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March 2009

 
Practice Perfect: Business Operations & Finance
Boost Practice Efficiency, Part 12: Bonuses—Get a Bigger Bang for Your Buck
By Leslie Burling-Phillips, Contributing Writer
 
 

A carefully structured bonus program can enhance employee performance and morale, improve patient care and satisfaction, and boost practice efficiency. “It is one of the best decisions that we made. In the four years that our program has been in place, it has tremendously improved efficiency and camaraderie with our staff,” said Lori L. Collins, office manager at a private practice in Roseburg, Ore. “It has made an incredible difference in how our employees work together, which makes my job as manager easier. We all help each other because our goals are aligned and we function as a team.”

However, when not structured correctly, an incentive program can be counterproductive, undermining both practice efficiency and staff morale. Here’s how to avoid some of the common pitfalls and some advice on implementing a successful bonus program.

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Eliminate Ambiguity

Gift or bonus? Make it clear. Christmas and end-of-year bonuses are common. If you currently give your employees an annual bonus, examine your intent. Is it a gesture of appreciation for a year of hard work and increased profits or has it become an obligatory extra “paycheck” that your employees have come to expect? “Theoretically, if you decide to give your employees a gift, it should be because you want to and, as a gift, it should have no strings attached,” said Steven R. Robinson, OCS, COE, a practice management consultant in Ooltewah, Tenn. “When physicians give their employees gifts at Christmas, employees begin to view the gift as an entitlement. From there, things can quickly spiral out of control because a precedent has been established. In the following years, many employees will have already spent their anticipated bonus before it is even received. In fact, they often expect the bonus to increase each year.

“When physicians give employees an arbitrary gift, they should give the same gift to everyone, and it should not be of any substantial value,” said Mr. Robinson. “If you want to reward your employees for a job well done, a bonus program should be instituted.”

Define goals and measurable criteria. Bonus programs are often cloaked in mystique. “They generally are not predicated on anything tangible or measurable and tend to be driven by subjective decisions about whether or not a bonus should be given, how much it should be and who should receive it,” said Mr. Robinson. The absence of a practice policy delineating what employees must do in order to earn a bonus creates a sense of uncertainty. Establishing a program that clarifies employee goals and then linking the bonuses to those goals will eliminate ambiguities.

Before implementing an incentive program, you should evaluate your practice and set forth parameters that will guide any decisions involved with determining whether a bonus is warranted. “One of the key factors relating to the success of a program is making sure your employees feel that the bonus is fair. They must understand that they will be rewarded based on certain measurable criteria,” explained Mr. Robinson. Most important, “meet with your staff and let them know that it is a bonus and not an entitlement. It must be earned,” added Ms. Collins.

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Design Your Program for Success

Include all of your employees in the incentive plan. Because everyone in your practice plays a vital role in the success of your business, all employees should be included in the incentive program. “This gives everyone a sense of ownership in the practice, which should ultimately be the goal in any practice,” said Mr. Robinson.

At her practice, Ms. Collins administers a “win-win” bonus plan. The practice physician predetermines her profit goal. Any revenue earned above this amount is earmarked and placed into a bonus fund. Fifty percent of that amount is shared among all practice employees on a quarterly basis, which helps to keep staff focused on the bottom line throughout the year, and the rest of that amount remains in the bonus pool until the end of the year. At that point, members of staff receive a profit-dependent bonus from the withheld funds. By withholding these funds until the end of the year, the practice guards against the situation where a quarter of high profits is followed by a quarter of deep losses.

Should you give the same dollar amount to each employee? When Ms. Collins’ practice distributes bonuses, each staff member receives the same amount. “This has helped staff gain respect for one another’s job, as we all help each other attain our practice’s goals,” she said. “Maybe this has worked so well for us because we’re a small practice, with one physician and six employees. We are like a hand with five fingers, and when every finger does its job—including helping the other fingers—things get done much more efficiently. In other words, no one employee is ‘worth more’ bonus-wise to the practice.” Ms. Collins would, however, consider not paying the bonus to an underperforming employee. “Of course, you should meet in advance to explain your reasons.”

Mr. Robinson notes that divvying up the bonus equally can work fine for some practices—particularly if the bonus is small, perhaps $200 each. But for other practices, he warns that sharing the money equally could undermine the bonus system. “How would you feel if you’re working long hours, applying yourself diligently and capturing large sums of money for the practice—and have done so for years—and you receive the same bonus as somebody who is doing a less responsible job, has only worked there for six months and is ‘elbows across the parking lot’ at 5:01 p.m.? For a bonus system to influence employees’ behavior, they must feel that the system is fair; that, through their own efforts, they can each impact their own financial destiny; and that the dollar amount will be high enough to catch their attention. I think a bonus needs to be between 6 and 10 percent of a person’s annual salary to have much effect.”

If you don’t give everybody the same dollar amount, how do you share the bonus pool? Mr. Robinson recommends a system that uses three criteria: longevity, salary and job performance (see “One Formula for Success”). Such a system, said Mr. Robinson, can be particularly useful when employees have “topped out” their pay scale. “You can use the bonus to keep things exciting for them.”

Beyond the dollar—consider alternate incentives. While bonus money may be the foremost preference for many employees, some may desire other options, such as time off with pay. “We live in a society that greatly values time,” said Mr. Robinson. “Sometimes employees would just like to take some extra time off from work beyond what they are automatically allocated, whether it is to take a short vacation or to spend the day with their family. In these cases, employees could exchange bonus money for time with pay. Or, employees could split their bonus between money and time off with pay.”

Maintain morale when bonuses are not awarded. When the bonus goals are not met, the staff should be given a reason (such as higher expenses or lower reimbursement) so they do not become discouraged. Ms. Collins offered an example: “The first time that we did not earn a bonus, I knew we had not achieved our goal ahead of time. So, I met with the staff and discussed it with them. Of course, everyone was disappointed. This is when effective management strategies must be used. It is essential to rally the staff and remind them that the next bonus period begins tomorrow. We start over together. It also is important to let our employees know that the shortfall may not be a direct result of their performance.”

Ensure the bonus program is a success. Management styles can vary considerably from person to person and what works for one practice may not work in another. Finding new ways to keep your staff motivated is important.

To ensure your program succeeds, a physician should actively champion it. “Promoting bonuses and not following through could cause problems for a practice,” said Ms. Collins. “If a physician is not ready for this kind of commitment, then this is probably not the best program for them.”

A successful bonus program can boost a practice’s bottom line. And when the practice takes in a greater profit, there is more money available in the bonus pool to draw from, thus creating an ever greater incentive for employees to perform efficiently in the future.
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Contact Mr. Robinson via “Advantage Administration” who are listed at www.aao.org/aaoesite/consultant.

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One Formula for Success

Although the configuration of each practice varies, there are a number of formulas available to help you establish a bonus format designed to fit your needs. Mr. Robinson recommends allocating a percentage of the profit to be distributed among the practice’s personnel based on a point system.

Example: There is $100,000 of bonus money to be divided. The practice decides to allocate 20 percent of this based on longevity, 20 percent on salary level and 60 percent on job performance.

$20,000 is allocated according to longevity. For every month an employee has worked in the practice, a point is awarded. Take the total number of points for all employees and divide them into $20,000, so every point is worth “x” dollars.

$20,000 is allocated according to salary level and is distributed in a similar manner with, say, every $100 dollars of salary being worth a point.

$60,000 is allocated according to job performance, with the points based on each employee’s evaluation scores. Add all the points together and divide the sum into $60,000.

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