Certified Public Accountants

The Healthcare Professional’s Guide to Compensation Formulas

woman holding stethoscope in the shape of a heart

Understanding your job’s compensation model options is essential, especially if you’re in a critical role like a dentist or physician. Compensation formulas not only inform you of your future rates but also can influence what your next career moves will be. 

Industries have typically based most compensation models on either salary or gross-revenue, and they can have some sort of bonus or additional incentive component. But these days, having a wider variation of compensation structures isn’t uncommon.

Why is Having a Compensation Strategy Important?

Offering a strong and competitive compensation formula is crucial if you want to attract and retain ideal candidates to your healthcare practice. Compensation strategy should reinforce the culture and climate of your practice. If successful, it will attract top talent, boost morale, increase productivity, and decrease staff turnaround.

Different Types of Compensation Strategies and Formulas

If you’re a healthcare professional seeking a new job, it’s important that you understand the different compensation models available. When you do, you can accurately evaluate job offers before accepting one.

Let’s talk about the most common compensation models for dentists and physicians.

Straight Salary

A straight salary compensation is the simplest of all compensation formulas, and it’s the most common among all new healthcare professionals in corporate and physician-owned practices. This model offers a set salary and minimum income guarantee, meaning you will make the same amount each pay period without fluctuation. 

Straight salaries are predictable and can be appealing for those who are just getting started. Although it places little incentive for dentists and physicians to put extra effort into independently bringing in new patients, it can lead to increased collaboration, teamwork and teaching among colleagues because competition isn’t a factor.

[Related: The Best Accountants for Medical Professionals: What to Look For]

Straight Salary Plus Incentive or Bonus

This compensation formula is similar to the aforementioned straight salary, but it includes an added bonus or incentive dependent on certain terms. People base these bonuses on personal productivity, patient satisfaction, behavior and quality work. 

A straight salary with incentives or bonuses can help promote a practice’s values, and it’s another popular model for new healthcare professionals. 

Productivity-Based Compensation

A productivity-based compensation model works with those earning a percentage of the practice’s billings or collections based on how productive they are. Productivity is measured using work-relative value units, net charges or net revenues on a resource-based relative value scale.

This plan rewards dentists and physicians by giving them a designated percentage of what they specifically bring to the practice, minus overhead expenses, insurance, supplies and other costs. Although productivity-based compensation rewards entrepreneurship and can prompt a sense of ownership, it can also inspire a negatively-charged competitive atmosphere and doesn’t have the other models’ predictability.

Equal Shares 

The equal shares model takes the money the practice earns, pays all general expenses and then divides the remaining amount among the practice. 

Because this model encourages personal investment in the practice as a whole rather than individual performance, each worker has a stake in the practice’s success. While the equal shares model can have great growth potential, it can also be more difficult to implement. Additionally, if something stilts the practice’s success, everyone takes a financial hit.

[Related: The Importance of Healthcare Accounting]

Questions to Ask

Even with a basic understanding of these compensation formulas, a healthcare professional seeking a new position should definitely ask the right questions during the interview process and before accepting a job. 

Here are some examples of helpful questions to ask:

  • How does this compensation plan work at first and in years to come?
  • When does this practice pay physicians bonuses?
  • Is there a minimum or maximum bonus amount per year, or does something outline possible thresholds?
  • How do you allocate the practice’s overhead expenses?
  • What are the practice’s typical administrative costs?

Each compensation model has its own perks and benefits, but some might suit certain individuals better than others. 

Having a compensation model that’s flexible enough to work with any future goals or differing levels of service is also crucial for healthcare professionals. Regularly review and assess these compensation plans to ensure things are still working well for everyone involved, and don’t need to be updated.

Additionally, it’s important to have a healthcare accountant review any proposed compensation plans. Doing so will give you greater peace of mind and ensures all factors are within fair market value and adhere to relevant healthcare laws.

How to Measure the Success of a Compensation Formula

If you’re on the other side of things — and in charge of offering compensation plans to your new associates — assessing the success of your formula is similarly crucial.

In order to determine whether these approaches are working, organizations should be tracking objective, measurable metrics. These include:

  • Employee job satisfaction
  • Employee retention rates
  • Patient satisfaction
  • Quality of care

Martin, Bircher, Thompson PC Is Here to Support Your Practice

If you’re curious to learn more about compensation formulas for dentists and physicians, or if you’re looking for the best accountants for healthcare professionals, we’re here to assist. 

At Martin, Bircher, Thompson, PC, we’re dedicated to helping doctors and dentists build thriving practices.

We offer multiple physician accounting services:

 Learn more about our services for physicians, or contact us today to get started.

Featured image via Unsplash

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Kirkland, WA 98033
Phone: 425-827-3041
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Email: support@MartinBircherCPA.com


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