Production-based pay: Devils in the details
Christopher J. Allen, DVM, JD is president of the Associates in Veterinary Law P.C., which provides legal and consulting services exclusively to veterinarians. He can be reached via e-mail at firstname.lastname@example.org. Dr. Allen serves on dvm360 magazine's Editorial Advisory Board.
Here's what to think through before you sign your employment contract as a veterinary associateconsider the things that could go wrong or negatively affect your production.
Viorel Sima/stock.adobe.comOur office received a good deal of response to a piece I wrote about production-and-salary-based compensation for veterinary associates sometimes known 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.) A number of readers asked for more details about handling these offers. Happy to oblige-this compensation arrangement is complicated and increasingly ubiquitous in the veterinary marketplace.
To a large extent, the “production/salary” description is misleading. This compensation “scheme” (you pick whether that term is descriptive or pejorative) involves neither a genuine salary nor a true production-based pay arrangement. It's complicated.
Basics of a typical production-and-salary-based compensation deal
The term “salary” implies that at the end of each pay period, an associate receives a paycheck that represents a pro-rata portion of some agreed-on annual figure. Then comes the “production.” Most salary-production contracts come in one of two flavors.
Flavor No. 1: Salary based on future earnings. This is the less common version, where the employer will pay the associate, say, 20% of her “total credited production amount” as her pay for the year. The associate is paid every two weeks throughout the year. This “salary” then is not so much to a guaranteed amount but rather a “draw” against an anticipated 20% of production to be determined once the year ends. So, if the “salary” (draw) for 2018 was $100,000 but production was only $400,000, then the practice owner considers the associate overpaid, and the “salary” may be dropped in 2019 to make up for the shortfall. The 20% figure remains unchanged, but the take-home pay will be adjusted downward.
Flavor No. 2: Salary and bonus. Employers don't like employees owing them money, so it's more common to see a “salary and bonus” scheme in associate contracts. Here, a “salary” is set at roughly 75% to 80% of the associate's anticipated end-of-quarter or end-of-year earnings. If the employed doctor is productive, she receives the difference between, say, 20% of her generated and credited revenue and the “salary” she got paid weekly or biweekly. The extra money is a so-called “bonus.” This way, the clinic hopes not to have “overpaid” the associate at the end of the measuring period.
Salary is not guaranteed
In neither flavor of contract is there a guarantee that a certain pay rate (“salary”) will be maintained by the employer. Here's why:
Nearly all associate veterinarian employment agreements are controlled by the at-will employment doctrine. This is usually spelled out in the agreement. At-will employment means the parties are obligated to provide the pay and perform the work described in a contract until 1) the associate quits or 2) the employer (subject to some marginally enforceable notice provisions) fires the associate.
Consequently, the employment contract is really more of a terms list describing what's expected of the associate and what she'll receive as long as both parties follow the contract. The practical effect of at-will status is that an employer may (with a bit of notice) alter the employment agreement, forcing the employed doctor to choose whether to quit or stay under the new arrangement. Basically, the associate doctor can be fired from the old contract and rehired later the same day at a different salary, production percentage or both.
Perhaps you should take a look at your contract for a paragraph like this: “Regular failures to meet production goals may result in our re-evaluation of the associate's base salary.”
So, what's the contract for then?
It might sound like an employment contract is a waste of time if nobody has to follow it for the one-year or five-year term it claims to cover. But that's not actually the case. Each side does get something of value, although the employer ordinarily gets something of much more significant value.
The practice (usually the drafter of the agreement) has likely included a noncompetition provision that, if reasonable in time period and region, may well be enforced against the departing employed doctor. The associate, on the other hand, can rely on the courts or arbitrators to enforce the pay and benefits terms of the contract (paid leave, medical insurance reimbursement and so on), at least through the period of actual employment.
What's out of your control-and in your control
Make sure any issues that could affect your compensation are covered in your contract. Let's assume that a veterinary corporation hires Dr. A on a production-salary arrangement wherein he will receive a “base salary” of $100,000 and a “bonus” of 20% for all production he generates in excess of $500,000. Dr. A can then base his lifestyle (student loans, car payment, rent and so on) on the “salary” element of his compensation of $100,000 minus taxes. But can he honestly count on that “salary”? That depends on whether he routinely meets his production goal of $500,000. Maybe he can, maybe he can't-the devil's in the details. What are all the things in the practice that could affect Dr. A's ability to meet his minimum productivity goals? Let's see:
- What if the practice hires more DVMs than the clinic actually needs? This reduces Dr. A's caseload.
- What if a competing corporation opens up across the street?
- What if the practice allows its social media presence to deteriorate, or someone makes a disparaging Facebook post that affects business?
- What if the practice's accounts receivable process is faulty? Dr. A receives credit only for what's paid.
- What if the manager who calculates production gets it wrong?
That last issue, of course, is one of the biggest. I've had numerous veterinarians tell me they were reluctant to take a job with a corporation using these compensation schemes because they didn't feel their old employer was sufficiently transparent about how their production was calculated. My question to these doctors is this: “Whose job was it to make sure that your boss was honest, accurate and transparent about your production math?” The answer? The associates were.
As I've mentioned before on the subject of production-and-salary-based pay (or “commission sales,” as I also like to refer to it), it'd be sublime if associates could all sit back, relax and assume they're getting full production credit for every single piece of work performed and that none of their work is being improperly credited to “the front desk” or “Dr. Hospital.” The world we live in, however, is sadly not so utopian. Follow the advice of former President Ronald Reagan: Trust but verify.
When starting a new position, check the contract to see if it provides you the right to review all documents and records necessary to independently determine the accuracy of your production. If that language isn't in there, request that it be added.
And one final note on keeping track of your production: When starting a new position, check the contract to see if it provides you the right to review all documents and records necessary to independently determine the accuracy of your production. If that language isn't in there, request that it be added.
What counts as production
When selecting among multiple production-based pay job offers, look closely at what products and services do and don't get credited toward your production. If the contracts you're comparing give credit at different absolute percentages, don't assume that the higher percentage offer is necessarily the better deal.
For example, if a contract offers 22% of production but excludes any lab work “done by others,” you might need to be concerned. The clinic might have a policy of whisking away pets scheduled for routine heartworm and FeLV tests to the treatment area, where technicians perform the blood draw and report the results to the record. If you miss out on 10 or 20 of these “routine labs” per day, you might have done better getting credit for 20% of everything associated with your office visits rather than 22% of just the exam fee.
If the formula is hard to understand, get help
Never forget that employment agreements are a two-way street. You give up a lot-that noncompete or nonsolicitation clause will burden you for years after you leave the job. So if you're giving up rights, shouldn't you get a fair shake-or at least a shake you fully understand-before you take a job? Get input from a professional if you need help understanding your contract details.
These compensation schemes are sold to associates as an opportunity to get extra income for doing extra work and being super-efficient on the job. But a contract weighted in favor of the practice can create financial problems and resentment-and not for your employer.
Christopher J. Allen, DVM, JD, is president of Associates in Veterinary Law PC, which provides legal and consulting services exclusively to veterinarians. He can be reached at email@example.com. Dr. Allen serves on dvm360 magazine's Editorial Advisory Board.