What to do with an overcompensated employee

What to do with an overcompensated employee

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Apr 01, 2011

The overcompensated employee is more common than most veterinarians care to admit. This scenario often presents itself when a good employee has been on the job for so long that a simple compounding of reasonable yearly raises has given him or her an unreasonably high salary. The employee expects an annual cost-of-living raise, but from your perspective, her compensation has become excessive.

You can solve this problem in part by giving smaller raises and by using tax-free fringe benefits in lieu of raises. This arrangement benefits the practice, since there are no federal or state income taxes or matching payroll taxes on the value of tax-free fringe benefits, says John McGill, MBA, JD, CPA, a tax attorney in Charlotte, N.C. Retirement plan contributions aren't required on the value of these benefits either.

But once you reach the point of overcompensation, you have a business decision to make: Should you continue to overpay the team member or risk losing her if you fail to grant another raise? Consider this: If you were to lose this team member, could she get another job at an equal salary? If the answer is no, then she's probably overpaid, in which case she'll probably stay with the practice even if she's not offered a raise. And if she does decide to leave, is this really a negative in the long run?

Veterinary Economics Editorial Advisory Board member Bob Levoy is the author of 222 Secrets of Hiring, Managing, and Retaining Great Employees in Healthcare Practices (Jones and Bartlett, 2007).

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