any less than the base, but they have an opportunity to make more—and an incentive to offer pets all the care they need and capture charges for the services and products they offer.

How ProSal works

Let's say your associate makes 21 percent of her production with a guaranteed base salary of $60,000. Under ProSal, you'd pay her twice a month, not every other week—so in those months when other employees may get three checks, she'd still only get two.

To determine the amount of the first payroll of the month, divide the guaranteed annual base of $60,000 by 24 pay periods to get $2,500. For the second payroll of the month, determine the doctor's production for the previous month, take 21 percent of that amount and subtract from that the $2,500 that's already been paid.

For example, Dr. Jones receives 21 percent of her production with a guaranteed base of $60,000. Her production during January was $31,000. In February, she received her first paycheck for $2,500 less payroll taxes. Her second check was for $4,010—or (21 percent x $31,000) - $2,500. (See Figure 1 for more.)

Associate know-how

Basically, the second paycheck trues up the employee to her production for the previous month. If it was a productive month, the second check will be more; if it wasn't a productive month, the check will be less. At year-end, if the associate didn't reach her guaranteed base, you'd pay the difference.

Why do I suggest paying this difference at year-end instead of monthly or quarterly? Because this method introduces a fear factor, which pushes associates to do well. The second check of the month isn't a set amount. It could be $5,000 or $0, depending on the previous month's production.

In fact, if you're making up the difference at the end of the year, then the associate's overcompensated; she's not generating enough revenue to justify her salary. Yet this rarely happens. I know hundreds of associates paid on ProSal, and only two didn't make their guaranteed base last year.

Now it's important to clarify that production isn't just about making more money. Generating income is about offering comprehensive services and charging for those services. When practitioners take the time to talk to the client about preventive procedures, dentistry, senior wellness programs, vaccinations, fecals, heartworm preventive, and so on, they'll generate income. Instead of just sending home an ear medication, your associate could do an ear cytology first. Is that good medicine? Yes. Will it generate more income? Absolutely.

Production and percentages

To pay using ProSal, you must decide how you'll define production. My definition for this purpose: fees generated and collected for services the associate's formally involved in delivering.

Figure 1 Paying with ProSal

So if during an outpatient visit your associate performs a comprehensive wellness exam, vaccinations, fecal, and heartworm check, and sells heartworm preventive and flea control, she'd get her percentage on all those products and services because they occurred during the visit. But if the client came back a week or two later to purchase more flea control or heartworm medication over the counter, the associate wouldn't get credit because she wasn't involved in the delivery of services. Exceptions to this rule are dentistry, laboratory, and radiology. In these cases, the doctor may not actually provide the service, but she'd receive credit because she must read, interpret, or oversee the procedure—she's involved in the delivery.

I know some consultants recommend different percentages depending upon whether it's a product or service. I've found that separating these numbers out isn't worth the trouble—it all averages out. The normal range of percentage-based compensation is 18 percent to 23 percent of a doctor's production. What determines this percentage is the benefit package the associate receives. The greater the benefits, the less the percentage should be; the less the benefits, the greater the percentage.

To figure the percentage you're paying now, divide the associate's total compensation by total production. (Visit www.vetecon.com and click on "Forms" to download a total compensation statement, if you don't have one. This form helps you determine the costs of employment, such as health insurance, continuing education, dues, license, retirement programs, and payroll taxes.) An associate usually receives 20 percent to 21 percent of his or her production with an average benefits package. But the total cost of employing an associate shouldn't exceed 25 percent of his or her production. If it does, the excess is coming out of your pocket.

Making the switch

The nice thing about ProSal is that it's a win-win arrangement for the owner and associate. If an associate receives a guaranteed base salary that is equal to what she's being paid now on a salary, then she can't make any less and she has every opportunity to make more. If she does make more, the practice is generating more income, and that's not bad either.

Large animal

Yet switching to a new compensation method can be daunting, especially when it's unfamiliar. Here are answers to owners' common questions and concerns about ProSal. (Associates: See the sidebar for answers to your common questions.)

1. How do I determine what base to offer? You want to keep the base realistic. If you set the goal too high, your associate might not meet or exceed the guarantee, which could lead to feelings of disappointment and failure. But setting the goal too low isn't good either, because the base wouldn't challenge your associate. To avoid these pitfalls, check the associate's previous annual production. For example, if your associate produced $250,000 and you decide to pay 21 percent of production, you can guarantee a base salary of $52,500.

If you don't have a previous production figure, base the salary on the practice's income and the associate's experience. A solo practitioner can expect a new associate to generate 40 percent of last year's income from professional services.

2. Why is the second check of the month not a fixed amount? The second check of the month is variable because the amount depends on how busy the practice is and how productive your associate is. If you paid the fixed payment twice a month, but paid more when the associate produced more, you'd likely pay the associate more than 21 percent of his or her production by the end of the year. Making the second check variable also rewards the comprehensive veterinarian, whose second check will usually be greater than the first.

3. Doesn't production-based compensation cause veterinarians to become too focused on the money? No. I've met associates who were too focused on money, but the cause wasn't the method of compensation—it was the veterinarians. They were immature, unprofessional doctors who had no business being in this profession. Most veterinarians would never provide a service or sell something just to generate more revenue—that's malpractice. In fact, the opposite's normally true. Veterinarians are more worried about the cost to the client than the benefit of the service or product to the patient. There's plenty of income to be generated if practitioners just do a good job medically and surgically and offer a full-service approach.

4. What if an associate doesn't make the guaranteed base at the end of the year? Houston we have a problem! First of all, you must pay the difference, because that's what you guaranteed. What this means, though, is that the associate hasn't generated enough income to warrant his or her salary. Some possible causes: The practice isn't busy enough to support another veterinarian, the doctor isn't charging for all services or isn't offering a full-service approach, or you need to update the practice's fee schedule. But these are just a few possible reasons. Whatever the cause, you need to take steps to resolve this issue and boost the doctor's production.

Throughout my career, I've spoken to hundreds of associate veterinarians and practice owners, and in the end, most of them agree that ProSal is the fairest method of compensation. Still don't believe me? Turn to page to see what one soon-to-be veterinarian says. I think you'll change your perspective.

Hospital Management Editor Mark Opperman is a certified veterinary practice manager and owner of VMC Inc., a veterinary consulting firm based in Evergreen, Colo. Send your comments or questions to: ve@advanstar.com

Mark Opperman