Joy Fuhrman, DVM, MBA, CPA
Director of Finance and Operations
Why Production-Based Compensation is Cheapening Our Profession
About a year ago I interviewed for an associate veterinarian position at an emergency clinic owned by a smaller national corporate group. When I asked about compensation, the Practice Manager and HR Director conducting the interview told me that I would be paid a “base salary” of $80,000 per year, and that I could earn a “bonus” of up to 22% of my production, which would be reconciled and paid each quarter.
“What if I don’t make my required production?” I asked.
“Then the difference between your base pay and 22% of your production will be carried forward and deducted from your bonus in the following quarter. But don’t worry, the only person who has ever not been able to make their production is no longer with us!”
“What benefits do you offer?” I asked.
“You get to take as much vacation as you want! One associate likes to travel so she works her requisite 10 shifts in the first three weeks of the month and then takes the next week off. Another associate has small children, so she works more during the school year and works less over the summer.”
“So, if I took a month off to go back home to South Africa or because I needed to have surgery and I did not have any production that month, how would I be paid?”
“Well, if you were in a negative accrual position at the end of the quarter, then that amount would be deducted from your bonus in the following quarter.”
“So, then I would not get paid for the time I took off?” I pressed.
“Well, you would still get your base pay,” I was told. I think they missed my point.
Financial Risks and Rewards of Practice Ownership
Since graduating from vet school—actually before I graduated from vet school—I carefully weighed the pros and cons of practice ownership: the stress and responsibility of managing (and paying) a team of employees, the long, hard hours required to be the doctor in the practice while still making time to run the business, versus the freedom and flexibility of “being your own boss” and the financial rewards that came along with growing the business, improving cash flows and increasing value.
So why in the world would veterinarians—intelligent, competent, highly-educated professionals—choose to take on the risks of practice ownership without any of the control? Isn’t that what production-based compensation with negative accrual really is? To answer this question, I turned to my colleagues through a 9,000-member strong Facebook group, with the following question:
Curious how everyone feels about compensation structures that pay strictly on production with negative accrual? My thinking is that the risk (and reward) of business ownership should stay with the business owner and that associates should not be penalized for downturns in the market or changes in competition. So, if you get paid (or have ever been paid) on such a structure, please let me know what you like or dislike about it and if you think it is fair.
The flood of comments was immediate with each comment being more emotive than the last.
“I was paid on base plus production with negative accrual and there were many situations that would negatively affect [my pay].”
“I would not take a position that would decrease my pay…too many factors that are out of my control…”
“Negative accrual is sucky! I have it now in my position with a corporately-owned practice and it’s the one thing I would change about working here.”
“I personally don’t find negative accrual fair. This month I’m in debt because of the perfect storm: three-paycheck month, historically slow month, took two working vacation days off, then two more for hurricane Irma, and business is extra slow thanks to our predominantly retired clients slowly trickling back from evacuation.”
“We have been painfully slow due to a long construction project on the road where the clinic is located. The past month has been the worst! I will have days where I see maybe one or two clients in an entire day!”
“No way I would even consider negative accrual without a guaranteed base – that would be way too dicey.”
To be fair, not all the comments were negative. One associate who gets paid on straight salary with no paid time off said she would not get paid at all if she had to take time off for a medical procedure and at least with production pay she would “have a chance to make some of it up by working extra after returning to work.” Another associate working in emergency felt that “with production-based pay, one veterinarian can’t sit back and expect the others to do all the work without it affecting their paycheck.” Also, one practice owner stated that “I’ve not seen it create a toxic work environment. It has resulted in associates seeking more clients and being more efficient in billing.”
Negative Accrual Production
Later that evening, I got to thinking about all the scenarios in which production-based compensation with negative accrual was inherently unjust to the associate veterinarians. While I can certainly understand the desire for practice owners to motivate their employees, basing their compensation on circumstances that may be completely beyond their control, is something completely different!
Here are a couple scenarios that come to mind:
- What if a competing practice opened just down the road and 25% of the clients left to go to the competitor?
- What if an associate had to take an extended amount of time off for a surgery or injury, a pregnancy, a child’s illness or the loss of a family member?
- What if the practice owner decided to hire an additional associate increasing the number of FTE veterinarians in the practice without there being an increase in demand for services, effectively splitting the “production pie” into smaller pieces?
- What if the practice owner reduced the number of support staff, thus forcing the associates to perform the work of the support staff, leaving less time in their day to be doctors—and produce revenues?
