There are several forms of this type of pay scheme. It is reported that as many as 50 percent of associates are being compensated
Let me list the alleged advantages of this type of pay format:
- The doctor will be able to achieve higher income through increased production.
- You just set the vet on "automatic mode," and you never have to deal with pay raises again.
- It is self motivating for the associate.
- Net income grows as the doctor becomes more productive.
- Yearly performance reviews may not be needed since they take care of themselves. Financial reviews might needed, however.
I am not about to tell you that percentage pay can't work. It often does. However, it is not a panacea. During several consults
over the years, certain aspects of this type of pay arrangement have troubled me. Here is some of the feedback that I get
from some doctors working with percentage pay:
- "My net is dismal—why?"
- "My doctors don't seem to be motivated by percentage pay. They work only so hard and are satisfied once they reach what I
consider to be a substandard final salary for them and poor production parameters for the practice."
- "My doctors make more than I do!" (This often is true, considering the owner's FTE pay as a practicing veterinarian in the
Take a closer look
Let us look at some numbers to illustrate. Certain assumptions have been made in order to clarify and simplify. We will not
take into consideration OTC sales, and will consider all DVM earnings at 25 percent of production. Management returns go to
ownership. (In many practices, this pay goes to practice mangers or others.)
In Table A, the associate is paid at 25 percent of his or her gross and a small number of fringes occur in the expense category.
The owner is taking home $101,000 and the associate $87,000.
Overall expenses range in all tables from 70 percent to 72 percent.
In Table B, the next year the associate increases his or her gross 14 percent and expenses rise 8 percent (this is very conservative).
The owner gives up all growth to the associate but keeps his own production the same. Expenses still are roughly 70 percent
of gross. You will notice that net cash remaining is shrinking and is shrinking as a percentage of gross — not good, as things
seem to be "hopping" in this practice.