Money talks, and these days it’s difficult to avoid a discussion about it. No matter the economic climate, however, developing a reasonable associate compensation model requires equine practices to perform a delicate balancing act that is realistic and fair for everyone involved.
There are three main ways in which practices may choose to compensate their associates: straight salary, straight commission or modified commission—the latter being a combination of the two. Each model involves a different amount of risk for one or both of the parties. With straight salary, for example, associates can never be sure that they are being compensated adequately; extremely high producers may see a significant gap between the money they are bringing into the organization and what they are actually earning. On the other hand, low producers may cost the practice more than their output can cover.
Salary vs. Commission
Andrew Clark, DVM, MBA, a former equine veterinary practice management consultant and now CEO of Hagyard Equine Institute in Lexington, Kentucky, believes that the straight-salary model is the best way to compensate a new associate.
“When you’re a new associate, I think you should be insulated from that reality—the reality being that eventually, we all have to figure out how to make money,” he says. “During the first period of a veterinarian’s career, veterinarians should know that they can come to work, earn some money and learn how to provide good client outcome as well as good patient outcome. It blurs that focus if you are also worried about making money.”
Practices may use this model for varying periods of time: some pay straight salary for six months, others for a year, and others even longer. “However—especially in the economic times we’re going through now—most practices compensate on commission because the margins are so thin in equine practice that you can’t subsidize any piece of your practice,” says Clark. “Every piece of the practice has to carry its own weight.”
Elise M. Lacher, CPA at Strategic Veterinary Consulting in Seminole, Florida, notes that for ambulatory practices, associates are generally compensated for 25 percent of their production. “For that first new hire, it’s probably better to look at what, realistically, we think he’s going to be able to produce and what the practice can afford,” she says.
Depending on several factors, such as location, the practice’s specialty and the number of potential clients within that geographic market, she adds that a starting salary for an ambulatory vet ranges between $50,000 to $55,000. “Even if you’re on a salary, it needs to be relatively close to what the practice’s expectations are, because if it’s under-compensating you, you’re going to be aware of it and you’ll go someplace else, and if it’s overcompensating you, the practice will go broke.”
The Big Picture
Jessica Goodman Lee, CVPM, of Pinnacle Integrated Veterinary Solutions in Flower Mound, Texas, encourages practices to look at the big picture when it comes to compensating new associates. “If you’re going to invest the time and the money, don’t try to get away with it on the cheap just because they’re new graduates,” she says. “Give them a reason to want to stay and work for you. Then you can put them on commission the following year without raising the actual salary.”
Straight commission is best applied to mature associates who already have an established practice in place. This leaves it up to the vets to produce at least as much as they require in order to pay their own expenses, and hopefully will give them the incentive to earn significant profits for the practice. With any compensation model, it’s necessary for the practice to clearly define what it deems “production,” Lacher notes. For example, some practices consider off-the-truck product sales as production, while others don’t; some practices count the call fee as production, others do not.
Money vs. Medicine
The challenge with commission, no matter how it’s approached, is that associates must then walk the line between providing the best possible patient and client outcomes, and earning money. “As soon as you introduce commission, there are some people that will look at it every day, and they begin to focus, too much, on the financial return instead of the fact that they are veterinarians and that they are practicing veterinary medicine,” Clark points out. It’s crucial, then, that the practice uphold an environment whereby the emphasis remains on patients and clients. “The key word is ‘culture.’ You need to create a culture of teamwork and practice success. It’s about the culture and the people you hire, select and ultimately train.”
An increasing number of veterinarians are branching out into non-traditional specialties, such as acupuncture and alternative medicine. In some cases, these appointments are lengthier, and not as monetarily rewarding as conventional calls. However, urges Goodman Lee, practices should take into account the positive effects these services may have on the overall practice. “Considering the follow-ups, they may not bring in the money that a standard exam would, but you need to remember what having that doctor is doing for your practice’s growth,” she says. “They are building a reputation and they are hopefully building your client numbers.”
In this situation, she recommends that practices increase the commission by a couple of percentage points as an incentive. “You chose to bring them into your practice and they should be valued, even though they may not be able to see as many patients. The value that they bring to your reputation is huge.”
Clark notes that compensation directly affects a practice’s succession plan, and that organizations should be managed so that compensation for veterinarians and owners is separate. “In my opinion, the second-year associate and the 35-year owner of the practice should use the same compensation formula. Then the owners of the practice get another check,” he explained. This helps associates to avoid taking a pay cut when the time comes for them to buy in to the practice. “The practice needs to be managed so that the check you get for being an owner will pay the debt service on your buy-in. You have to manage the practice so that your institutional value—the value of your practice—is maintained so that you can have a succession plan, so that the new associate can become an owner of the practice and then ultimately retire and sell it to another associate.”
Defining the Freebies
One of the biggest mistakes that practices can make is not having an associate’s contract—which should detail compensation—reviewed by an attorney who is familiar with veterinarians. Elise M. Lacher, CPA, Strategic Veterinary Consulting in Seminole, Florida, advises that these agreements should include not only what the associate will be compensated for, but the tasks that are expected of them that won’t reap monetary reward.
“There are certain things that you do as a member of a practice that you don’t get paid extra for,” she says, citing staff meetings as an example. “You are expected to attend them. If we are doing client education programs, you are expected to attend and participate. These kinds of things should be spelled out.”