Put ProSal out to pasture


Economic realities and flawed assumptions mean trouble for production-based compensation models in veterinary practice.

Throughout the last six or so years of recession, tough times have forced many practices to reassess the systems they use to calculate doctor pay. From the mid-1980s through the financial cataclysm of 2008 and 2009, the ProSal paradigm for compensating veterinary practitioners-production-based pay with a guaranteed salary base-appeared to be the answer. It offered a way for practice owners to motivate “worker bee” doctors, encouraging them to maximize top-line clinic revenue. It also provided associates with a way to give themselves a pay raise, all day every day, while continuing to practice good veterinary medicine.

But fast-forward to today's tough economic climate. Those of us who specialize in veterinary law have been seeing the wheels start to fall off of the ProSal compensation wagon.


Flawed assumptions

In the 1980s, when I bought my first animal hospital, it was relatively uncommon to custom-tailor bonuses to individual associate doctors. Part of the reason was that in order to figure out which docs were hitting the ball and which were slacking, you had to have a computerized practice. In those days, computers were new (heck, we used to check bad credit card numbers by referring to a paper “hot sheet” mailed to us by our credit bureau every week). Just forget about calculating Dr. Johnson's average client transaction to three decimal places.

Eventually computerized practice accounting became the norm and we could all confirm our suspicions about which associates were hard workers and who simply worked hard at looking busy. And off we all went down the path of motivating our less-productive professional employees through percentage-based financial reward. This compensation system worked pretty well for me and most other practice owners who used it. Unfortunately, it had never been tested under circumstances where the following assumptions could no longer be taken as articles of faith:

>>> Clients' disposable income would rise indefinitely. When associates first signed on for commission-based pay, they pretty much figured they would be able to “percent” their way into beating their established base salary virtually every year. Unfortunately, ProSal works for the employed doctor only when his or her clients have money to spend, aren't losing jobs and don't have to worry about losing their homes to foreclosure.

>>> The supply of veterinarians would remain relatively fixed and regionally uniform. The number of veterinary graduates vying for available clients has risen in bad economic times. And it's worse in the parts of the country where veterinarians like to seek jobs: those warm, sunny places that attract young, trendy clients.

>>> Pet owners would always seek more and better veterinary care. They definitely want good care, but when the wolf is at the door, clients often stop seeking it. Indeed, starting in 2008, many did. The droves of clients who would get the best for their pets “at any cost” a decade earlier became more cost-conscious. And it's really tough for an employed veterinarian to beat his base salary when his ProSal percentage is multiplied by a perpetually falling production figure.

>>> Veterinary specialization would raise practitioner income as in the human medical world. In an economically battered America, particularly in regions and states that once depended on manufacturing jobs, the ability of veterinary specialists to make an outsized income commensurate with their training has suffered broadly. Many specialty practices don't participate in the sorts of bidding wars to attract oncologists and surgeons the way they once did. The high-end caseload just doesn't expand well in a moribund economy.


The contract impact: A real world example

Frequently in business, when the going gets tough, the tough get going to their lawyer's office. In the veterinary realm, ProSal compensation schemes have led many doctors to attempt to alter or sidestep their employment contracts. Here's why.

Associate veterinarians take certain risks when they accept a new job, and that goes for new graduates as well as seasoned specialists. Young Dr. Ned Newbie and Dr. Nancy Neurosurgeon both move to a new city to work, enroll their children in the best available schools, purchase cars on time and buy houses with a mortgage. They each sign noncompete agreements in exchange for an anticipated stable income stream.

Dr. Ned Newbie takes his ProSal job and doesn't think about negotiating a good, solid base salary because it's obvious to him from the start that 20 percent of the gross revenue he's certain he can generate will be much, much more than the skimpy base he's agreed to at the time of hire. But when unemployment strikes his region, he actually begins earning just his base. And suddenly, meeting expenses becomes difficult: private school for Jimmy is out, student loans have to be deferred, and the “starter home” he bought becomes simply “home.” Ned wishes he had a better base salary but feels fortunate that his base can't be reduced under his contract.

Dr. Nancy Neurosurgeon lives in the same town. When the local economy tanks, she and the other surgeons at her specialty practice start competing for cases. Fewer high-end procedures are being scheduled and all the docs at the practice are paid-you guessed it-a percentage of their production. But Nancy has a substantial base salary to fall back on, right? Sort of.

She neglected to closely read her contract when she signed it. Naturally she assumed she would be raking in plenty of dough under the “20 percent of produced revenue” clause, so she never considered the base salary to be a big deal. But now, on closer inspection, she realizes that her ProSal formula amounts to something of a gift that keeps on giving.

According to her contract, for all the years when her “20 percent of produced revenue” falls below her base salary, she accumulates a “negative balance” under the ProSal compensation formula. So even after the economy (hopefully) allows her to exceed her base salary through augmented revenue generation, she “owes” that positive excess back to her employer until the cumulative excess erases the several years of negative balances.


A better way

As you can see, it's better to get the pay issue right in the initial contract. Before agreeing to any compensation formula, consider this:

>>> Is the “base” in the contract a real base or can a bad year result in you taking home less than the stated base salary amount? If your base salary cannot be reduced in your ProSal pay arrangement, make sure the base amount is enough to meet your needs if you end up having an insufficient number of cases or transactions to avail yourself of the benefits of ProSal.

>>> However, if the security of a set salary is more important to you than the potential for making more money with a ProSal compensation package, push for a generous (or at least fair) base salary figure that cannot be reduced. And maybe just pass on ProSal.

>>> If you choose ProSal but the possibility exists of “production deficits” (where you're penalized for failing to “earn your base salary”),  be sure to look extra closely at the noncompetition terms under the contract. Such a pay formula can backfire, leaving you with years of income below what you had anticipated, so you might be forced by economic realities to leave that job. Such a decision will be far less painful if your noncompete will allow you to take some other job without having to move to Timbuktu.

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