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Win-win: Compensation strategies for a happy staff and healthy bottom line

As featured in The Journal of the Michigan Dental Association.

It’s hard to believe that less than a decade ago, Michigan’s unemployment rate was 15.2 percent—the highest in the nation—and the struggling auto companies GM and Chrysler were then cancelling the dental and vision benefits of retirees.

In 2008, dentists were rightly concerned about the immediate and long-term effects the burgeoning recession would have on their practice revenues, and—like everyone else—their employees were hoping to hang onto their jobs.

The good news is that Michigan’s unemployment rate has since dropped to 5.4 percent and the economy has rebounded to a point where people aren’t throwing their unopened 401(k) or IRA statements into a pile. In fact, employees who were once grateful to just hang onto their jobs are now expecting an annual bump in their paychecks.

Since salaries and benefits are the biggest outlay for any dental practice, how do you know if what your staff compensation matches – or is at least competitive with – that of your counterparts?

One of the best ways to find out is by referring to the Michigan Dental Association’s Staff Compensation survey. This biennial review is free to MDA members by email. It includes summary compensation and benefit information for dental auxiliary positions and dental associates based on a statewide survey. (One caveat: it must be ordered directly by an MDA member and not a staff person. With this data, you can discover whether you’re compensating your staff competitively enough compared to similar dental practices. You can also compare compensation rates between similarly located offices (those in southern Michigan, for example, or in more rural areas).

There are other sources to which you can refer. For instance, at Rehmann we also produce a compensation and benefits survey every two years for dental clients. The survey provides data on various positions in a dental practice, as well as figures on retirement plans, disability and health insurance, practice management software, some hygiene statistics, CPI data, and wage information by geographic location.

Salary isn’t everything

Even if you pay the going rate for the positions in your dental office, there are benefits you may want to provide in order to attract and retain the best staff possible. Finding staff members who are the right fit for your practice and your team’s dynamic is worth the effort. Studies show that turnover is costly. Even replacing one team member can cost thousands in time, effort and training. This can be especially true when recruiting hygienists, whose work is critical for a profitable practice.

Years ago, it was not uncommon for dental practice employees to be content with a paycheck and a flexible schedule. Back in the day when most employees either had a pension, a private savings plan, or both, a 401(k) or other defined retirement plan wasn’t an option. Also, dentists weren’t expected to offer a total compensation package to their employees that included retirement and health plans. More often than not, married employees got health coverage through their spouses.

Nowadays, health insurance and defined retirement plans are part of a compensation package offered to most prospective employees. However, if you’re just getting started in a practice, you may not be able to afford to offer both benefits. Instead, you can opt to pay a higher-than-average hourly wage and then, as the practice and profits grow, implement these benefits later.

There are various retirement plans you can offer to employees. For example, with few exceptions, you can offer your staff a plan to save for retirement through their salaries without any obligation to make an employer contribution. To remain competitive, though, most dentists who offer 401(k) retirement plans to employees do “match” a certain percentage of the employees’ contributions to their plan. And there are tax benefits for doing so.

You may also choose to make “discretionary” contributions to your employees’ defined retirement plans. Say you’ve had a very profitable year and would like to reward your hard-working employees for the part they played in making it so. You can determine an additional amount and contribute it their retirement accounts above and beyond an agreed-upon match. 

Since there are a variety of plans, ways to match and make discretionary contributions, as well as tax benefits to consider, it’s best to consult your business or tax advisor to find out what works best for your particular practice and its bottom line.

Health plans and other benefits

Some dental offices, especially small ones, are better off providing additional wages toward a health insurance benefit rather than choosing a specific plan for all employees. That’s because the Affordable Care Act makes choosing a health insurance plan much less flexible. Because the law is still so new, there are potential tax ramifications that pretty much require the advice of a financial or tax advisor. The MDA Health Plan may be a good option for many dentists.

Another thing that should be mentioned is that wages and potential benefits offered to one employee need not be the same offered to another one, even if the positions are the same.  It could be that one employee in an identical position is more efficient and more experienced at the job than another.  Variables like job expertise, efficiency and building patient relationships make an employee a valuable asset who should be compensated accordingly.

It’s worth pointing out that dentists typically provide an additional benefit by offering employees and their children services such as hygiene and fillings at no charge other than associated lab fees.

