By Ken Krivacic, OD, MBA
March 10, 2021
There is a constant debate as to whether bonus plans motivate our staffs to be more productive. Some say they should be able to produce at a high rate because that’s what they are paid to do. Others feel that extra incentive helps all of us to be more productive. My personal experience is that, if done correctly, your whole practice can benefit greatly from bonus plans.
In fact, the bonus plans we implemented in our office were a key way we helped to build a practice that generated more than $1 million annually.
First, Consider Your Own Feelings About Bonus Plans
Whether a staff bonus program will work may depend on your practice culture. That culture is usually set by the practice owner, and if the owner thinks an extra incentive is wasted money, then a plan either will not exist or will not work well in the practice. If the owner believes an extra reward motivates employees, then a bonus plan probably will be used, and has a greater chance of being effective.
Villanova University, in the article, “How to Motivate Employees with a Bonus Program,” notes that it is important for companies to establish and maintain motivation and morale among employees: “Employers who neglect to boost morale and ensure contentment in their workforce have a higher potential of losing valued employees as the economy improves. As more jobs become available, unsatisfied and unmotivated employees may seek roles at other companies with a more satisfying culture and a higher morale rate.”
What Makes a Bonus Plan Work?
The Villanova article also offers a few guidelines for bonus programs:
Focus on profitability – According to small-business expert Donald Mazzella, the most sensible small-business bonus program ties into increased profitability. This rewards employees for assisting in the improvement of the bottom line. Resulting profits can be used for funding the bonuses. Struggling companies can still implement this tactic, stipulating that if the company does not profit, employees may not receive bonuses.
Offer a share of sales – Companies may also decide to give employees a percentage or fixed-dollar amount when sales improve over previous periods. For example, a Midwestern clothing business that Mazzella worked with told employees it would contribute 20 percent to its bonus pool if they maintained its previous year’s sales level.
Share new ideas – Businesses can also award a certain percentage or dollar amount to employees who develop an improvement that can result in a profit improvement. While the company assumes the risk in this case, it also limits the cost of developing and creating a new product or service.
Other Articles to Explore
Before you start a bonus plan, figure out what you want to improve in your practice. For our office that was simple and basic: increase revenue. The thought is, an increase in revenue can solve many financial challenges all practices face: costs, cash flow and new investments in growth, to name just a few. Once you establish what you want to improve in your practice, there are characteristics of bonus plans that will make them more successful.
In the Villanova article, entrepreneur and business leader Gary Brose, who is known for his passion for creating great bonus programs, describes eight characteristics of an effective bonus program:
Graduated – Create multiple levels so workers can continuously strive for new goals when other goals are met.
Equitable – Make company-wide programs identical, eliminating potential rivalries between departments.
Timely – Vary bonus frequency according to seniority. Low-level employees should receive bonuses in each paycheck, mid-level managers on a quarterly basis and senior executives annually.
Simple – Programs should be easily explained and understood by all stakeholders.
Meaningful – Requirements should fall within employees’ abilities and the amount should be substantial enough to motivate them.
Objective – Bonuses must be based on measurable results instead of subjective opinions.
Reinforced – Progress against goals should be frequently documented and shared.
Easy – Lower-level bonuses should be easily attainable so each employee experiences reward and is motivated to achieve higher goals.
How We Did It
The bonus program in our office mirrored these characteristics.
Our plan featured a monthly bonus that was based on revenue from the amount of revenue generated in the same month the previous year. There was a base level and then we paid slightly more if the next level higher was reached. The amount paid was equal for all employees, and they had to be full-time. We kept employees informed about our weekly progress through weekly staff meetings. It was also during those meetings that we discussed ways the make our goal. These discussions usually revolved around keeping the appointment book full, encouraging sales in the optical and contact lens area and promoting ancillary services such as retinal photos.
Here is an example of how our plan worked:
(The numbers below are not actual; they are merely an example)
The goal – 5% better than the same month in the previous year:
2020 January $100,000 – Goal for January 2021 = $105,000
10 full-time employees
Bonus pool is 2% of goal = $2,100 (105,000×0.02)
Bonus per employee = $210 (2100/10)
Next level – 10% higher than goal = $115,500 ($105,000×1.1)
Next level bonus pool-2% of difference= $210 ((115,500-105,000) x0.02)
Next level bonus per employee = $21 (210/10)
So, that is how our system mirrored the characteristics that Brose recommended:
Graduated – Had a base level and multiple levels above that.
Equitable – Paid all employees the same no matter their position or base pay.
Timely – Bonus was paid on a monthly basis and paid monthly if obtained.
Simple – We based it on one number that was easy for all to understand.
Meaningful – We related to the staff what they could do to make the bonus – fill appointments, sell glasses, sell annual supply of contact lenses and promote retinal photos.
Objective – Used revenue – an objective number.
Reinforced – Discussed the goal and our progress at every weekly staff meeting.
Easy – Tried to set goals that were achievable – this can be tricky as you don’t want to make it too easy, but at the same time, you don’t want to discourage staff by making it so difficult that they never make the goal.
If you set your bonus around a goal that will benefit the business in general, such as revenue, then paying that bonus is not as painful because in most cases the amount of extra revenue generated more than offsets the amount of bonus paid out.
A bonus plan also helps to promote employee satisfaction and morale, which, in turn, reduces turnover. I encourage you to do the necessary planning and use a bonus plan to help grow your practice.