By Chad Fleming, OD, FAAO
May 3, 2017
Under-paying an associate OD can result in poor patient care, and a practice that doesn’t meet growth goals. Pay your associates a fair salary that spurs them to contribute to the growth of your practice.
According to Jobson Optical Research’s 2016 ECP Compensation Study, the average compensation for an owner/partner is $124,134 for a practice with revenue less than $500,000, and $166,827 for a practice with revenue of more than $1,500,000. This compares to employed optometrists who earn an average of $99,663 at the low-level practice revenue, and $117,757 at the high-level practice revenue locations.
Calculate What You Can Afford to Offer
If a practice net is 34 percent, and the associate OD is getting paid 22 percent of production, then the business owner profit margin is 12 percent. Who is making 12 percent in the market or real estate today? It is a great investment.
Understandably, many doctors who push back on paying associates more tend to have practices whose profit margin drops below 10 percent once all doctors, including owners, are paid. By our optometry standards, this would be a practice net under 30 percent. In a true business model, the owner ODs would be paid and then profit margin would be calculated. When the profit margin is below 10 percent, then a practice cannot afford to pay associates well.
When you can afford to pay more, but don’t, it’s a short-sighted victory. Let’s say you pay your associates 15 percent of production (gross collections before office expenses are factored in), and maintain impressive profit margins, but then, each year you need to find and integrate new OD staff into your practice. Recruiting, training and integrating new staff into your practice costs money and time, so you might have been better off just paying the associate a fairer amount, based on what you can afford.
Attract & Retain Talent
If you pay an associate OD well, an owner can depend on them to give more than the minimum required, and if they don’t perform, then there are many other associate ODs looking for a position that rewards them for the responsibility of being an optometrist. The OD is no longer a refractionist, but an active medical professional in the American healthcare system. That carries with it a large responsibility, and it should result in compensation that reflects that responsibility. I don’t think that it is right to pay associate ODs 12-18 percent of production, as many practices, and large corporations, do. With so many associates under-paid, owners willing to pay 20-24 percent of production have their pick of many great doctors to employ.
For any profession, you pay well to get the most out of top performers. An owner may start an associate OD at 20 percent of production, and then increase that as the OD shows their commitment and dedication to the patients and the practice.
Paying an associate OD well also increases your chances of keeping them in the practice. We all are less likely to look around if we are compensated above what is considered fair. When you feel like an employer has been overly fair, you tend to gravitate toward being fair and loyal to that employer in return.
Communicate the Right Message to Potential Partners
Some practices pay associates less in return for an agreement that they will be considered for a partnership in the practice. But if you would like to add the associate as a partner, why would you want to communicate that “we will pay you lower than another associate because you are going to be a partner”? That logic makes no sense. That is like paying a future franchise player in the NFL half the salary because they are potentially good enough to be a franchise player. Rather, pay them more to communicate you want them, and that you are investing in them becoming a partner.
Finding an associate who can, and wants, to buy-in, is not like finding a new sweater. It’s a major process, so if someone looks like they are your future partner, communicate you want them by treating them well. Otherwise, you create a hostile culture. When they get to be partner, you will always be haggling with them because they will still be bitter that you treated them so badly when they were an associate.
When you create a contract with an associate for eventual partnership, you are giving them a letter of intent, or promise, to consider them as partner if you and the associate are professionally compatible. Even with a contract promise, they are not partners until shares are actually sold to them, so that agreement could always be retracted after years of unfair associate compensation, or any other reason.
Factor in Experience Level of Associate
Pay more for an experienced associate OD, especially if they will be bringing a patient base with them. I would initially pay more, in essence, to buy a patient base. This may, or may not, be adjusted down the road as the associate OD’s schedule grows because of an already-established and growing practice that the associate OD benefits from.
Give Associates Compensation Options
We offer two options for new associates. They can either have a percentage of full production that is between 20-24 percent of production, or they can have a salary, and once their salary “pays for itself” at 20-24 percent, then they earn a lower percentage above the base. This has worked out well, and has been a model in our practice, along with other practices that I have had the privilege to coach.
Most associate ODs coming in want a guarantee, so they know that they will be making money, and not living on commission alone. Performance-based incentives are best started one year after the associate OD has settled in, and hopefully, the practice has been able to supply a schedule that is beneficial for both the associate OD’s second year and the practice owner’s investment.
Tip for Associates: Have Options of Your Own to Propose
If you are interviewing to become an associate OD, always have more than one option in mind when negotiating, otherwise, you leave yourself with no negotiating power. In negotiating, an associate looking for a position should be able to give value-added reasons for why they should be compensated at higher levels then 12-18 percent. An associate should have a game plan to communicate how they are going to pay for themselves, and grow the practice, so the owner sees an ROI on the associate. As an associate, be prepared to walk away from a deal, and if you can’t walk away from the deal, then propose a good reason for higher compensation, and negotiate for an incentive-based program. Then deliver by growing your practice.
Consider Non-Monetary Benefits & Perks, Too
Today’s associates want to be paid fairly, but they also want flexibility and autonomy. Many big companies, like Best Buy and Google, are getting the best talent because they work with mantras that let employees know, “we don’t care when, or where, you work. We just care that you get your work done.”
It’s a win for both owners and associates to offer flexible hours that make it easy for a parent to grow their family, while pursuing their career. To allow for flexibility, you may be better off hiring two associates for three days a week each than hiring one for five days a week.
Work together with your associates to find a win-win in salary and schedule for both them, and the practice. It’s worth it because a practice with positive feelings between associates and owners is peaceful, upbeat and productive, rather than full of underlying tension and employment battles.
Finding mutually beneficial arrangements with associates requires a commitment to communication, and a willingness to be a servant leader. In my own practice, it’s a continual work in progress, as I continue to be humbled working with the talented people I have hired.
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