The Incentive Bonus Plan: How to Avoid the Pitfalls and Enjoy the Rewards

Is an incentive bonus plan right for you? A new consulting client shared with me his trials in implementing an incentive bonus plan that failed to deliver his goals of stimulating motivation and improving profitability. His plan was designed to reward the business administrative staff for excellent collections, and a separate plan was designed to reward the clinical team for increased production.

To his surprise and dismay, neither goal was met. In fact, his profitability declined. The clinical team complained about the business staff’s lack of interest in scheduling a productive day. The business staff expressed frustration about the clinical team’s disregard to release the patient to the financial coordinator before treatment began. In other words, each department was focused on the area of gain dictated by the bonus plan. The end result was a complete breakdown in teamwork, which took the better part of a year to repair.

There is no doubt that an inadequate plan can inflict enormous damage to the practice financially as well as undermine the relationship between doctor and staff. The decision to implement an incentive bonus plan must be made with very clear objectives in mind and developed with great preparation and care. When structured effectively, the plan can create enormous enthusiasm, focus, and fun for the dental team that is motivated and truly interested in the welfare of the practice and patients.

 

ARE YOU READY TO IMPLEMENT AN INCENTIVE BONUS PLAN?

Unhappy, unmotivated staff members cannot benefit from a bonus plan until the issues they are harboring are resolved. Otherwise, the bonus is built around an existing problem without resolution. Opportunities for compensation become the only point of interest when staff members carry unresolved resentments concerning their employment.

An effective incentive bonus plan must provide a win-win solution for the employer and the staff. When structured properly, it is affordable for the doctor because the bonus dollars are generated from income that has exceeded the pre-bonus levels of productivity. In addition, 3 healthy practice statistics must be maintained and surpassed before bonus is available: (1) production, (2) collections, and (3) staff wages.

A variety of approaches are available in the marketplace today. The initial selection of a customized and effective plan is crucial. Once a plan has been introduced and implemented, it is very difficult to retrieve or change the plan that is not meeting your objectives without causing resentment or distrust. Here are 7 essential points to consider when developing or selecting a bonus program.

(1) The plan must be simple enough for everyone to understand and calculate. Complex plans that are assigned to only one person to compute and present to the team fail to motivate and often undermine trust.

(2) The plan is most successful when based on short-term goals. A daily reward system can be motivating, but overhead control is often sacrificed with this approach. A monthly plan has proven to be the most effective in creating motivation while maintaining healthy staff overhead.

(3) The presentation of the bonus plan must ensure that the staff understands the philosophy of the plan. Bonus is earned; it is not an automatic given. Working hard is a crucial part of the plan, but is not the only component that must be considered. However, the bonus should not be given in lieu of a good base wage because it is not dependable.

(4) A successful bonus plan does not eliminate the need for periodic raises. It is essential that the base wage is competitive to the marketplace, or dissatisfaction will eventually occur. If earning bonus is the only avenue for increasing one’s income, a desperate need to meet bonus each month can generate very stressful situations. A periodic raise also offers the employer the opportunity to reward the efforts of the individual, which is vital to creating good self-esteem and direction for growth. A sound plan supports periodic raises without disturbing the budget set for staff overhead.

(5) The results of the bonus calculation are shared in a group meeting held at a preselected time shortly after the end of the month. Involving everyone ensures an understanding of the process and creates a fun, motivating session. The bonus that is quietly determined by the doctor while everyone waits for the results is not capitalizing on the motivation the bonus is designed to create.

(6) The division of the bonus is based on an equal hourly rate for each participant. Since the bonus is a team reward for achieving the goal, rewarding individuals differently undermines teamwork. Exceptional effort, longevity, and special skills are rewarded in the individual’s base wage.

(7) An effective plan allows you to combine all team members under a single bonus plan or implement a second program for hygiene based on hygiene productivity. Both approaches can be very successful.

 

PRODUCTION AND COLLECTIONS

In order to obtain a true picture of production and collections, a rolling average of these 2 statistics is crucial. This approach accounts for the turnaround time for insurance payment and moderates the spikes in production from month to month. A 3-month average is effective if the doctor takes a minimal amount of time off. A 6-month average is effective when time off creates substantial swings in productivity during the year.

 

SETTING A BUDGET FOR NONHYGIENE STAFF WAGES

The recommended range for business administration and clinical assisting staff is 12% to 18% of revenue. The appropriate percentage within this range depends on your location and practice age. A new practice with just 3 employees requires a lower percentage than the mature practice with 7 employees. The practice located in a small town will experience a lower percentage than a large-city practice. To determine the appropriate percentage for your situation, complete the following steps:

(1) Calculate your nonhygiene staff base wage. This statistic is a total of gross wages for the business administrative and clinical assisting team. Do not include benefits or payroll tax.

(2) Utilizing the 12% to 18% range, divide the base wage by each percentage to determine the level of income needed to support the percentage.

Example: Base wage for this example is $6,435 per month, and the practice is located in a rural community. The desired percentage of 12% to 15% is as follows:

•12%—$6,435 / 0.12%

= $53,625

•13%—$6,435 / 0.13%

= $49,500

•14%—$6,435 / 0.14%

= $45,964

•15%—$6,435 / 0.15%

= $42,900

Select the percentage that reflects a reasonable increase in productivity. Your goal is to generate improvement that the staff perceives as achievable. Bonus dollars are not available until productivity surpasses the level needed to support the percentage.

