6 reasons why bonus plans don't work

You don't know where you'd be without your team members. They provide you with the support you need to succeed, and they work hard to help you meet practice goals. So to show them your appreciation for everything they do, you decided to implement a bonus plan.

It's great that you want to reward your team, but bonus plans just don't work. The truth is, bonus plans can actually harm both your practice and your employees. I've seen dentists pay out bonuses when total employee costs were already beyond 22% of practice income (gross salaries 19.22%, payroll taxes and benefits 3.5%). This is financially irresponsible and does nothing but jeopardize your practice and everyone's job security.

Not convinced? Here are six reasons why bonus plans don't work, and why you need to come up with another way to reward your team members.

1. Not all team members contribute equally

Sally McKenzie, CEO of McKenzie Management.

Some employees contribute more to practice success than others, yet if you offer a bonus plan, everyone gets the same reward -- even if they weren't directly involved with earning it. This could lead to resentment and cause conflict among your team members. Those who actually earned the reward will feel slighted and won't be all that motivated to continue to excel.

And then there are the times when practice success is simply a result of good fortune. Let's say a new business moves to town and many of the employees become patients just because your office is nearby. Does that warrant a bonus for your team? The answer is no. You've absorbed all the practice's financial risk, so it doesn't make sense for your employees to benefit from this random good luck.

2. It puts the focus on money

If team members know they can earn a bonus by meeting certain goals, that's all they're going to think about. They won't be worried about improving their performance or meeting performance measurements. Instead, they'll hone in on doing what it takes to earn that bonus check.

Here's an example. A practice I worked with held weekly meetings to discuss how close they were to making that month's bonus. At the time, long-term patient retention had dropped from 95% to 90%, but short-term production was increasing. That meant the team still got a bonus, sending the message that a downturn in job performance is OK, as long as more money is being made.

3. Employees don't understand how bonus plans work

Team members often tell me they can't figure out why they received more bonuses last year. They'll say something like, "We're supposed to get 10% of production greater than $50,000 a month. I received six separate bonuses last year. I've only received one through the first six months of this year. I don't understand why we can't do more than $50,000 a month."

Now if your team members don't understand how to increase production, then guess what? They don't understand how their contributions put the practice above the $50,000 mark. That means they'll do everything exactly the same as they did the year before. They won't make any extra effort to improve production. Sorry doctor, but the truth is most employees aren't knowledgeable enough to handle the financial information needed to justify a bonus plan.

4. Bonus plants don't encourage ownership

You might think creating a bonus plan encourages employees to develop an ownership attitude. You'd be wrong. Why? While employees are rewarded for practice success, they put nothing at risk to earn those rewards. If you want employees to develop an ownership attitude, you have to hire the right people from the beginning. Trust me, implementing a bonus plan won't change how they view your practice or approach their job.

5. Bonus plans make doctors and employees financial adversaries

If you pay bonus plans based on the practice's profitability, it may keep you from taking advantage of tax laws that minimize annual tax payments. So as the business owner, you want to minimize profits to avoid paying taxes, but your team members want to report as much profit as possible because it increases their bonus money.

Now some doctors pay bonuses based on production to avoid this potential conflict, but I wouldn't suggest it. You can produce $500,000 a year, but it might have cost you $550,000 to produce it. Paying a bonus on production, regardless of production costs, makes no sense.

6. You become resentful

While your team works hard, there are times when it's your commitment to the practice that leads to more business. Maybe you purchased new equipment or invested in continuing education. No matter the case, your team members still get the bonus even though they did nothing to earn it. Sure, you could opt to not give them the bonus money, but you're afraid of how they might react to that news. So you curse your bonus plan and hand over the money.

Bonus plans simply don't work and actually do more harm than good. If you want to reward employees for exceeding expectations (which I encourage) do so individually. Develop a rewards program with monetary and nonmonetary rewards -- a program that will actually encourage team members to improve performance and excel in their roles.

Sally McKenzie is CEO of McKenzie Management, which offers educational and management products available at www.mckenziemgmt.com. Contact her directly at 877-777-6151 or at [email protected]. Her book, How to Reward You Dental Team, is available on her site.

Disclaimer: The comments in this article are not meant to be taken as financial advice. You always consult with a tax professional before making any significant changes in your financial or practice situation.

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.