The Four Tier compensation formula at work

We Love Pets Animal Hospital grosses $2 million in a year, is appraised at a $1 million value, and earns a net profit of $60,000. The owners have decided to pay themselves a 10 percent return on their investment. Click on the chart (left) to see a breakdown of their compensation.

The beauty of this method? Differences among owners are reflected in the compensation formula. Dr. Senior is semiretired but still owns a majority of stock in the practice, so he's being compensated fairly. Dr. New is working full time and is the most productive but only owns 10 percent of the stock, and he's also being compensated fairly. Dr. Middle spends some of her time managing the practice in addition to seeing clients and is being paid fairly for her activities. If more partnerships adopted this method of compensation, I believe there would be fewer partnership "divorces" and many more happy partners.