When your current overhead percentage for staff greatly exceeds the recommended range, implement a plan to improve product-ion/collections before implementing the program. Huge improvements needed to meet bonus are intimidating and discouraging to the team.

 

STEPS TO CALCULATING THE BONUS

Utilize an average collections or a composite when calculating the bonus. When the collection average is 95% of production or higher, a composite can be utilized, which is an average between these 2 figures. When collections are less than 95%, calculate the bonus on the collection average only. Averaging the wages over the same time frame is also recommended.

For example, consider the following calculation:

•composite or collections = $44,380

•15% budget = $6,657

•base wage average

= $6,435

•bonus = $222

 

DIVIDING THE BONUS

Determine the hourly rate by totaling the combined hours worked by the staff. This grand total of hours is divided into the available bonus, which generates the hourly rate. Each person will receive a share of the bonus according to the number of hours he or she has worked. Do not include vacation, sick leave, or holidays in this calculation.

 

THE PLAN FOR MULTIPLE DOCTORS

A successful incentive bonus plan offers you the opportunity to implement a program under any of the scenarios that can occur within a practice.

The Associate Dentist: Including the productions/collections generated by an associate dentist can greatly enhance the bonus plan and motivates the staff to support the associate. In fairness to the senior dentist, compensation for the associate is subtracted from the associate’s production/collections before calculating the bonus.

A Partnership: When practices are separate but certain staff members are shared, several additional steps are required when calculating the bonus. Each doctor calculates his or her bonus separately. Each doctor’s base wage includes the wage portion of the shared staff. Also, the hourly rate for dividing the bonus includes the partial hours worked by the shared staff. Therefore, shared staff is eligible to earn a portion of its bonus from each doctor.

Doctors who do not practice separately can calculate bonus on the total production/collections generated by all providers. The doctors split their shared responsibility of the bonus according to the percentage of production/collections each has generated.

 

THE HYGIENE INCENTIVE BONUS PLAN

Since the hygiene department is a production center, establishing a hygiene bonus based on hygiene productivity can be very motivating for the hygienist, and it maximizes the effectiveness of this department. The bonus for the nonhygiene staff is based on total practice productivity and income, which gives these team members an incentive to assist the hygienist in being as productive as possible. When the program is set up properly, this separation can enhance teamwork instead of dividing it.

 

Components of the Hygiene Bonus Plan

This system is very similar to the plan developed for the nonhygiene staff. The differences are as follows:

•The plan is set up separately for each hygienist instead of a combined effort.

•Calculations are very similar to the nonhygiene program. However, only hygiene production is considered, which includes all hygiene procedures and x-rays but excludes exams.

•The budget is the percentage that represents healthy overhead for hygiene wage in relationship to hygiene production. The recommended range for gross wages is 30% to 40% of hygiene production.

•A 3-month averaging of production and wages is necessary to ensure that overhead is controlled. Providing bonus opportunities on a day-by-day basis does not protect you from increased overhead unless the hygienist earns a bonus every day, which is not realistic.

•At month’s end, determine the base wage earned using a 3-month average. Calculate the percentage of production you have selected as your budget. When the budget is larger than the base wage, the hygiene bonus is the difference between these 2 figures.

An additional benefit of a sound bonus plan is that the staff will give 100% of its abilities before acknowledging that additional help is needed. In time, productivity will plateau. If additional growth is your goal, consider the means to accomplish this and how it impacts the bonus plan: (1) increase hygiene days; (2) increase the number of staff; (3) add a treatment room; (4) increase facility size; or (5) hire an associate.

Multiple means can move you to the next level. The bonus plan is protected when your decision generates the productivity needed to cover the expense resulting from your decision. Involving your team in this discussion generates the most effective answers and encourages team support.

An effective incentive bonus plan has the potential to add excitement and fulfillment for the team that appreciates the extra rewards a successful plan creates. This process develops ownership on everyone’s part to take responsibility for creating and maintaining a successful business, which supports your ability to serve patients effectively. The rewards are certainly worth the investment in time and effort needed to research and develop the best plan possible for your practice and team.

 

CONCLUSION

Since an inadequate bonus plan can inflict enormous financial damage, destroy teamwork, and undermine staff relationships, one must proceed with great care when selecting a program. It is crucial to select a bonus plan that is simple in structure but comprehensive in its ability to meet all 7 of the practice objectives discussed in this article. When structured properly, enhanced motivation and profitability result, which ensures that the doctor is rewarded as well as the staff.

 


 

Ms. Bernhardt is the owner and director of Christene Bernhardt & Associates (CB&A), a practice management firm that provides services in consulting, educational systems, staff training, and workshops for the dental profession. Since 1984, her team has provided in-depth, customized consulting services for hundreds of dentists throughout the United States and Canada. Hands-on programs are customized to the needs of each practice. The CB&A database of practice statistics provides cumulative knowledge and insight as well as clear measurements for success and growth potential. She can be reached at (888) 454-3131 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it .