Don't get ripped off with production-based pay

Getty Images

Don't let mistakes or contract exclusions shred your production-based pay. Be proactive in scrutinizing both the employment contract and your employer's revenue accounting. At a muscle-car auction many years ago (I'm a total classic-car nut), I met a fellow from Queens, New York, who'd amassed a major auto collection. Over a couple of beers (free for bidders), he told me all about his job-commission salesman. And judging from his stable of vintage Detroit iron, apparently a very successful commission salesman.

After I shared a bit about my work as a veterinarian, John explained that he made his living selling deposit bottle redemption machine contracts. You know: the gizmos you slide your empties into to retrieve the deposit you paid when you bought your diet soda or Coors Light. He was pleased to opine on the topic of what works in commission sales and what commission salespeople need for success.

I was intrigued and explained that his remuneration scheme sounded eerily similar to the production-based pay we refer to in our profession as “ProSal.” (Editor's note: Mark Opperman, CVPM, argues that ProSal refers to his specific production-plus-salary formula that gets lumped in with all production-based pay plans. Here are the basics.

“I didn't know vets got paid on commission,” he said. I replied that we don't really call it that-that wouldn't sound professional.

“You can call it ‘ProSal' or whatever you want, doc,” John said. “But you guys are commission salesmen. And commission sales, well, it's dog eat dog.”

I overlooked the marginally amusing pun. Long story short, my new friend offered to share-and I was anxious to learn-his tips on how to avoid being taken advantage of when your pay is based on the revenue you generate for your employer. Some of John's valuable insights are set forth below, translated into vet-speak.

Check what products and services are missing

Small contractual oversights in production-based pay can add up to substantial chunks of money. John knows exactly how much time it takes to service a machine, the financial return to his stores and what his competitors are offering. His contractual commission pay is affected by these and numerous other details.

Similarly, when a veterinary associate contractually agrees to be paid either in part or entirely based on a percentage of total generated revenue, she'd better know clearly and unambiguously what percentages apply to which goods and services she'll be providing. Here's a classic example:

Equine docs shouldn't do free work

A special shout-out to you hard-working equine associates on production-based pay. Time and again we see equine doctors sign contracts that don't make adequate reference to “free work” they so often have to perform. Before signing your contract, make sure you will not be required to do extensive “complimentary” work for the clinic owner, his friends, his family and/or gratuitous work for stable or barn owners.

Equine veterinary pay is already well below what it should be, in my opinion. An associate needs to make sure her contract includes the fair value of services provided for free by her employer, but which are actually performed by that associate.

Many contracts I review exempt specific items from “gross associate-generated revenue” used to calculate the associate's pay. Some of these exclusions I can justify: sales tax, cremation fees, medical waste charges. OK, I get those. But what about these items from contracts I've recently come across?

• “Associate will not receive credit toward her gross production revenue for heartworm preventive.” (Really? After a 20-minute explanation/pitch about the importance of using such products?)
• From a boarded internist's contract: “Associate will receive no revenue generation credit for in-house laboratory work or laboratory work performed at outside labs.” (What? Blood analyses are among the largest fee generators in the internist's roster of services.)
• From a boarded surgeon's contract: “Associate will not receive credit toward a production bonus for radiographs.” (Of course not-the surgeon only has to spend 40 minutes reviewing the film with the pet owners to convince them to let him perform the pet's exploratory.)

Negotiate your percentages

Look closely at the items not included in your gross revenue. If there are a lot of exclusions-prescriptions, prescription refills, flea preventives, whatever-one alternative to insisting that these items be included would be to ask for a higher-percentage commission on products and services that are included.

One option would be to ask for a greater overall percentage (say, a jump from 20 to 22% of gross generated revenue). A second option would be to ask that there be no change in the original percentage itself, but that the percentage applies to either or both of the following items routinely left out of the associate's revenue credit:

1. “Drugs, medications and therapies that are subject to low or no markup.” This language means the hospital doesn't make as much money as it would like to on items like Baytril or chemotherapy agents, so the associate has to share the hit.
2. “Gross production revenue will not be granted on charges that are not paid by the client within 90 days.” This widely used phrase means, “If we can't get a client to pay for what the associate has done, the associate doesn't get paid for the work either.” Forget about the fact that associates almost never have any control over their employer's credit policy and/or how aggressively accounts receivable are pursued.

‘Trust but verify' your production-based pay

My car buddy told me that one of the most critical things that commission salespeople need to do is “spot check” items calculated in the commission. Mistakes and rip-offs happen in the bottle-return commission world constantly. I can assure you: The same is true in the veterinary compensation world. I see it all the time.

Here are some pointers for ensuring you receive the pay you rightfully deserve with production-based compensation:

• Insist that your contract include a term specifically entitling you to review all records relevant to determining your gross revenue calculation for all cases you see or treat. If the clinic is hesitant to agree to that, be wary.
• Start early in monitoring your revenue and how it's calculated. First, it's good to get your employer used to your checking the numbers. Second, if you find errors long after a bonus has been paid, it may be more difficult to convince your employer to pay you retroactively.
• Remember, major calculation errors can occur from a number of sources. I've run across software issues affecting multiple associates in the same practice. Also, there could be a single receptionist or veterinary technician who is entering data incorrectly.

Associates, stay on your toes

Determining an associate's compensation is much more complicated when it's based on revenue generation. As I told my auto enthusiast amigo, ProSal and other production-based pay contracts are here to stay. The key to receiving fair treatment with commission-based compensation is to be aware and proactive in scrutinizing both the employment contract and the employer's revenue accounting. At the end of the day, whether you call it commission or production, a person should be paid for the work he or she does. And making sure that happens is the job of both employer and contract employee.

Christopher J. Allen, DVM, JD, is president of Associates in Veterinary Law P.C., which provides legal and consulting services exclusively to veterinarians. He can be reached at info@veterinarylaw.com. Dr. Allen serves on dvm360 magazine's Editorial Advisory Board.