Taking the Guesswork Out of Staff Compensation: A Scientific and Human Approach

Do you get knots in your stomach when you discuss salary, rewards, and benefits with your team? A sound compensation system can boost morale and perfor-mance. However, this topic too often becomes an emotional minefield, wounding the staff’s self-respect and personal validation. Not surprisingly, therefore, compensation is also the practice system most likely to be powered by a doctor’s confusion, guilt, and fear.
Compensation consists of the salary, benefits, perks, rewards, and recognition you provide to your staff members for doing their jobs and beyond. The choices you make about compensation communicate the vision, values, and goals of your practice, and encourage the kind of staff skills and behaviors that align with your beliefs. Therefore, your compensation system both shapes and reflects your workplace culture.
For example, how many of you, in a panicky attempt to avoid having to fill a vacant position, have given an unhappy employee a salary increase? Did this strategy ever produce anything other than a richer unhappy employee? Studies show that using salary as a tool to solve negative behavior or attitude is minimally effective and maximally stressful for the dentist. Yet we at Pride Institute see it done all the time. We also observe the opposite mistake, in which staff members see solar eclipses more frequently than they see raises, causing their initiative and enthusiasm to drop because their efforts are unrewarded.
To avoid these common problems that wreak havoc in the practice, and to inject objectivity and fairness into an issue fraught with confusion, Pride Institute, over the years, developed an ideal compensation model that rises above the potential failure patterns.
Here is the fundamental rule of this model: there no longer is such a thing as entitlement pay, only merit pay. All aspects of compensation must be an acknowledgment of an employee’s enhanced performance. Team members retain their jobs and raise their compensation when they meet or exceed the dentist’s expectations, which produces the higher profits that make the increases affordable. This philosophy encourages employees to be responsible for their performance and accountable for the practice as a business.

An ideal compensation model has 6 key tenets:

1. Compensation rests on an understanding of staff motivation.
2. Compensation must be competitive with the marketplace.
3. Compensation must be affordable to the practice.
4. Compensation must be based on each individual staff member’s unique competencies.
5. Compensation includes celebrating successes—major and minor—with recognition, rewards, and benefits.
6. An effective compensation system includes goal setting and salary reviews.

Let’s examine the role of each of these guiding principles in influencing your staff’s performance and ultimately the success of your practice.

Illustration by Cheryl Gloss

STAFF MOTIVATION

Motivation is an internal force that causes a person to move or not to move toward a goal or outcome. A common misperception about motivation is the belief that a leader can somehow provide it for the staff. Motivation comes from within. Have you ever had to motivate anyone to eat ice cream? No (unless they’re lactose intolerant). Ice cream is desirable because it meets someone’s inner needs. When doing a good job for you results in your staff’s internal needs also being met, then your team becomes motivated.
Employees look to their salary to satisfy their most fundamental needs, which include financial security to cover food, housing, and other necessities. Once these basic needs, called satisfiers, are met, then staff members  will exert more energy in response to higher-level needs, called motivators, which include taking pride in their jobs and growing both professionally and personally. If you have staff members who are worried about how to pay their bills, have not had a salary increase in years, and do not know how to obtain one consistently, their most ur-gent needs will center around the size of their paycheck. If you offer these employees a reward such as a gift certificate or even a cruise in ex-change for extending extra effort, they will not respond. If the satisfiers are not in place first, rewards and recognition will not work. However, when the basic needs are met, then employees can be encouraged to exert greater effort to realize higher-level needs. Conse-quently, you need to create a work climate that first satisfies your team’s basic needs and then further motivates them to higher performance levels.
How do you do that? Let’s examine the other tenets of compensation to find out.

COMPETITIVE WITH THE MARKETPLACE

The amount you pay your employees must be competitive with the marketplace. Although a high salary alone won’t generate motivation, a low salary will almost certainly diminish it. In general, compensation can be considered competitive when it meets the following criteria:

• It falls within local pa-rameters for the employee’s defined responsibilities, requir-ed skills, and personal characteristics, as well as the size or type of the dental practice.
• It is consistent with the practice’s overall philosophy, values, and level of services.
• It is commensurate with the practice’s fee level.
• It meets or exceeds the employee’s expectation.

