In part 2 of this series, I answered, “How do you select the right person?” In part 3, I discuss pay structure in an employment agreement.
You’ve analyzed your readiness to hire an associate, and you’ve found the right fit. Now, it’s time to determine a mutually beneficial pay structure. There are 3 main pay structures:
1. Per Diem/Salaried
Here, the associate is paid a set amount regardless of number of patients seen or revenue generated. This can be per day or as a yearly salary, though I recommend a set amount per day, so that the associate is paid solely for days worked. Salaried associates would be paid a yearly amount regardless. The exact amount depends upon the optometrist’s city/state.
The benefits: a predictable payroll for the practice and guaranteed income for the associate. Also, as the associate generates more revenue over time, the practice retains higher profits, as the payroll is fixed.
The downside: The associate has no incentive to continue to grow the practice, as their salary remains unchanged.
*Note: Non-retail practices may utilize this structure, as the clinic schedule alone determines revenue generated, therefore limiting the amount of influence the associate might have over the day’s production.
2. Commission-Based
This type of arrangement is the “eat what you kill” approach.
The benefits: It allows for in-creased profits for the practice, and more money earned for the associate, as the associate has a significant incentive to grow the schedule and practice revenue.
The downside: This pay struc-ture is much more difficult to predict or budget for and can deter new associates if they feel unsure about how much money they will consistently bring home.
*Note: This is a particularly challenging structure for younger growing practices or those adding doctor days, as those schedules will likely start relatively bare.
3. Hybrid-Based
This is a combination of the per diem/salaried and commission-based pay structures.
The benefits: The associate has the financial security of a set rate, which gives them peace of mind, particularly when building a schedule, and the commission earned on revenue generated incentivizes the associate to grow the practice through sales and specialty services. Also, the practice sees a more predictable payroll expense and the likelihood of increased practice revenue.
*Note: I have found that a great strategy for this structure is to set a daily pay rate that you and your new associate are comfortable with, then offer a bonus equal to a percentage of revenue from the associate’s patients minus daily salary. (Example: $450/day, 5 days per week = $9,750 per month salary if the associate works every day. With a 10% commission bonus- less salary method, if the associate generates $150,000 in a month, she will earn a bonus of $5,250 for that month ($150,000 x 0.10 - 9750 = $5,250.00)).
Determining the Right Structure
To decide which structure is best, a hiring manager should evaluate the expected patient load for the associate (taking over a full book lends itself more to commission-based pay vs a newly added clinic day, for example), the practice’s budget (if the practice can afford a set per-diem regardless of income that day vs if they can only pay based upon what is generated), and the practice’s design. OM
