Staff Salary Incentive Formulas and Bonuses: The Bottom Line for the Practice

The following are measurable practice revenue sources that staff can dramatically impact to make or break the bottom line.

  • Number of appointment slots filled
  • Number of patients seen
  • No-show rate (lower is better)
  • Number of new patients seen
  • Patient waiting time (from arrival to departure)
  • Percentage of patient recalls that make appointments
  • Number of refractions “sold”(patients that become optical shop customers)
  • Percentage of patients that pay their co-payment at time of service
  • Average total charge of eyeglasses sold and percentage and number of lens add-ons sold
  • Average add-on sales (of eyeglasses sold covered by vision insurance), both numbers and amount
  • Number of laser vision correction cases per month from within the practice
  • Collection performance against a calculated target
  • Days in accounts receivable

So how can you, as a manager, lead your staff to achieve the optimal performance? We recommend a combination of two methods‹first, to reward the staff as a whole for the results of the practice, and second, to reward individual staff members and functional groups for their performance.

Component One: Staff as a Team‹Profit-Sharing

In our experience, a staff that works together as a cohesive team generates the best performance. We recommend rewarding and giving incentives to the staff as a single team by using a profit-sharing plan that employs the methodology for calculating practice profit described in Watching Your Bottom Line, Volume II, Issue 2 (dated April 30, 2000).

The following example is of a three-physician general ophthalmology practice having a base income of $2,500,000 for 1999 and a target of increasing by approximately 10% for 2000 ($2,700,000).

$2,700,000 Target
– 1,350,000 Overhead
– 1,150,000

  • Physician Total Compensation Package $ 200,000 Practice Profit. The percentage of profit shared with staff is 25% (25% of $200,000 =$50,000).
  • A base profit-sharing amount should be included in the overhead budget and added to the portion of profit for staff distribution. If the target is not reached, the base profit-sharing amount is reduced, along with the physician compensation. If the shortfall exceeds two times the base profit-sharing amount (staff base amount plus matching physician compensation reduction), there will be no profit-sharing distribution. Additional shortfalls will further reduce physician compensation.

When the target income level is determined, the budgeted overhead and physician compensation should be determined, based on the projected staffing levels.

The target income level, along with the overhead budget, should be communicated to the staff at the beginning of the year. The income target, as well as the overhead budget, becomes the project with participation by the entire staff and the physicians. Regular reports to the staff on the target income, expenses, and the monthly and year-to-date progress in reaching the target will keep the staff involved in the process. It is remarkable how creative staff members become in improving performance when they are involved in the end results.

Our example practice has nine staff members, and the distribution of the $50,000 can be based on a combination of longevity (length of employment) and personnel evaluation.

Some may argue that this plan puts the staff at risk for falling reimbursement levels. To some extent this is true. But as in any other industry, changing market conditions can threaten the financial well being of the business. Putting the staff partially at risk will encourage the staff and physicians pulling together as a team to develop creative ways to overcome these changing market conditions and to keep the practice healthy.

Keep in mind that risk taking has its limits. You need to make sure that your staff is competitively compensated to avoid the risk of good staff seeking other employment in a shortfall year.

Component Two: Specific Performance Parameters

The profit-sharing component of staff incentives relies on overall practice profit to determine the size of the pot to be distributed and on staff longevity and relatively subjective evaluations to determine the distribution. A second bonus plan rewards staff for the component of practice performance that each of them impacts directly.

This component can work as follows:

  • Keep statistics on those functions and processes (page 1) that are key to achieving optimal performance in your practice.
  • Define the statistics that measure those functions and processes.
  • Use those statistical measurements to establish four levels of performance‹unacceptable, acceptable, outstanding, and “breakthrough.”
  • Identify which staff directly and indirectly impact the results in each area.
  • Enroll each team (staff members accountable for a specific result or set of results) in a project in which, for example, 95% of base pay will be received for unacceptable results, 100% of base pay for acceptable results, 105% of base pay for outstanding results, and 110% of base pay for breakthrough results.
  • Meet regularly with each functional team to creatively design tools and techniques to achieve improved performance.
  • Make sure that the targets for each functional area are published for the entire staff, and regularly report performance against those targets.
  • Develop an additional reward for the functional team that exceeds their baseline target by the highest percentage.

There are some aspects of this strategy that are critically important:

  • A critical component of this strategy is the enrollment. This plan will not be effective (and in fact will be counterproductive) if the staff does not buy-in to the concept.
  • Make sure that the targets are developed so the baseline is achievable with at least the current level of performance‹don’t create an unobtainable goal.
  • Don’t design this program and expect it to run by itself‹it will take management, coaching, and yes, cheerleading.
  • Make sure that the physicians are enthusiastic.
  • A prerequisite for the establishment of these plans is the analysis of each component of your practice’s performance. You must understand the numbers to ensure that these incentive bonus levels, when achieved, will be a win-win for both the practice and the staff. For instance, you want to ensure that an incentive bonus paid for exceeding the target for the sale of fee-for-service refractions does not exceed the income from those added refractions.
  • When developing the targets, attempt to normalize the baseline performance so each functional unit will have similar levels of performance to achieve the target.
  • Some staff teams, such as the front desk, will participate on several levels (e.g., refractions sold, co-payments collected). Make sure that the rewards are proportional and that the aggregated bonuses are comparable across teams (e.g., if the front-desk staff are only responsible for two components‹refractions and co-payments‹each of those would only be responsible for 50% of that team’s bonus, for a total of 100%).
  • This bonusing strategy can lend prestige and excitement to staff jobs that may be traditionally seen as entry-level, such as receptionist. The opportunity for bonuses can add some stimulation to routine tasks.
  • The initiation of these games puts something at stake in the performance of the staff’s jobs. This will give an incentive to senior staff members on a team to actively mentor and train new staff members.
  • If your practice is a part of a larger organization, make sure these incentive compensation plans are within any institutional rules and regulations.

This strategy for improving practice performance is one of the most effective ways to accomplish two important things. First, it encourages “ownership” of the practice’s performance by the staff. Second, it has the potential to improve the financial performance of the practice.

TRY IT!

Ron Rosenberg, PA, MPH, Author, Practice Management Resource Group
Irene Chriss, Editor Director, AAO Practice Management Dept.