As mentioned in Part 1, we’re hard-pressed to find a hotter or more frustrating ownership topic these days than employee compensation. Staff shortages and resulting hiring bidding wars have made it plenty clear we need to be more creative than ever about ways we attract and retain good help with our compensation structure while not breaking the bank!
As we discussed last time, one of our Partner Colleagues has been working on replacing a staff bonus program that while helpful for retaining good staff has limited the practice’s profitability as well as owners’ ability to benefit financially as the practice grows. We shared some of the HELP DESK dialogue to that end in Part 1 and glad to continue that here in Part 2.
So let’s pick it up where we left off…
– THRIVE: Thanks for this really helpful spreadsheet and your efforts pulling all this together. I hope and have a feeling doing so was a helpful experience for you in itself, as I find data compilations often are!
So, discerning the information you’ve provided and our on-going conversation to date, I don’t see that we’re in any kind of bad overall staff compensation situation. Our percentage there is in the Post-Covid ballpark and not a major concern to me by the total amount/percentage being paid to staff. None-the-less, it makes sense to evolve the bonus program a bit, including rebranding it from “Profit Sharing” to “Team Bonus Program,” and bias the program toward increasing our overall profitability as we go along. With that and your feedback to date, I favor basing the bonus program on achieving designated metrics goals, and given our discussed desire to grow both top line and profitability, I can see those being:
1 . Receipts after Cost of Goods (which we know is Gross Profit, but that term tends to confuse people)
2. Capture Rate (which heavily impacts Revenue-per-Patient and overall profitability due to fixed expenses not changing with an increase)
3. Production Capacity (percentage of appointments booked AFTER factoring in no-shows that occurred)
4. New Patients OR Non-Vision-Plan Patients (whichever we MOST want to grow, I could make a case for either).
Although we’ll sometimes use Revenue-per-Patient as one of the bonus metrics, this one can come off as a bit “commercial” to staff for a bonus base metric, but again, Capture Rate (and other metrics we could choose) heavily impacts RPP. So things like filling Rx’s in house and doing 2nd pairs and Sunglasses (which are “captures” on the Rx written for that patient) bolster both Capture Rate (a patient purchasing two pairs of glasses and a pair of prescription sunglasses is a Capture Rate of 300% on that patient’s most recently written Rx) AND Revenue-per-Patient.
Once we finalize this, we need to designate the monthly bonus amount available to pay participating staff, and of that total amount, we can bonus ¼ of that for each goal made (assuming four bonsuable metrics) that month. So if we make all four metric goals, it’s 100% of the available bonus amount pro-rated and paid-out to eligible staff. Make three and it’s 75%, make two and it’s 50%, make one and it’s 25%.
As we finalize our bonusable metrics, let’s focus on the Available Monthly Bonus Amount. Can you indicate the average total bonus amount paid out over the past twelve months? Again, because your overall compensation percentage is not out of line, I don’t think we need to reduce the bonus amount (which will help in the positive positioning of evolving the program), but we do want going forward to avoid sucking-up all our additional growth or that big month with just bonus dollars. It makes sense for some of that increase should go to you as owners (and other needed designations)!
Making sense so far? We’ll have this knocked out soon! 😊
– Colleague: Thanks Tom – I appreciate your continued work on this to help me. Here are some thoughts so far.
For New Patient Percentage (we are not in network with any vision plans- so that metric doesn’t apply for us), I feel we’ve been doing well with this metric. We’re located in one of the faster- growing areas of the state, and my biggest concern is what you always say as “make sure our glass isn’t leaking” (meaning- make sure we are retaining the patients). I feel this is where we currently need focus, but if you think New Patient Percentage should be one of our bonus metrics, I’m good with that. Any thoughts on basing our Team Bonus Program based on 3 “goals” instead of 4? Maybe the Receipts goal is worth 50% and the other two 25% each?
– THRIVE: Excellent points you make here, as is your logic to go with them. I’m totally fine with the simplicity of three bonusable metrics rather than four. And if so, I like your idea of Gross Receipts after COG comprising half and the other two metrics comprising the other half between them.
