Salary vs. production

Salary vs. production

Feb 01, 2006

ASK THREE CONSULTANTS WHAT'S THE best way to compensate associates, and you'll get three different answers. Some say salary. Others stick by paying based on a percentage of production. I go for the best of both worlds with an approach I call the ProSal formula. With this approach, you pay associates based on a percentage of their production but offer a guaranteed base. So they can't make any less than the base, but they have an opportunity to make more—and an incentive to offer pets all the care they need and capture charges for the services and products they offer.

How ProSal works

Let's say your associate makes 21 percent of her production with a guaranteed base salary of $60,000. Under ProSal, you'd pay her twice a month, not every other week—so in those months when other employees may get three checks, she'd still only get two.

To determine the amount of the first payroll of the month, divide the guaranteed annual base of $60,000 by 24 pay periods to get $2,500. For the second payroll of the month, determine the doctor's production for the previous month, take 21 percent of that amount and subtract from that the $2,500 that's already been paid.

Associate know-how
For example, Dr. Jones receives 21 percent of her production with a guaranteed base of $60,000. Her production during January was $31,000. In February, she received her first paycheck for $2,500 less payroll taxes. Her second check was for $4,010—or (21 percent x $31,000) - $2,500. (See Figure 1 for more.)

Basically, the second paycheck trues up the employee to her production for the previous month. If it was a productive month, the second check will be more; if it wasn't a productive month, the check will be less. At year-end, if the associate didn't reach her guaranteed base, you'd pay the difference.

Why do I suggest paying this difference at year-end instead of monthly or quarterly? Because this method introduces a fear factor, which pushes associates to do well. The second check of the month isn't a set amount. It could be $5,000 or $0, depending on the previous month's production.

In fact, if you're making up the difference at the end of the year, then the associate's overcompensated; she's not generating enough revenue to justify her salary. Yet this rarely happens. I know hundreds of associates paid on ProSal, and only two didn't make their guaranteed base last year.

Now it's important to clarify that production isn't just about making more money. Generating income is about offering comprehensive services and charging for those services. When practitioners take the time to talk to the client about preventive procedures, dentistry, senior wellness programs, vaccinations, fecals, heartworm preventive, and so on, they'll generate income. Instead of just sending home an ear medication, your associate could do an ear cytology first. Is that good medicine? Yes. Will it generate more income? Absolutely.