I’ll be blunt. If you’re wondering whether you can afford the salary of your next employee, or how you can financially justify raises for your current team, you may not have a compensation system.
If you approach compensation in any of the following ways, you have a method, not a system.
- You mechanically give every employee an annual cost-of-living increase and hope for the best.
- You hide out until employees approach you for raises.
- You dole out raises piecemeal at each employee’s anniversary date.
- You mechanically give every employee an annual cost-of-living increase and hope for the best.
- You hide out until employees approach you for raises.
- You dole out raises piecemeal at each employee’s anniversary date.
When you don’t have a compensation system, you don’t understand your true payroll costs, and your salary decisions can be reactive, subjective, and unfair. Without a system, everyone approaches compensation gingerly and with a similar amount of dread.
Tenets of a healthy compensation system
Like any other operating system, a compensation system should be perceived as fair, objective, and transparent. It should support employees’ financial, social, and emotional well-being and, crucially, it must be affordable for the practice.
A healthy compensation system is based on these beliefs:
- Compensation matches the attributes/skills of the employees you want to attract and retain. The way you compensate employees should reflect your values and business philosophy. For example, if your fees are in the 80% range, then your salary levels should be as well.
- Raises are linked to employee performance. This belief is controversial but also essential if you want to ensure that payroll is affordable and tied to employee efforts. To earn a raise, an employee must improve their contribution. Simply doing the same thing year after year may keep someone employed, but it doesn’t merit an increased investment from the practice. Raises should award growth, not longevity.
- Raises must be affordable for the practice. Due to inflation, in the last few years many dentists have given everyone a cost-of-living increase and justified it by increasing fees. But doing this every year is not sustainable. (I can introduce you to a long-term dental assistant who makes $90,000 a year.) In general, raises should be given only if the practice is profitable and an employee merits it by their performance.
- Affordability is determined by an increase in collections. A practice is defined as profitable if there is an increase in collections compared to the previous year and if the amount collected exceeds expenses. This means that raises are considered at the same time of year for everyone once the final collections number is in.
- Raises are drawn from a salary pool created from a portion of the collections increase. Dentists choose how much they want to allot toward a salary pool, with the rest of the collections increase reinvested in the practice.
- Employees understand the compensation system and how the dentist determines raises. Employees must know if the practice is profitable enough to offer raises and the standards used to determine whether an individual merits a raise. For this system to succeed, there must be frequent, individual feedback so that employees can achieve their performance goals. It also means that the team can track practice production and collection numbers.
Does your team expect annual raises?
It’s healthy and normal to want to make more money and be recognized for your performance. Partner with your employees and explain that if they want raises, they need to collaborate to ensure that they collect more this year than last year. This will generate a salary pool for the whole team. If they want a larger slice from that pool, they need to develop and achieve performance goals.
