Compensating Doctors by Salary Still Works!

The question, “What is the best system for compensating practicing veterinarians?” is fiercely debated in veterinary medicine today. Production pay is the answer getting most of the attention lately, but I think the benefits of paying a set salary are often overlooked. 

The goal of any compensation system is to provide a reasonable wage for work performed over a period of time. You should look only at the average dollar amount paid out over the period of time, not the percentage of revenue. You spend dollars―not a percent! 

A practice should determine how much money it can afford to spend on compensation and set salaries accordingly. If salaries are too high compared with gross revenue, other areas, such as equipment replacement and owner return on investment, will suffer. If salaries are too low, morale will suffer and the practice will have trouble keeping good employees. 

For most veterinary practices, I prefer paying salaries rather than paying by commission for the following 3 reasons:  

1. A salary system keeps your practice client-focused 
A key to maintaining long-term practice growth is making sure you remain focused on your clients. The veterinary profession is dedicated to maintaining animal health, but it is the client who books the appointment, follows compliance recommendations, and pays the bill, and we need to concentrate on ways to best serve our clients and provide what they need and want rather than focus on additional services to boost the bottom line. 

A compensation system based on a single metric will greatly encourage more of the behavior that increases that metric. In a commission-based pay system, the doctor can be motivated to bill more because he or she will be paid more. A salary system takes pay out of the equation and allows the veterinarian to focus on what is best for the patient and client instead of basing his or her medical decisions and recommendations on potential pay. It is important that clients trust your practice and know that the veterinarian’s compensation is not tied to the services they receive. 

A chain of tire stores founded in the western U.S. more than 50 years ago, called Les Schwab Tires, has the slogan: “You come in, we come running.” The employees literally run around the tire shop as they replace tires, shocks, and batteries. I asked if the employees were motivated to work so quickly because they were paid on commission, and was told, “No. We are paid a set salary, because we are expected to give as much attention to an elderly lady wanting a free tire rotation as we give a young man purchasing custom tires and wheels for his 4-wheel-drive pickup.” (Each employee does, however, receive a significant share of the store’s yearly profits.) 

2. Paying a salary encourages teamwork 
A salary system helps reduce competition because the veterinarians already know how much they will be paid each month. They know their compensation will be the same whether they see a dog for a routine vaccination or conduct an exploratory surgery on a cat. It is likely they also will share cases more, since their compensation isn’t tied to a specific case or procedure. Conversely, with commission pay systems, veterinarians are more likely to compete for specific patients or high-dollar procedures because of the pay potential, which can negatively affect the team attitude. A salary system can help promote a team-based approach that rewards the achievement of long-term practice goals rather than short-term individual goals. 

Some believe that a salary system decreases productivity because veterinarians receive the same pay no matter how hard they work or how much they do, but many practices using salary systems have very motivated, productive veterinarians. Sound management and leadership will help maintain an environment where employees are productive and motivated.  

A salary system also eliminates potential conflict in a practice over the allocation of specific services or products to individual veterinarians. Additionally, it helps prevent the possibility that a veterinarian will shy away from performing certain activities that he or she will not be compensated for.  

In human medicine, there are many examples of a salary system helping to maintain a team-oriented environment. For example, the Mayo Clinic Health System’s more than 2,500 physicians have always been paid salaries. A recently published book, Management Lessons from Mayo Clinic, describes the clinic’s culture of collaboration: “Further encouraging collaboration is an all-salary compensation system, with no incentive payments based on the number of patients seen or procedures performed. A Mayo physician has no economic reason to hold onto patients rather than referring them to colleagues better suited to meet their needs. Nor does taking the time to assist a colleague result in lost personal income.”¹  

3. Salary is a simpler compensation system
Paying a salary means there is less reliance on a detailed tracking system that properly allocates service and product income to each veterinarian. Although today’s management software systems are very good at tracking who does what, humans have to make sure that the service codes are correctly entered into the computer. 

Of course, it is still important to track services and product sales both for individuals and the practice to monitor the health of the practice, but a salary system allows you to use this information for management purposes, not rely on it for calculating compensation.  

Paying Salaries: The Bottom Line
Several factors should be considered when calculating a veterinarian’s compensation, based on the practice’s identified core values and overall strategy. It is also important that veterinarians be informed about the impact they have on the success of the practice and how they will be rewarded for the positive effects they make.

Compensating veterinarians using a salary system is a viable method that, when properly administered within the appropriate supporting framework, will work for the majority of practices.

Key components of a supporting framework that will ensure salary compensation works effectively:

1. Consider all practicing veterinarians, including practicing owners, as business employees who are paid an equitable salary for the veterinary work they perform. 

2. Consider additional factors such as mentoring time, management responsibilities, marketing activities, staff support, or learning new skills, when setting a salary.

3. Conduct biannual or yearly performance reviews for every practicing veterinarian and address any needed improvements.

4. Create a profit-sharing system for associate veterinarians so they can share in the financial success of the practice.

5. Establish a recognition system that says, “Thank you, we appreciate all you do here.” 

Pros of Paying Salaries versus the Cons of Commission

The Pros of Salary:
• Keeps veterinarians focused on clients and patients
• Reduces competition and conflict
• Encourages sharing and referring cases
• Rewards the achievement of long-term practice goals
• Invokes client trust when the veterinarian’s pay is not tied to services their pet receives
• Compensation calculations are not reliant on a detailed tracking system
• Compensation can be based on intangibles, such as mentoring, as well as veterinary performance.

The Cons of Commission:
• Veterinarians may focus on higher-paying cases and the amount they can bill
• Increases competition
• Discourages teamwork
• Rewards short-term, individual goals
• Needs a tracking system that monitors individuals as well as the overall practice. 

Reference

1. Management Lessons from Mayo Clinic: Inside One of the World’s Most Admired Service Organizations. Berry LL, Seltman KD―New York: McGraw-Hill, 2008, p 52.