Another way to entice good employees is by setting up a continuing education fund for your practice. If the practice meets certain criteria (perhaps by meeting a production or new referral goal) then the dentist will put money into the fund to cover travel and other costs associated with continuing education. In my role as a financial advisor, I’ve seen cruises and trips to locations like Hawaii funded this way, as long as legitimate continuing education sessions or courses are part of the package.  Again, it’s always wise to check about any potential tax implications.

Dos and don’ts of bonuses and incentives

There are many ways a dental practice can incentivize positive performance that helps build the business. In my experience, though, some are better than others.

Do reward your staff with discretionary bonuses that can be made either to a team or individually.What makes this kind of bonus satisfying is that it’s an unanticipated, but very pleasant, surprise. Let’s say your staff performed in exemplary fashion when your practice implemented a new software program or covered for an unexpected personal leave of a staff member. Why not reward them for their efforts? Bonuses such as these do not set up an expectation that this will be an annual occurrence.

DON’T incorporate production and collection incentives into compensation plans. These might include:

  • Providing additional compensation to staff when the staff overhead percentage falls below a certain level;
  • Rewarding staff with a predetermined bonus amount for increases in production and/or collections during a particular period of time (monthly, quarterly, etc.);
  • Compensating staff with a fixed dollar amount for each new occurrence of achievements such asew patient referrals, successfully recommending additional services or meeting a daily production goal.

These types of programs can serve a purpose in the short run, but quickly wear out their welcome. The staff loses interest, for example, or they find themselves disappointed when bonuses are no longer a given once a goal is reached. From the dentist perspective, he or she can begin to as if extra payment is being made for work that’s part of the job.

I’ve also observed practices where the staff or dentist become frustrated due to “gaming the system” — perhaps, for example, by delaying deposits until a monthly production or collection goal can be met, or saving them to put toward the next month’s goal. Such plans can also serve to overcompensate staff for marginal improvements, or create friction between the staff and dentist when one or the other seems to have no control over the incentive goal (for instance, if the dentist goes on a vacation, it will significantly impact monthly production).

DO recognize merit and cost-of-living increases. I almost always recommend that dentists offer raises to staff members solely on a merit basis and to recognize inflation (based on cost-of-living or the Consumer Price Index) as part of annual performance reviews. Doing so sheds the effort required of montiroing the aforementioned bonus and incentive plans, puts everyone on a level playing field, and prevents any efforts to game the system, unless a staff member’s idea of gaming the system is to work expecially hard andearn a merit increase.

DON’T put an annual bonus plan in place. The major pitfall here is potentially raising staff expectations that this will happen every year regardless of how well the practice is doing.  Even if collections are down in a particular year or some other setback occurs that prevents you from being able to offer a bonus, your staff may still be demoralized.

DO reward exceptional performance. Let’s say you hire a staff member at a particular rate and he or she wildly exceeded your expectations. Why not consider a discretionary bonus award? When considering discretionary bonuses, look at special events or situations in your practice where your staff really stepped up to the plate. This is different from an annual merit increase because it can happen at any time of the year, and can further inspire top performance from a star player.

Other ways to create a happy, motivated staff

You have many tools at your disposal to increase staff satisfaction and decrease turnover, including:

  • Leading by example with an open, honest and positive management style;
  • Providing a clear career path to greater practice opportunities;
  • Cross-training your staff; and
  • Developing and mking readily available an employee handbook with formal job descriptions

Recognizing personal milestones such as birthdays, work anniversaries and marriages, often with noting fancier than pizza and a cake, goes a long way toward maintaining a happy staff. Some dentists I know treat their staff members to spa days or shopping trips. Some excursions like these may even be tax-deductible if they fit an IRS regulation for employee service awards.

I also recommend that dentists be involved enough with their staff to recognize how they’re getting along. Patients can tell if there’s tension among your staff in the same way that it’s easy to spot the couple that just had a horrendous fight before arriving at your dinner party, no matter how hard they try to comport themselves appropriately.

It should be easy to find something each of your staff members is doing well every day, and then let them know you’ve noticed and appreciated it. Maybe it’s the way your hygienist has calmed an anxious patient or how smoothly your front desk person handled a demanding patient. Just don’t hesitate to offer that pat on the back. It goes a long way.

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