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Employee compensation: Balancing cost and investment

December 1, 2007
Bob Levoy

It's no secret that staff salaries are the biggest expense at most practices. At the same time, your team is your most valuable asset. How do you balance these two realities?

It's no secret that staff salaries are the biggest expense at most practices. At the same time, your team is your most valuable asset. How do you balance these two realities? Start by following these guidelines:

  • Change your focus. More than anything else in your practice, investing in your team is likely to pay the highest dividend. Think of it as an investment, not an expense.
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  • Weigh the true cost. If you underpay employees, you'll attract either less-competent people you'll probably have to fire, or those who are just starting out who'll learn all they can from you, gain experience, and move on to a better-paying job. Either way, your salary policy will generate more turnover than loyalty.

  • Have more staff than the norm. More team members can mean you're better able to focus strictly on patient care—even if your salary costs are higher. Better patient care leads to greater client satisfaction, more referrals, and practice growth.

  • Offer more. "Cash-only incentives generate mercenary loyalty, not emotional loyalty," says Dianne Durkin, author of The Loyalty Advantage (AMACOM, 2005). "In the long run, people will not stay if the culture and environment are not congruent with their values and beliefs."

  • Don't give raises to marginal employees. Consultant Jeffrey J. Denning says raises never motivate workers to improve—they signal satisfaction with the status quo. "Further, if an employee is terminated and sues, she simply points to the history of pay raises to show she was doing a good job. Judgment for the plaintiff," Denning says.

  • Know what'll make them leave. "In a healthy market an unhappy employee will bolt for a 5 percent pay increase, but it'll take at least a 20 percent increase to compel a satisfied employee to jump ship," says W. Michael Kelly, director of research at The Saratoga Institute, a division of PriceWaterhouseCoopers.

  • Find balance. Some practice owners are overly concerned that one or more of their top employees have reached or surpassed some arbitrary ceiling for their position, says management consultant Charles Blair, MD, of Charlotte, N.C. Instead, be more concerned about whether individual employees are helping the practice grow in profitability—in other words, focus on the ratio of staff payroll costs to practice gross income. He finds that paying top dollar for truly stellar employees can result in a more profitable practice.

  • Honor your team. "Realize that salary and benefits are only a small part of an employee's 'value equation,'" says Michael Lowenstein, managing director of Customer Retention Associates in Collingswood, N.J. "Employees want enrichment, inclusion, communication, and participation. They want training. They want recognition. They want to have pride in where they work," he says.

Bob Levoy

Without your team you may not have a practice. If necessary, pay them before you pay yourself. Spoil them and empower them in every way possible.

Veterinary Economics Editorial Advisory Board member Bob Levoy is a seminar speaker based in Roslyn, N.Y., who focuses on profitability and practice growth. His newest book is 222 Secrets of Hiring, Managing and Retaining Great Employees in Healthcare Practices (Jones and Bartlett, 2007).

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