Originally published in the September 2001 Dental Practice Report. Copyright 1999-2002 Medec Dental Communications.
Under a "gainsharing" model, employees are rewarded as a team for practice success.
by Deborah Odell MBA
Are you struggling to hire new employees? Are you concerned your long-term team members may be looking for greener pastures? If you answered yes to either question, you're not alone. Dentists across the nation are trying to figure out how to recruit and retain the best employees in today's competitive environment.
The compensation package you offer could be the key to your success. Take a look at your model. Do your loyal and productive staff members feel rewarded for their efforts? Do potential new employees see your practice as an opportunity with a future?
Traditionally, dentistry has relied predominantly on the standard hourly-salary-plus-benefits compensation model to motivate employees. This model, while necessary, has inherent drawbacks. It typically is based on individual skill and performance and does not encourage teamwork, group accountability or a sense of "ownership" among employees. As the employment landscape changes, it becomes clear that today's employees want more than the traditional model.
Many companies, who compete with you for qualified personnel, recognize that "intellectual property" is the current commodity in the employment market. That means people and their ingenuity, creativity, attitude and aptitude are the key to business success. In order to ensure employee retention, companies are focusing on "inclusive" compensation packages like stock options. These models acknowledge that employees want to be included in their workplace's success. To compete, dentists may need to develop alternate compensation strategies that "share the wealth" with their staff.
"Gainsharing" is one such strategy that can augment the traditional model and reward team members for group and practice performance. Although gainsharing has become more popular in recent years, it is not new. The original concept was developed by Joseph Scanlon, a cost accountant, in the 1930s and was first used in the manufacturing industry. Most recently, gainsharing has been adopted by dot.com companies who recognize the relationship between increased productivity and pay-for-performance strategies.
Companies adopt pay-for-performance models to hold the line on base pay increases and to make a portion of each employee's pay variable and tied to performance. For years, many dentists have used traditional incentive or bonus plans. So, why change?
Most bonus plans are based on individual performance and require individual measurements. As long as the individual measurements can be maintained, and there is no need for teamwork among employees, individual incentives can work. However, individual incentives become harder to administer as the base standards of performance change.
Let's look at the bonus on collections model used in many practices today. Most dentists initially implement this system to generate cash. They set a collection goal, and each month it is achieved the team gets additional compensation. The only measurement is dollars collected. There is no acknowledgement or measurement of the systems that generate the dollars collected.
This system works well until the cash flow problem has been solved and accounts receivables are in line. At some point, dentists begin to feel trapped by the bonus system. Not only do they feel they are paying more than they should, but when the collection goal isn't achieved—and a bonus isn't paid—the staff gets angry at the dentist. The focus is no longer on practice prosperity, but compensation.
Gainsharing encourages employees to become involved in developing strategies that increase practice efficiency and effectiveness while increasing profits or gains. Those gains are then shared between the owner and his or her employees.
The benefits of gainsharing are:
The bottom-line: Gainsharing promotes teamwork, cooperation and a long-term interest in achieving group and practice goals.
1. Pinpoint objectives and measurements. The formula for calculating gains and payouts depends on your practice objectives and measurements. One common objective is to increase either production or collections.
To begin, you need to set a baseline. For production, your baseline can be determined by calculating your expense forecast for the coming year and dividing the total dollar amount by your current collection percentage. This formula ensures that you are producing enough to pay your bills.
Now that you have a baseline, any production over the baseline is a gain. Each quarter, calculate your gains, determine a percentage split and share the wealth with your team. A safe range norm would be 25 to 35 percent. I recommend quarterly gainsharing because it increases the likelihood that the production increases are a result of change, not a fluke.
For example: Let's say you set this year's practice production goal at $520,000—that's the baseline. During the first quarter, the team exceeds the baseline of $130,000 by $10,000. After subtracting the costs associated with the gain, you allocate 30 percent of the remaining gains evenly amongst the team.
Although production and collections are the most common baseline measurements, they are not the only practice objectives. Say you've recently completed a continuing education series on cosmetic dentistry and want to increase the number of cosmetic procedures you perform. You determine a baseline as follows:
Baseline: per quarter
With this plan, your team has a measurable goal. If they contribute to achieving the gains associated with the procedural shift, they will be rewarded. In this case, the rewards come from every dollar of treatment accepted over $96,900. With this model, you can share the wealth in confidence knowing that the excess in treatment acceptance means extra dollars collected.
2. Develop a system for employee participation. A system must be in place to encourage employees to participate in the achievement of gains. In a dental practice, the best system for this is the monthly statistics meeting, where the team reviews practice performance.
For this meeting to be meaningful and productive, each staff member must be able to analyze practice statistics and provide solutions for gain achievement.
The minimum statistics to be reviewed are:
During the meeting, decision making is a team event, and staff members hold each other accountable. An action tracking worksheet is a great way to do this. The worksheet tracks action items, to whom they are assigned, completion date, follow-up date and who is responsible for following up on task's completion.
3. Determine the best method of funding. Many doctors believe that if they pay a bonus based on excess collections it's a win-win motivator. This isn't always the case. For example, if you rely on an increase in collections to fund your bonus plan, and the increase in collected dollars still doesn't cover the bills, you have merely increased your expenses in association with the increase in collections. Gainsharing plans must be funded by dollars that are in excess of goal. Increased productivity and an effective collection system are the safest ways to ensure funding for your plan.
4. Focus employees on the necessary skills. Because employees earn bonuses or payouts based on group performance rather than individual performance, they need to understand the elements of effective teamwork and group dynamics. They must be able to brainstorm, communicate well, generate solutions and resolve conflicts.
Training is the best way to improve your staff member's ability to work together as a team. Whether you hire a consultant or train yourselves, everyone must have the opportunity to practice the team skills. Allocating one staff meeting a month to practicing—not talking about—communication skills will dramatically increase team cohesion and productivity.
Battling today's employment environment requires a comprehensive compensation strategy. By incorporating gainsharing into your current model, you increase the likelihood of satisfying additional employee motivators. Gainsharing provides a sense of belonging and satisfaction in knowing the rewards are for tangible contributions. o