How Partnership Pay Works

There are many types of bonus formulas in dentistry and an individual practice may have to experiment with different plans before settling on a plan fitting the practice’s style and size. Additionally, bonus formulas are not static and should be evaluated and updated as the needs, size and influence on team motivation changes. The following plan was used in the first author’s practice and may be adapted to the reader’s practice. ⁹

All team members receive a share of net profits generated by the practice each quarter year. (New team members are not part of the bonus plan for the first 90 days of hire.) Net profit is calculated by subtracting all paid bills, including team member and dentist wages, from practice earnings. (It is assumed the dentist takes a set salary at regular pay periods). All team members, excluding the dentists, receive a share of 10%-20% of net profits each quarter. Of the 20% share of the quarterly profit, half (10%) is distributed quarterly to the team members and half (10%) is deposited into an interest-bearing account that is distributed to the team members at the end of the fiscal year. The retention of 50% of the team member’s share of net profits allows for quarters when there is a loss or negative profit. Twenty percent of negative profit is removed from the interest-bearing account, and the team members do not receive partnership pay for that quarter. A team member who leaves the practice before the end of the quarter is excluded from the profit sharing.

Using wages earned is a simple and fair way to determine a team member’s value to the practice. Team member wages takes into consideration the team member’s training, professional degrees, experience, and hours worked during the quarter. As illustrated, Eileen, the hygienist is paid more per hour than Marge. However, Marge works significantly more hours than Eileen and thus receives a greater share of partnership pay.

If, in a subsequent quarter, the practice shows a loss or no profit, the team members do not receive quarterly partnership pay. Twenty percent of the loss is deducted from the portion of profit deposited in the interest-bearing account that was to be distributed at the end of the year.

Partnership remuneration benefits everyone in the practice. The team members benefit by earning additional money beyond their regular salary. By seeing they can influence the amount of money they can earn, team members are motivated to provide superior service to patients and control costs. The employer dentist benefits by having motivated team members, satisfied patients and the freedom from the worry of providing incentives to team members the practice cannot afford.

Dr. Mark Costes from the Dental Success Institute proposes an alternative incentive pay system.¹⁰ Team members other than hygienists, office managers and dentist-associates are eligible for incentive payments only if the overhead of the practice reaches 60% or less. Once that goal is achieved, profit-sharing incentives are provided to team members when three key performance indicators are met in the practice monthly: an established dollar amount of net production (the amount that can be billed after adjusting for any reduced fees from dental insurance or government programs); a set dollar amount for actual collections; and an ongoing goal for overhead percentage at or below 60%. Team members join in sharing of practice profit similar to what was previously described ONLY if all three targets are achieved by the practice. Higher incentives are offered when overhead levels are decreased over time to 55% and 50%. In Dr. Costes' approach, hygienists are offered incentive profit-sharing when their generated revenue meets a goal of 3.3 times their monthly compensation.