– Colleague: Great. This can come later, but how do you keep staff informed regarding where we are on meeting the goal?
– THRIVE: You’re on a roll here! After decades working with colleagues on this, without a doubt, the best way to ensure our practice and culture are thriving as a result of a bonus structure is TEAM MANGEMENT of the metrics, which culminates weekly in the “Weekly Metrics Review” in which individual team members give their weekly reports on their given metrics (not just the bonusable metrics). I think of this as a “wellness exam” on the practice for exactly the same reason we do this on a patient (even if the patient is seeing fine)!
– Colleague: Great. Is the available bonus amount set? Or variable? And do the metric goal amounts change monthly? Or are they the same?
– THRIVE: More great questions! Many colleagues do a percentage of something for the bonus amount available. For example, 10% Gross Profit, a percentage of revenue collected over the monthly goal, etc. I prefer to simply designate a bonus amount and have found a drawback of a 10% type
designation is employees concluding “I guess the doctors take the other 90%,” which of course is not the case. So if we average how much you’ve paid out in bonus per month over the past twelve months, we will have a good historical reference for an appropriate designated monthly available bonus amount, and if we pay that or an adjusted version of that (perhaps setting it a bit higher as a result of setting our goals a bit higher), we don’t curtail enthusiasm for the new program by lowering the bonus amount paid. Rather, we’re simply shifting the bases on which it’s paid. Make sense?
– Colleague: YES! Here are the total amounts paid out to profit sharing only over the past 2 years. Typically this amount is split amongst our full-time staff based on hours worked.
2022: $40,829
2023: $40,592
– THRIVE: You’re a step ahead of me! So applying our conversation above, we could multiply each of these two yearly amounts by 12 months and have our historical average Monthly Available Bonus Amount (and can increase that a bit if we’re setting goals for bonusable metrics above our historical performances for those metrics).
-Colleague: This is looking good. I like your thoughts on not allotting a percentage and designating a set amount. So if we take roughly $42,000/12 months, that’s $3,500 per month allocated for full bonus, divided (in proportion) by our 3 bonus metrics, this shows the bonus Amount per metric goal reached. Correct?
-THRIVE: Correct!
-Colleague: So my math on the $3,500 Possible Available Bonus Amount shows:
Receipts after Cost of Goods = $1,750 bonusable amount (when goal reached)
Capture Rate = $875 bonusable amount (when goal reached)
Production Capacity = $875 bonusable amount (when goal reached)
– THRIVE: You got it! Then we add the bonusable amount per metric for which our goal was reached, and divide that equally over participating staff OR divide it by total staff hours worked in the period to get the bonus amount per hour and multiply that by the number of hours worked in the period by each eligible staff member to get each person’s bonus amount for the period (in this case, the month). We can either pay that out to the staff monthly as we go, or save some bookwork and add-up monthly bonus due each employee to pay it out quarterly (I like those bigger checks! )!
– Colleague: Thank you, and a couple more questions: do our metric goals change? Can we set them out for the year ahead of time? Or do we do that monthly as we go?
– THRIVE: Yes, the goals are likely different each month, based in part on what we did each month the previous year. And I definitely like to knock-out the entire year’s goals at once, then focus on each monthly goal as we get to that month…
Well, Friends, there’s a synopsis of a HELP DESK dialogue to update a colleague practice’s bonus system in real-time playback. And speaking of real-time, we’re actually still working on the finishing touches of this colleague’s new program as I write this, and about to roll it out to the staff.
Obviously, every practice has its own final version of a team bonus structure, most their own unique hybrid of various strategies. My hope is this discussion has been helpful as you think about and perhaps even update yours!
Like all THRIVE content, the purpose of BOWEN’S BLOG and SUMMIT TALK Podlecture conversations is to keep us driving together toward IMPACT. If something here has struck a chord, shoot us an email or give us a call and let’s talk it out! Tbowen@mythrivecoaches.com