Creating A Bonus Program For Your Entire Staff
Based on the feedback, the subject of staff bonuses is still a hot topic for OD practice owners.
Let’s say you have now decided that you want to get away from spiffing activities, but you still want to do something to incentivize your whole staff. What can you do?
My advice is to build your employee incentive plan around the following question:
“What Do You Want To Achieve Financially In Your Practice?”
I think we can agree that from a financial standpoint, most practice owners want to accomplish three things in 2009:
1. Grow your collected gross revenues (not easy in a recession).
2. Lower, or at least maintain, your expenses.
3. And, of course, increase your net income.
Creating A Bonus System That Focuses On The End Result
To decide what you really want to happen in your practice from a financial standpoint, let’s start by looking at the major revenue and expense categories for a dispensing practice:
*Gross Income 100% Of Annual Collected Revenues
*Cost Of Goods 27-33% of gross
Staff Salaries 18-22% of gross
Patient Care Equipment 3-5% of gross
Occupancy Costs 5-8% of gross
Marketing 1-2% of gross
*General Office Overhead 6-8% of gross
Practice Net 31% is average
Out of these eight components, I believe your staff has a strong level of influence on just these four: Gross, COGS, GOO and Net.
We are going to leave Net Income out of the incentive plan because that is a number few ODs want to share with their staff.
Share The Key Result Areas With Your Staff
Here are the three Key Result Areas I feel you can comfortably discuss with your staff and why they have such an impact on them.
*Gross Income: It’s all about getting patients in the door and treating them well. Your staff plays a large role in that effort.
*Cost Of Goods: Because your staff does most of the ordering and manages the inventory. They might also be in charge of pricing many products.
*General Office Overhead: This is the category for the loose ends that really don’t fit anywhere else.
You don’t need to bonus performance on the rest of your overhead expenses (Staff Salaries, Equipment, Rent and Marketing) because those are really controlled by the practice owner.
Involve Your Staff When You Set Practice Goals
If you agree with my logic, the next step is to establish specific goals for your practice based on the three categories your staff has a strong influence on.
For example, let's say that Dr. Seers is a solo practice owner with the following results in 2008:
Collected Gross Income $575,000
Cost Of Goods 32% of gross revenue
General Office Overhead 8% of gross revenue
After a detailed meeting to review their financial results for 2008 and what they should produce in revenue and overhead expenses for 2009, Dr. Seers and his staff agree on the following goals:
Collected Gross Income $600,000 (4.3% increase)
Cost Of Goods 30% of gross revenue
General Office Overhead 7% of gross revenue
Make Staff Bonuses Contingent On Achieving Your Goals
After getting his staff’s buy-in, Dr. Seers then assigns ‘budget responsibility’ to his office manager and the staff members who reported to her for achieving those results.
Don’t worry about ‘handing off’ budget responsibility to your staff.
Most employees will embrace the opportunity to get more involved in the practice and welcome the challenge of meeting your financial goals. Knowing their success is based on your success gives them a strong sense of ownership.
Create A Bonus Pool For Meeting Your Goals
Their understanding as a team is that Dr. Seers will set aside 1% of collected gross revenues for staff bonuses, if they meet their agreed upon financial objectives.
In this case, 1% of 600,000 = $6,000 that will be split among three full-time and one-part time employee. If they gross $610,000 and meet their other criteria, the bonus pool will = $6,100.
Assuming they hit their numbers, $6,000 ÷ 3.5 = $1,714 for each full-timer and $857 for the part-timer. You, of course, can slice and dice that anyway you want to.
My recommendation is to bonus each full-time employee equally, and bonus part-time employees on a prorated basis.
You can address the issues of seniority, advanced training and superior performance by an individual in their annual salary review.
Set Quarterly Goals
As a practical matter, you want to break your financial objectives into quarterly increments. You are going to get much more bang for the buck if staff bonuses come every three months instead of once a year.
To do that, Dr. Seers would prorate his Gross Revenue goals based on the previous year. It might look something like this:
Quarter 1 2009: $140,000
Quarter 2 2009: $150,000
Quarter 3 2009: $165,000
Quarter 4 2009: $145,000
Assuming he hit all his goals at the end of the March, 2009:
1. Gross Revenues of $140,000
2. Cost Of Goods of 30%
3. General Office Overhead of 7%
Dr. Seers’ staff would then split 1% of $140,000: $1,400 ÷ 3.5 employees = $400 for each full-time staff member and $200 for the part-timer. Write the bonus checks as soon as the final numbers are in each quarter.
The bonus period for Q1 2009 would end on March 31, and the bonus cycle for Q2 would then begin on April 1, with the previously announced revenue and overhead targets.
Reward Results, Not Behavior
Yes, spiffs will definitely encourage certain types of behavior.
But even better, a comprehensive bonus program will get everyone on your staff involved in the big picture and focused on three things you really want to happen in 2009: revenue growth, reduced expenses and increased profits.
Disclaimer: The information and opinions contained on this site are for discussion purposes only and are NOT intended to serve as legal, accounting or investment advice. ©2009 Jerry Hayes, OD. Not to be reproduced without written permission of the author.
Back To Top
Very good information. A
Very good information. A couple questions:
What if you reach just one or two of the three goals? No bonus or a partial bonus?
Do you think a quarterly bonus is more effective than a monthly bonus?
Thank you!
Dear Jerry, We have used your
Dear Jerry,
We have used your bonus model for many years. We have large practice and have no trouble with the cost of goods or overhead expenses. But consistently fall short on the growth side. You used to recommend 10% growth before receiving the bonus. Are you now recommending 4%?
Thanks,
David Miller
We have been doing a program
We have been doing a program like this for a number of years. It seems to work pretty well and the mechanism is now a given in the day to day operation. Our practice has grown consistently 8 to 12% every year. As a result we, now think at times that the staff takes the process and the bonus $$ for granted. Do you have suggestions as to how we might "refresh" the process? Also, do you think it's appropriate/feasible to incorporate an accounts receivable component - you didn't mention that aspect of the business operation.