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 change. To establish an effective incentive program, you need to follow specific steps. Make sure to link incentives to desired goals, keep incentives from becoming entitlements, link incentives to employee desires, make plans easy to administer and understand and link individual and group performance. The following example is used in practice and may be adapted to the reader's practice.¹¹

All team members receive a share of the practice's net profits 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 from practice earnings, including team member and dentist wages. (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 distributed to the team members at the end of the fiscal year. Retaining 50% of the team member's share of net profits allows for quarters when there is a loss or negative profit. Twenty percent of the 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 consider 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 more significant 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 profit deposited in the interest-bearing account to be distributed at the end of the year.

Partnership remuneration benefits everyone in practice. The team members benefit by earning additional money beyond their regular salary. By seeing that they can influence how much they 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.¹² Team members other than hygienists, office managers, and dentist associates are eligible for incentive payments only if the practice's overhead 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 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 share practice profit similar to what was described ONLY if the practice achieves all three targets. Higher incentives are offered when overhead levels decrease 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.