Ask yourself the following questions to help create a philosophy of competitive compensation that is consistent with your values and goals:
What level of quality do I want my practice to provide for my patients? What distinguishes my practice from others in this area? What qualities, specialties, or skills do I want my employees to demonstrate? What does the word “competitive” mean to me in terms of salary? What words would I like my employees to use when describing their compensation?
In establishing the proper salary to pay, you must define your expectations of the employee. This brings to mind the words of leadership expert Jim Rohn: “You don’t get paid for the hour. You get paid for what you bring to the hour.”

AFFORDABLE

Once you establish a competitive salary, the next tenet is this: no salary can be paid or increased unless it is affordable to the practice. This is the tenet that we see dentists violate regularly. If you pay a salary of $15 per hour upon hiring a staff member and then increase it to $18 per hour at the end of the year, that additional $3 per hour has to come either from an increase in profitability or from the doctor’s pocket.
Do you know where your staff’s salary increases are coming from?

The following are guidelines for making salary increases affordable:

1. To ensure maximum efficiency, analyze staff compensation as a percentage of total office production. The national average for employee expenses in the dental office ranges from 25% of total office production to as high as 38% in the costliest cities. This very significant investment deserves your rapt attention.
2. Determine a return on this investment against its cost. I don’t mean that you can correlate every person hired to an increase in production. But  every person you hire should be considered with an eye on a specific return, be it increased productivity, efficiency, or profitability, or decreased stress.  As our founder, Dr. Jim Pride, would say, “You don’t get what you don’t ask for.” If you are spending 30% or more of total office production on staff salaries, you had better expect something in return.
3. Award raises at the same time of year for all staff members. If increases are given on an employee’s anniversary date, the staff hired during low production months will tend to get lower raises. The reason is that the dentist is feeling more of a scarcity then as compared to high-production months. Therefore, it is only fair to judge everyone by the same criteria.
4. Give raises only when it is profitable to do so. Profitability rests on revenue, ie, collections. Salary increases are affordable only when there are annual collections increases to pay for them. We find that collections is a statistic to which every team member contributes, such as by establishing patient relationships, promoting case ac-ceptance, performing custom-er service, or encouraging pa-tients’ accountability for payment. An increase in collections indicates that the practice has been successful and can afford to give raises.

DEVELOPING COMPETENCIES

Compensation must be based on an increase in an individual’s demonstrated competencies. These competencies consist of the individual’s knowledge, skills, abilities, and attitudes associated with a specific job or task. Competen-
cies must be evaluated objectively and developed through training and experience. Only then will your salary decisions be based on an employee’s actual, observed behaviors, rather than on your inferences or guesses. To determine whether you are basing salary decisions on competencies or on subjective perceptions, ask yourself the following: (1) What have I seen the employee say or do that has led to my conclusion? (2) What have been the consequences or results of the employee’s actions?
Objectivity and fairness to all is critical. If a staff member perceives that the dentist rewards his or her favorites, it will be impossible for the person to develop trust in the compensation system. In order to link competencies to your expectations, it is essential that every employee has a job description that states the behaviors and results for which he or she is responsible. Such a job description provides the foundation for individual growth. It is also vital for the practice to have a formal vision or philosophy statement so that the dentist can connect key words in it to demonstrable employee actions. For example, your philosophy statement may include terms such as responsibility, enthusiasm, creativity, trust, and mutual respect. In communicating your expectations to employees on how they can further the practice vision, correlate the key words in your vision to the competencies that result in these concepts coming to life. This may include, for example, taking responsibility and being accountable for mistakes, enthusiastically involving oneself in tasks above and beyond the job description, demonstrating creativity in going the extra mile for a patient, building a patient’s trust by communicating compassionately, or resolving team conflicts and restoring mutual respect and effectiveness.

