Today's Veterinary Business

OCT 2018

Today’s Veterinary Business provides information and resources designed to help veterinarians and office management improve the financial performance of their practices, allowing them to increase the level of patient care and client service.

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48 Today's Veterinary Business Leadership To understand how we got here and how to move forward, we need to first examine how veterinarians are compensated in today's job mar- ket and fully understand the benefits and drawbacks of production-based compensation structures. Finally, we will offer alterna- tives to production-based compen- sation structures that will motivate associate veterinarians and veter- inary teams while still protecting practice profitability. How Veterinarians Are Compensated For many years, associate veteri- narians were compensated with straight salary or, occasionally, with an hourly wage. Practice owners started to find it more difficult to motivate their associate veterinari- ans to work as hard and to produce as much income as the owner-vet- erinarians. Production-based com- pensation was introduced in an effort to motivate associate doctors to work harder, provide more in- come for the business and equalize the workload between the owner- veterinarians and the associates. Production-based compensation takes many different forms: Straight commission with no base salary. This ap- proach describes an agreement where the veterinarian is paid strictly based on a percentage of the revenues produced for the practice. This can become complicated when different commission percentages are used for different categories of production, such as pet food sales versus professional services and when practices accept payment plans and pay commission only when the client pays. Leadership COMPENSATION Guaranteed base salary, plus commission once a certain production level is reached. This type offers associate veterinarians an opportunity to improve earnings through increased production, while affording a certain level of protection because the income cannot fall below a certain level. However, the base guarantee that many veterinarians are being offered under this arrangement is of- ten so low that doctors rely on their commission to make a living wage. Production-based compen- sation with a guaranteed base salary. Sometimes referred to as ProSal, this strategy pays asso- ciates a guaranteed monthly draw and the production bonus is recon- ciled monthly, quarterly, half-yearly or even yearly. Reconciliation can be with or without negative accrual. Production-based com- pensation with negative accrual. A negative accrual occurs when associates have been paid more in draws than their calcu- lated production compensation. This results in associates owing the practice money, which is typically deducted from future paychecks. Benefits and Drawbacks From the practice owner's perspec- tive, production-based compensa- tion motivates veterinarians to work hard, since the more they work, the more they earn. It also encourages associate veterinarians to consider the business aspects of the practice and discourages them from dis- counting and giving away services. In a multidoctor practice, tracking production provides a measure of each doctor's productivity. For associate veterinarians, produc- tion-based compensation can be an opportunity to earn well above the industry's traditionally low salaries. On the other hand, produc- tion-based compensation encour- ages veterinarians to focus on money rather than on practicing high-quality medicine and provid- ing outstanding client service. It forces veterinarians into a paradigm of getting the maximum average transaction from each client visit, rather than focusing on the lifetime value of the client to the practice. It motivates veterinarians to prejudge clients and discriminate with whom they spend their time, making sure they squeeze in their frequent high-value customers and short- change the clients who cannot afford a full diagnostic workup. While production-based com- pensation allows veterinarians to benefit in economic booms and when the practice is doing well, it also forces them to assume the risks of business ownership without having any control over decisions such as the number of doctors or the quality and quantity of support staff. Both of these hiring decisions can significantly affect a single veterinarian's ability to produce. Business decisions about payment plans and the collection of receiv- ables, as well as employee dis- 1 2 3 4 It's time to do away with production-based pay and all its ills. The alternative: profit sharing and a formula for robust professional growth. Continued from cover

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