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Creating the Win-win Incentive Plan by Justin Harding

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Our clients frequently ask us with the highest of hopes to design incentive plans for their practices. They expect that these plans will encourage good work habits among their staff and motivate employees to work toward the practice's larger goals.

Offering incentives to inspire employees may seem like a good idea on the surface, but all incentive plans carry a very high risk of failure. They can lead to entitlement, apathy and even resentment. Given the very nature of incentive plans that seems odd, doesn't it? It's a simple concept meant to generate positive motivation through recognition and reward. Incentive plans are always introduced with good intention. So why are they at such a high risk of failure? It's because even the simplest of plans require many considerations that are often overlooked during their creation, and even the most detailed programs can flop as a result of poor execution.

What are you trying to achieve?
To build an effective incentive plan you need to formulate an overall goal. Are you trying to increase revenue or income? Do you want a better office culture? You must define the goal before you define the method for reaching it. Once you know what it is you want to achieve, you can then approach the specifics.

Sometimes when clients ask us to design an incentive program, they aren't aware that their employees' salaries are already higher than they should be. If a practice starts offering incentives when its staff is already overpaid based on production numbers, the practice may soon find itself in a precarious financial situation. Here is a quick way to determine a pool of dollars available (or not) for an incentive plan.


Set a benchmark for staff salaries as a percentage of your net collections, say 24 percent. Don't cheat. All taxes and fringe benefits need to be included in the metric. If you're not there yet, then you're not a candidate for an incentive plan. If you're already there, congratulations! Now, at whatever interval you intend to use to calculate your bonus pool, multiply your collections by your benchmark, subtract your already contributed payroll and the resulting amount is your available bonus pool. Here's an example:

Is it realistic?
As you are defining the method for reaching your goal, you need to determine if it's actually realistic for you. Let's assume you want to increase revenue by $10,000 a month by collecting more money. However, let's assume your practice is collecting at 96 percent, on a monthly A/R of $100,000. In this example, you would be asking your team to collect an additional $6,000 that may not exist. Once the team figured out the goal was unreachable, they would approach the plan with apathy at best. Now that you have a clear and realistic goal for your team, you must assess whether or not the means to motivate them exists. The point behind an incentive plan is to create a win-win scenario for all the players. That is to say, you and your team should benefit mutually in the attainment of a goal. To reach that scenario, the reward must be worth the effort. If your team isn't excited about the reward, they are not going to work for the goal.

What's the motivation?
A helpful approach to assist with these considerations is to work backwards from the reward. To start, you should ask yourself, “What would it take to motivate each person to work toward our goal every day?” That may be $20, $50 or more. You need to define this amount. In doing so, you should also account for payroll taxes since bonus payments are typically taxed at a much higher rate. Once you have the number in mind, you need to add it up for all of the team members eligible for that bonus and then multiply it by the days the practice is open. As an example, let's assume you have a practice with five bonus-eligible employees working 15 days a month. At a motivation rate of $50 a day, you will need a bonus pool of $3,750 per month. Will obtaining your goal create that surplus? Does it account for your share in the win-win scenario? If your goal is not revenue driven, can you afford to pay that? Hopefully you can now see why incentive plans carry such a high risk of failure.

Not prepared financially?
So, what if your practice isn't in a position to pay out a large monthly bonus? That does not mean you can't have an effective incentive plan. In lieu of a monetary bonus, you may consider working toward a yearly trip. If your goal is to enhance the culture in your office, you may also consider rewarding one team member chosen by their peers for exemplifying what your office is about. Or you may consider the impact of a bonus over a quarter, instead of monthly. A large pool over three months may give more incentive than a smaller one each month, and keep your team from taking December off when your collections typically slow down.

Ready for implementation?
The last piece to an effective incentive plan is its implementation. You must resist the temptation to complicate your incentive plan with caveats, multiple tiers, penalties, etc. Keep it simple. An incentive plan that is difficult to understand or calculate is going to lead to apathy within your team. You should also discuss the plan with the team on a regular basis. More often than not, the morning huddle is a great place to monitor the progress toward a goal. Once they hit the goal, you should provide them with their reward in a timely manner. Remember, if your incentive plan is truly a win-win, you'll be excited to do so. Lastly, take time to celebrate! Reaching a goal should be an achievement. Recognize their efforts and congratulate them!

Justin Harding is a practice account manager at OrthoSynetics. His work involves assessing practice performance, enhancing office cultures and creating guidelines so orthodontic professionals can reach their goals. Harding graduated from the University of Mississippi in 2006 and has been in health care for seven years.




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