Put the details in writing
I'm generally in favor of making a contract only as detailed as is necessary to clearly express the rights of both parties.
However, much more needs to be said in an associate employment agreement than, "If the revenue generated by the associate
multiplied by 20 percent is greater than his base salary, he will receive the larger amount."
While that phrase may seem clear enough, it actually leaves open many questions that can create serious problems later. It's
better to be as precise as possible about what constitutes "revenue generated by the associate."
For example, while it may seem obvious that grooming and bathing aren't included in such revenue, what about medicated baths
that were recommended by the associate during an office visit? In some states, medicated baths are treatment and constitute
nontaxable veterinary services while routine baths are taxable nonprofessional services. But many practices don't distinguish
them for compensation purposes. Instead, they simply exclude all baths from associate revenue.
Even more complicated is the question of prescription refills. Some practices exclude them entirely from associate-generated
revenue. But is this fair or realistic? If the employed veterinarian spends a lot of time on the phone and during appointments
with clients tweaking the dose of a medication that he prescribed, shouldn't he be credited for generating the ongoing revenue
stream created by his continued monitoring?
Make production reports part of the contract
A production-based compensation arrangement is virtually worthless if the associate involved gets no accounting of how his
revenue-based bonus was determined. Many associates are afraid to pester their employers for details on their production numbers
and as a result rarely or never see them. They often just accept (with some resentment) that their paychecks and bonuses are
I'm a vocal proponent of putting a hospital owner under the written obligation to provide, at least quarterly, clear and detailed
statistics of the revenue figures generated by any employed doctor operating under a production-based compensation contract.
When included in the employment document, this written obligation reminds the boss of her duty to collect and reveal the information.
Furthermore, it prevents a long lapse between the end of a revenue period and the associate's opportunity to look it over.
Truthfully, stale revenue numbers are almost worthless for motivating employed doctors—they're viewed more as historical artifacts
than as a call to actually modify behavior.
Decide on revenue generated vs. revenue collected
Finally, there's always the nagging question as to whether an associate's salary should be based on "revenue generated"—work
for which a clinic is legally entitled to collect—or "revenue received," which means money the practice actually collected
for an associate's work.
In practices where someone other than the doctor is in charge of figuring out how payment will be obtained, it's usually best
to employ the term "revenue generated" in the compensation formula. After all, the associate has no control over the accounts
receivable policy of the clinic—and he shouldn't suffer if it's lax.
On the other hand, other hospitals are set up such that associates discuss payment with clients and inform them of the requirement
for deposits for surgical procedures and so on. If one objective of the revenue-based compensation scheme is to encourage
the associate to be vigilant about collecting those deposits or to spend more time with clients discussing finances, it might
be preferable to use the term "revenue collected."
Production-based employee compensation can be a good thing for both practice owners and their associates—if critical details
and contract negotiations are properly addressed before any revenue is generated.
Dr. Christopher Allen is president of Associates in Veterinary Law PC, which provides legal and consulting services to veterinarians.
Call (607) 754-1510 or e-mail