Recognition, Rewards, and Benefits

Once you implement the above tenets of compensation, your staff members will feel satisfied with their wages and ready to rise to the level of motivators. Here is where rewards, recognition, and benefits play a critical role.
Data compiled by the Workforce Management Research Center demonstrates why the most effective compensation system includes re-wards, recognition, and benefits. One study shows that a key reason why people leave their jobs is lack of recognition and praise. These are the top 3 reasons why staff do not perform: (1) lack of clear performance expectations, (2) lack of feedback, and (3) inappropriate reinforcement or recognition. The good and bad news regarding these factors is that providing them is the dentist’s responsibility.
As these studies illustrate, there is a strong correlation between job perfor-mance and job satisfaction. To understand why, consider the jobs you offer in your practice. Would it be fair to say that answering phones, restocking supplies, or evacuating saliva may not be intrinsically exciting or glamorous? For your employees to do these jobs with care and enthusiasm, day in and day out, they need to find meaning and importance in them. Rewards, recognition, and benefits help the team to do just that.
These compensation tools communicate what Dr. Jim Pride called the 5 features of empowerment: recognition, gratitude, acknowledgment, appreciation, and validation. Recognition tells employees that the leader sees them and their importance as unique individuals. Gratitude sustains a workplace culture in which efforts are noticed and reinforced. Acknowledgment and appreciation define the skills and behaviors that the leader values. Validation provides a sense of corroboration and helps employees feel secure in knowing that they are acting in accordance with the practice philosophy and goals. When these features are embedded into the practice culture, employees are encouraged to risk, learn, and grow.
Imagine what it would be like to work in a dental practice that embodied the opposite of these features of empowerment? The practice would be marked by employees being ignored, disrespected, never thanked, criticized, and rejected. Unfortunately, we see many of these components in practices. The most common complaint we hear from staff is this: “The doctor never tells me what I’m doing right, but only what I’m doing wrong.” Not surprisingly, low morale results, which ad-versely affects punctuality, at-tendance, staff turnover, customer service, and productivity.

GOAL SETTING AND SALARY REVIEWS

Once you’ve created a culture of achievement, you need to establish goal-setting sessions and salary reviews to focus staff members on how they can affect their future compensation. Growth conferences are formal feedback meetings at which employees review their contribution to the practice and define their goals for the coming year. The demonstrated skills as well as goals for profitability, productivity, efficiency, and service must be set at the growth conference so that staff members understand and commit to doing what is needed to merit a future increase. The salary review links the goals that are set at the growth conference to results. During the salary review, employees learn if they will receive a raise for the coming year. If you have offered your employees feedback throughout the year, and if you review the practice statistics regularly with them, the salary review will (and must) hold no surprises. The salary review process contains 4 steps:

1. Annualize the collections increase compared to the previous year.
2. Create a salary pool for the pay raises based on a percentage of the collections increase. (We recommend 10 to 20 percent, which will keep you within the 25% to 38% expense range.)
3. Review the goals set at each employee’s growth conference, as well as the person’s job description, to decide the size of the increase. National business norms show that an employee can expect anywhere from a zero to 15% increase in salary based on merit.
4. Schedule a 30-minute salary review with each em-ployee. Use this opportunity not only to make employees feel well-compensated in their wages, but also to itemize and tabulate the value of all of the additional cash and non-cash benefits that they receive, such as vacation, sick or paid time off, pensions, health insurance, or continuing education. Staff members need to appreciate the full measure of their compensation and your support.

CONCLUSION

Now that you know the 6 tenets of sound compensation, you have a choice. Instead of reaching for an antacid tablet every time you discuss compensation with your staff, you can reach instead for a compensation model that is based on facts, affordable to the practice, and rewarding and motivating for the staff. What are you waiting for to bring fairness, sanity, and peace of mind to your practice?


Ms. Morgan is chief executive officer and lead trainer of Pride Institute, a dental management consulting firm serving dentists since 1976. For 2 decades Ms. Morgan has consulted one-on-one with hundreds of doctors to end cash-flow crises and to improve practice management. She is a lively speaker at major dental conferences and conducts seminars and workshops for dentists and teams to turn average or underperforming practices into satisfying and successful ones. To help dentists develop effective compensation systems, Pride Institute has created a new training resource on the subject,  "Take Pride in What You Pay," a 4-module handbook with 2 accompanying CDs. To reach Ms. Morgan or to order a handbook, call (800) 925-2600.