Why bonus plans may not be the best way to reward employees

By Sally McKenzie, DrBicuspid.com contributing writer

November 7, 2019 -- Like many other businesses, dentists have relied on bonus plans to motivate their team members since the late 1980s. The financial perks bonuses offer are supposed to encourage employees to improve their performance and contribute to practice success, but, unfortunately, that may not be the case. The reality is that bonus plans may have the opposite effect.

Sally McKenzie
Sally McKenzie, CEO of McKenzie Management.

When team members know bonuses are in play, they might spend time thinking about what they need to do to get that bonus check rather than focusing on what's best for the patients and the practice. And if they miss out on the extra money that month, they can become irritated, which shows in the way they interact with patients as well as one another.

Now I'm not saying you shouldn't reward your team members for a job well done. They work hard, and when they meet goals, they should receive something extra. Bonus plans just aren't always the best way to do it. Nonmonetary rewards can be just as effective.

Not convinced it's time to rethink the way you handle bonuses? It might be time to take an objective look at some of the issues a monetary bonus system can bring to your practice:

Bonus plans often lead to financial troubles. I've seen dentists give out bonuses even when their total employee costs sit above the industry benchmark, which is 20% to 22% of revenue with an additional 3% to 5% to cover payroll taxes and benefits. Doing this sends overhead costs skyrocketing, making it more difficult to cover monthly bills. So while your employees are happy to receive that bonus check, it puts their job at risk and the practice's future in jeopardy.

Bonus plans could lead to team conflict. Not all of your employees do the same amount of work. Some simply contribute more than others, but if you implement a monetary bonus system, everyone receives the same reward -- no matter what. So the employees actually responsible for practice success receive the same amount as those doing the bare minimum. That can be pretty frustrating for your harder working employees and may lead to team conflict or even turnover.

You might start resenting your employees. When practices see more new patients and increased production, it's often a direct result of something you've done. It could be because you invested in new technology or started offering a new service. Whatever the reason, it has nothing to do with your team -- so why should they be rewarded for your efforts?

There are also times when practice growth occurs thanks to random luck. Maybe a new business moved in down the street, for example, and many of the employees decided to call your practice their new dental home. Again, your team members did nothing to attract these patients, yet they're taking home more money -- while you're the one who absorbed all the financial risk.

It doesn't make sense to give out bonuses in these situations. However, if you're like most dentists, you do it anyway because you know team members won't be happy if you tell them they're not getting the extra money they're expecting. So you write out the bonus checks, becoming more resentful with each one you sign.

It becomes all about the money. If team members are working toward a bonus, all they think about is what they need to do to earn that bonus. They're not thinking about improving their performance, which defeats the purpose of offering bonuses in the first place. Meanwhile, they're ignoring the fact other critical numbers are down, such as patient retention. They reach their bonus goal, and even though other systems are underperforming, they still get their check. They're happy for the month, but the practice continues to suffer.

Bonus plans can make you and your employees financial adversaries. When you pay out bonuses based on the practice's profitability, it keeps you from taking full advantage of tax laws that minimize annual tax payments. While you want to minimize your profits to lower your tax burden, your team members want you to report as much profit as possible. Why? It increases their bonus.

To avoid this, some dentists opt to pay bonuses based on production. While that sounds like a good solution, it really isn't. You might be in a situation where you produced $600,000 last year but spent $650,000 to do it. That's why it just doesn't make sense to pay bonuses based on production before factoring in production costs.

Bonus plans may not motivate employees to excel but rather motivate them to do what it takes to earn their bonus. There are much better ways to thank your employees, which is why I recommend implementing a nonmonetary bonus system that rewards individuals for their performance and a job well done. You'll no longer have to deal with resentment and conflict, and team members will actually be motivated to improve their performance, not just to get that bonus.

Sally McKenzie is the CEO of McKenzie Management, a full-service dental practice management company. Contact her directly at 877-777-6151 or at sallymck@mckenziemgmt.com.

The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.


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