When a practice owner and her associate are trying to figure out the best compensation strategy under an employment contract,
there are a few fairly universal assumptions flying around.
First, a newly graduated veterinarian or one with just a year or so of practice experience usually wants the comfort of a
secure base salary. It's a known quantity of income that meets most economic needs, especially those looming student loan
Second, the practice owner usually knows that newly minted veterinarians tend to be unsure of themselves, taking extra time
to evaluate each case and proceed at a fairly slow pace during even simple surgical procedures. So a guaranteed salary takes
some of the pressure off in these early years.
But before long, a straight salary becomes less useful for both the employer and the employed veterinarian. As the associate
becomes quicker and more confident, a compensation formula that rewards his experience makes more sense. The practice benefits
when the employed doctor sees more appointments and performs more procedures. The associate can usually take home a lot more
money if he gets a negotiated portion of all of the work he produces.
GETTY IMAGES/RUBBERBALL/MIKE KEMP
As they say, though, the devil is in the details. And probably the most devilish detail is determining the percentage of the
associate's production that he should receive above and beyond any benefits such as vacation time and health insurance. Determining
the appropriate percentage is key but beyond the scope of this article. (Head over to http://dvm360.com/prosal for help figuring out production-based pay percentages.) Rather, my goal here is to examine the less obvious issues that
present themselves during negotiations over compensation—issues that need to be identified clearly in the employment contract
but are frequently overlooked.
Avoid these veterinary practice owner pitfalls
Practice owners often make two mistakes when determining reasonable and fair compensation for an associate.
1. Not budgeting for the change. While a percentage-pay package encourages production, it also introduces additional ancillary costs. Extra money must be
set aside for workers' compensation insurance, unemployment insurance, the employer's portion of social security and Medicare,
and any 401(k) or Simple IRA match that's been promised. For example, if an associate was making $100,000 and suddenly started
making $150,000 under a production-based contract, workers' compensation costs alone can jump $3,000—a tough pill for unprepared
practice owners to swallow.
Also, percentage-compensation programs often involve a base salary plus monthly or quarterly "bonuses," which are paid less
frequently than the weekly or biweekly paycheck distribution. If extra funds haven't been set aside for the lump sum payment
(the difference between the associate's gross production percentage and his base salary), the inadequate planning can leave
the practice short on cash. This is especially true if payroll is on a biweekly schedule and three paydays occur in a single
Simply put, being aware of these additional costs and allotting the appropriate funds for them ahead of time can save a lot
of frustration for employers and keep the practice's budget safely out of the red zone.
2. Not anticipating an encore. When an employer places her associate on a percent-production formula, she may think this is the end of the line for pay
increases. She considers the associate to be in charge of increasing his own paycheck for the indefinite future—the harder
he works, the more money he'll make.
Associates often see the switch to production-based compensation differently. They look at the change as an opportunity to
show the owner how well they can perform in the revenue-generating arena, thinking, "If I show the boss how productive I can
be, she'll find me valuable enough to keep and offer me another percent or two each time contract renewal comes around."
When a misunderstanding of this type isn't addressed at the outset of the production-based pay discussion, subsequent contract
talks can take a nasty, unexpected turn. The boss will see the meeting over the next contract as a formality, while a well-performing
associate will be expecting a big jump in compensation since he proved himself during the previous year.
It's much better to broach the subject of future raises earlier—ideally, as soon as the associate is put on production-based
pay. It's a pretty significant disconnect when the owner thinks raises are over and the associate thinks they've just begun.