3 ways offering raises just because hurts your practice

Every year, your team members expect to see an increase in their paychecks. Not because they've exceeded expectations or because they've actually earned a raise, but simply because another year has gone by.

Sally McKenzie, CEO of McKenzie Management.

This is the case in many dental practices, but it certainly isn't how it should work. I know you want to reward your team members, but giving out raises just because it's been a year since the last pay hike or because you know your office manager is struggling to make ends meet is doing nothing but hurting your practice.

The bottom line is that team members need to actually earn their raises. You have to make it clear under what circumstances raises will be given and when they'll be discussed. Sure, team members might not like it at first, but if you make your expectations clear, they'll know exactly what they need to do to earn a bump in pay, giving them new goals to focus on and even making their jobs more fulfilling.

Still not convinced you should stop giving out raises just because? Here are three ways it's damaging your practice that might make you reconsider.

1. It's sending your overhead soaring

Payroll costs should be between 20% and 22% your revenue, with an additional 3% to 5% to cover payroll taxes and benefits. If you're giving out raises without any increase to your revenues, your payroll costs may well be beyond that benchmark. Inflated overhead keeps you from investing in the new technologies and products you want, which could hurt your productivity as well as your ability to attract and keep patients.

If you want a successful, profitable practice, you have to get overhead costs under control. Giving out raises every year no matter what isn't going to help you do that.

2. Guaranteed raises leave employees unmotivated

Many dentists think giving team members a pay raise will encourage them to improve their performance. Unfortunately, that isn't the case. In fact the opposite is true. In their minds, they must be doing something right, giving them no motivation to enhance their performance -- and that means you won't see any improvements in practice production or profits.

On the other hand, if you give team members clear performance measurements and let them know they can earn extra money based on those measurements, they'll be more motivated to excel. With clear directions and goals, they'll contribute more to the practice and will likely be happier to come to work each day.

3. It could lead to staff conflict

Some of your team members work harder than others. There are those who are happy to go above and beyond, while others prefer to stick with the status quo. If they're all getting the same pay raise every year, this could lead to some hard feelings. Team members who excel will feel like their extra work is for nothing and may even start resenting other employees who they don't feel are working as hard. This could lead to conflict in the practice, and it might even send some team members looking for a position at the practice down the street. Base raises on performance and this is less likely to be an issue.

As the practice CEO, it's your job to provide team members with the direction they need to succeed. With clear job descriptions and performance measurements, there will be no doubt who's accountable for which systems and how each team member's performance will be measured. Make it clear these performance measurements will be used to determine raises, and that you won't be giving out bumps in pay just because an employee asked or because a year has gone by.

This change will do wonders for your production and your bottom line. You'll see overhead costs decrease, and you'll have happier team members who are doing their part to help you meet practice goals. Not only that, your practice will actually be able to afford to give out raises, which usually isn't the case when overhead costs are soaring and team members don't have specific performance measurements. Start giving out raises only when they're actually earned and you'll have a more profitable, productive practice.

Sally McKenzie is the CEO of McKenzie Management, a full-service, nationwide dental practice management company. Contact her directly at 877-777-6151 or at [email protected].

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.