Dr. Robert Esplin is the owner of a state-of-the-art, 16,000-square-foot small animal practice near Toledo, Ohio. Sylvania
Animal Hospital, which he opened in June 1974, utilizes the talents of five veterinarians, each one supported by six team
members. The practice features 24-hour care, temperature-controlled ICU cages with supplemental oxygen, an underwater treadmill
for canine physical therapy, and its own blood bank.
Across four decades, Dr. Esplin has cultivated the fruits of practice ownership. But recently, the issue of associate compensation
left a sour taste. When he offered to pay one of his doctors 18 percent of her production—a number he based on years of research
about compensation—she told him his offer made her feel disrespected. "She has no idea how angry that made me," Dr. Esplin
PRODUCTION? SALARY? BOTH?
No subject is trickier (or produces more frustration) for doctors on both sides of the owner-associate divide than associate
compensation. To figure the real cost of, say, a dental extraction—and consequently determine what the associate who performed
the surgery should be paid for her work—the practice owner must consider everything from electricity to continuing education
to floor wax.
It's no wonder that owners and associates alike become overwhelmed when it's time to talk turkey. And it's no wonder that
they've consistently searched for a reliable way to determine appropriate compensation. Paying doctors a straight salary is
the simplest approach, but some say it eliminates the motivation factor. Paying doctors a percentage of the gross revenue
they produce rewards associates for their efforts, but other experts say it encourages unhealthy competition. In fact, ask
five different experts what they think about associate compensation, and you'll likely get five different answers.
One prominent voice among these experts is Veterinary Economics Hospital Management Editor Mark Opperman, CVPM, owner of VMC Inc. in Evergreen, Colo. He's developed a system called ProSal,
which promises the best of both worlds by guaranteeing associates a base salary but paying them based on their actual production.
ProSal and other production-based compensation models have become extremely popular in the last 20 years, being used in as
many as 77 percent of practices, according to Benchmarks 2009: A Study of Well-Managed Practices by Wutchiett Tumblin and
Associates and Veterinary Economics. But some are questioning whether production-based pay is still the best choice for current economic times. What's more,
these industry analysts say, paying for production doesn't really provide the sort of motivation a modern practice needs to
flourish into the future. Are they right?
For Opperman, the answer is clear. "ProSal is perfect in this environment," he says. "Practices that aren't on ProSal now
need to be."
In fact, he says, practices that use ProSal are currently faring better financially than those paying associates a fixed salary.
"It's doing what it should be doing," he says. "On ProSal, the veterinarian is more motivated to offer a full-service approach
and to charge for all the services provided."
The basic ProSal formula is this: Associates receive a guaranteed base—let's say $70,000—however, they're paid based on a
percentage of their actual production. That percentage can range from 18 percent to 25 percent, as determined by the doctor's
benefits package, the number of support staff at the practice, and other factors. (For a refresher, see Squashing ProSal myths.) "Those are the golden numbers," Opperman says. "They haven't changed with the recession—they're based on the actual cost
of doing business."
But Dr. Esplin says ProSal has never computed for his practice, at least not at the percentage his associate was expecting.
"When I look at how I would apply production compensation to my practice, which is heavily leveraged with nearly six techs
and assistants on staff per doctor, it's not sustainable financially," he says.
CHANGING TIMES, INCREASING COMPLEXITY
Another practice management consultant, Owen McCafferty, CPA, CVPM, of North Olmsted, Ohio, believes doctor compensation needs
a fresh look. He says the idea of production-based pay originated in the 1970s with the late Don Dooley, a "practice management
grandfather" (and a Veterinary Economics Editorial Adisory board member until his death in 2004). Dooley, McCafferty says, developed the idea that emergency clinic
veterinarians ought to be paid 35 percent of the gross income they generated (the low-volume nature of these businesses being
the reason for the high percentage). The idea began to catch on in other types of practices as well, with Dr. Ross Ainslie
of Halifax, Nova Scotia, being the first to use production-based pay in general practice in the late 1970s, McCafferty says.
Deriving compensation from one element of service—production—was simpler than assessing a doctor's total contribution and
basing his or her salary on that. So production-based pay became increasingly popular.
Through the 1980s and later, the parvovirus epidemic generated "a massive amount of dollars" through services alone, McCafferty
says. Consequently, production-based pay became even more entrenched. And Mc-Cafferty says this allowed doctors to neglect
other aspects of practice-building."In those days," he says, "a veterinarian's role was not to develop the practice but simply
to provide services."
Today, McCafferty says, veterinary hospitals are more focused on diagnostics, which requires more sophisticated and expensive
equipment. Andthe support team plays a greater role. While employee pay accounted for 14 percent to 16 percent of gross revenue
in the mid-1970s, it now takes 18 percent to 22 percent—or as high as 28 percent for practices that emphasize team-building,
These changes, he contends, mean the veterinarian's contribution is just one of many factors in the interplay of revenue against
costs. "If you're measuring the effects of the doctor in a practice with state-of-the-art diagnostics and facilities and a
highly leveraged support staff," McCafferty says, "that's a different situation from the doctor with little assistance." Associate
production doesn't, for example, account for contributions such as visibility in the community, team building, continuing
education, efforts to build client loyalty, and other forms of practice furtherance, he says.
The upshot, McCafferty believes, is that the traditional 20-something production percentage used in most compensation formulas
is antiquated. "But the student coming out of veterinary school doesn't have the benefit of this historical perspective,"
he says. "Instead, there's this perception that if you don't get 'blank' percent of gross, something's wrong."