Entrepreneurial Hygiene

How to develop a win-win compensation plan for you and your hygienists

by Mike Farley

In our monitoring of the hygiene production within the practices of our clients, one thing continues to stand out. That is the dramatic difference in daily hygiene production among the various practices -- even practices within the same community. Currently, daily production per individual hygienist ranges from $550 to $1150 per day. As you might guess, incentive compensation for the hygienists is used in almost all of the practices that are experiencing high daily production within their hygiene departments.

Until recently, the majority of dental practices were paying their hygienists on an hourly or daily fixed rate. Most dentists assumed that the high fixed salary rate paid to their hygienists was sufficient reward for the hygienists to do everything at "peak performance" levels. It seems, however, that this was not necessarily so.

By moving the hygienists to incentive compensation based on their production the hygienists immediately began to focus on legitimate ways to improve their production. Improved languaging skills; better education of the patients; charging appropriate fees for the service rendered were just a few of the tools upgraded by the Hygienists. (Note: We are not talking about selling services that the patient does not need. We are focusing on treatment that will preserve or improve the patient's dental health.)

Anything that can provide better service to patients and, at the same time, increase the success of the practice should be considered in a very favorable light. Paying the hygienists on an incentive basis should certainly be one of those considerations.

So, why haven't all dentist converted their hygienists to this form of compensation? Here are the major reasons:

1. They think the conversion would be seen by their hygienists as being "about money" rather than "about service."

2. They are concerned that this type of compensation might create negative competition between hygienists and possibly damage the morale of the office.

3. They haven't yet invented or discovered a formula which is both simple and fair.

Our answers to the above circumstances are as follows:

1. This is not about money.

   This is about service. Once hygienists understand that this is not about selling services the patient does not need, they will be excited about the prospect of earning more money -- all as a reward for delivering quality service to the patients.

2. Jealousy between Hygienists is usually not a factor.

   Each hygienist has the capacity to increase her/his individual skill level -- and the increased earnings, along with greater job satisfaction, are quite sufficient to keep them happy in their work. Also, increased hygiene production usually allows the administrative and clinical assistant personnel to receive a greater share of the office's profits. No problem there!

3. Here is a compensation formula that really works.

   As busy as dentists are presently, it is next to impossible for them to find the time to study all aspects of hygiene production, compensation and benefits -- let alone design an effective formula that won't come back to haunt them later. That's where Tyson and I come in. We've already designed and tested this proven compensation formula. You don't have to re-invent it!

Before we get into the details of The Formula there are two other items for clarification:

First, increased production from the hygiene department will, most certainly, generate more profit for the practice. Because all overhead expenses have already been paid from the current level of production, increased production will only incur an overhead rate of 8-12% (prior to the hygienists' compensation) instead of the normal 45-65% overhead rate.

Second, a key component when moving to incentive compensation is the safety net. Basically, the safety net ensures that the hygienists cannot earn less than they were earning under the old fixed rate package. With that in mind we developed an either/or formula based on paying the hygienists the higher of two separate computations.

So, this is what it looks like. At the end of each month, the office will compute the hygienists' compensation using the following two formulas:

1. The base daily compensation multiplied by the number of days (8 hours) worked by the hygienist during the month.

   Example: $268 (daily rate) x 16 days = $ 4,288

2. The hygienist's production for the month multiplied by a pre-agreed percentage.

   Example: $14,000 x 34% = $ 4,760

In this case, the hygienist's compensation for the month would be $4,760 because it is the higher of the two computations.

Definition of terms:

• Base Daily Compensation: This step entails a complete review of the hygienist's current salary structure -- prior to installing the incentive compensation program. The review encompasses the following items: days/hours worked, vacation days, sick/well days, holidays, personal comp days.

  All, or most, of the above items have probably been included in the hygienist's current compensation package. However, in order to compute the effective base daily compensation, we must include the value of these paid days-off by converting them to their cash equivalent.

  Thus, the hygienist will no longer be provided with paid days-off. Rather, their daily base rate will include the cash value of those days.

  This means that the way the new compensation package is presented to the hygienists is critical. They must understand that you are not taking anything away from them! At worst, the hygienist will earn the cash equivalent of what they have earned before. At best, they will earn much more. They can't lose!

  An example of a full-time hygienist whose salary was $30 per hour, or $240 per day, for calendar year 1999 might look like this:

  Days worked (8 hrs)192
  Paid vacation days8
  Paid sick/well days6
  Paid holidays6
  Paid personal comp days2
  Total compensation days: 214
  Total gross salary (W-2): $240 x 214 = $ 51,360

  Although the hygienist was paid for 214 days, she/he only worked 192 days. So, based on working days only, the effective daily salary rate is actually $268 ($51,360 divided by the actual 192 days worked.) Therefore, the pre-agreed base daily compensation would be $268, which is higher than the hygienist's hourly rate to compensate for the loss of paid days-off.

  In case you're wondering, other benefits such as retirement plan contributions, health insurance and special award programs, will continue as before. However, if your team receives some sort of cash bonus based on production, the hygienist (a direct producer) will no longer partake in that program but, rather, benefit directly from the pre-agreed percentage compensation over which they have much more control.

• Days Worked During the Month: The number of days (eight hour equivalent) during the month in which the hygienist was on premises seeing patients or available to see patients.

• Hygienist's Production for the Month: Anything that is produced by the hygienist or produced in her/his room, including X-rays and patient exams performed by the Doctor.

• Pre-agreed "Production Percentage": This is a numerical percentage offered by the dentist and accepted by the hygienist. It may have necessitated some negotiations between the two parties. It would have involved a review of the following historical factors:

  1. Gather the data: (example)1999 Gross salary$ 40,000

     1999 Production$ 110,000

  2. Determine the percentage of the hygienist's 1999 salary compared to her/his 1999 production: 40,000/110,000 = 36.36%

  3. Determine the Ratio of the 1999 production to the 1999 gross salary: 110,000/40,000 = 2.75 to 1

  4. Remember our targets:

     Percentage: 33 1/3% or lower

     Ratio: 3.0 to 1 or higher

     After the dentist has reviewed the recent salary/production data regarding the hygienist -- -- a percentage offer that is either at or near the targeted goals should be made.

     An offer in excess of 37% of the hygienist's production should never be made. Note: In a situation where the hygienist's salary/production statistics are not favorably comparable to the targeted standards, there are usually factors within the office such as low fees; poor recall system; scheduling; cancellations/no shows; etc., contributing to the problem.

     Now the easy part:

     In truth, it should only take 60-90 minutes to review your statistical information and prepare for your presentation of the new compensation package to the hygienists.

     This is absolutely a "Win/Win" situation. We have never had a client adopt this compensation program and then, later, revert back to the old fixed rate plan.