Given the number of responses to my original question posed to the Facebook group, it appears I am not alone in my thinking. So why then, I wondered, would veterinarians agree to work under these conditions? I followed up my previous question with this poll:
I am wondering why veterinarians agree to work for production-based compensation with negative accrual. If you are (or if you have ever) accepted a job in a negative accrual environment, was it because:
- a. You thought this was “market” and that all veterinary practices compensated associates this way.
- b. You didn’t understand the impact of taking time off (whether for sick or vacation time).
- c. You felt like you could consistently produce above the base.
- d. You could not find a job that did not have negative accrual.
- e. Your employer gave an inflated, unachievable production number.
- f. Your employer told you about the upside and did not fully explain the risks of negative accrual.
- g. You thought you could make more money than with straight salary.
Not surprisingly, more than half of the respondents (52%), replied that they “thought this was “market” and that all vet practices compensated associates this way,” with another 22% stating that they “didn’t understand the impact of taking time off (whether sick or vacation time).”
Not one of the 58 respondents to the poll thought they would make more money on a production-based compensation structure with negative accrual than they would with straight salary.
How Did We Get Here?
Back in the days of James Herriot, almost all veterinarians owned and operated their own single-doctor veterinary practices. The few multi-doctor practices were partnerships, with both veterinarians participating in ownership of the business. As time moved on and veterinary medicine became vastly more complicated (as did business ownership), and also as more women moved into the profession, the requirement to “hang up your own shingle” dissipated and more and more veterinarians found employment as associates, rather than as owners or partners.
Originally, these associates were compensated on straight salary or, in some circumstances, on an hourly wage. However, practice owners started to find it more and more difficult to motivate their associate veterinarians to work as hard (and to produce as much income) as the owner-veterinarians. Production-based compensation was introduced in an effort to motivate associate doctors to work harder, provide more income for the business and to equalize the workload between the owner-veterinarians and the associates.
Production-based compensation took on many different forms: there was straight production with no base salary, a base salary plus production—also known as production with a guaranteed base, or ProSal—a strategy where associates are paid a guaranteed draw and their production bonus is reconciled on a monthly, quarterly, half-yearly or even yearly basis. Such reconciliation can be with or without negative accrual, meaning that if the associate has been paid more in draws than their calculated production compensation, then they owe the practice money!
Are Veterinarians Turning Into Car Salesmen?
That night, I spoke with my husband about my Facebook questions and the responses from my colleagues. A veteran of the car and motorcycle industries, he said: “It sounds like they are turning veterinarians into car salesmen”. “What do you mean?” I retorted, conjuring up an image of an obnoxious, lying and deceiving used-car salesman whose promise of the best deal proved to be nothing but falsehoods. “Well,” my husband said, “it sounds like the veterinary industry is paying veterinarians on commission and the industry is falling prey to all the same stereotypes that plague the car industry”.
Let me explain.
In the car industry, salesmen are motivated to achieve a “high gross” meaning that the higher the selling price they negotiate with the client, the more commission they make. By the same token, veterinarians who are paid on production are motivated to bolster their Average Client Transaction (ACT). While I am not meaning to bring into question the ethics of every veterinarian paid on production, it is human nature to take the path of least resistance to achieve a goal. And if that goal is to provide for her family, then a veterinarian will be motivated by production-based compensation to “sell” to her clients. Alternatively, if veterinarians are incentivized to grow the practice by providing excellent customer service, by taking the time to explain to clients why their pet needs the recommended work up, and by offering increased transparency to their clients, the ultimate outcome will be happier clients, happier associates and increased revenues.
One year, I invited my husband to join me in Las Vegas for the Western Veterinary Conference. The day before we left, he was scheduled to deliver a luxury vehicle to a long-time and very loyal client. The deal was already signed and sealed and the payments had been made. The only thing left to do was to deliver the vehicle to the client. As luck would have it, the client called that day to say that he was caught out of town and would not be able to come in to collect the car until the following day. My husband was forced to choose between giving up our planned trip to Vegas or turning the delivery of the vehicle over to another salesman and splitting the commission on the sale. This is referred to as the “split.”
While splitting production does not happen in our industry, like my husband, veterinarians being paid on production are motivated not to take time off. As a profession with one of the highest suicide rates in the country, and with growing incidences of compassion fatigue and burnout, it seems counterintuitive that we would encourage veterinarians to not take time off.
My veterinarian colleagues had the following to say on this topic:
“I will never work with negative accrual again: I busted my butt and always made my minimum and got a bonus. Except when I took vacation! If I took a week of vacation I’d end up in the hole and be out of a bonus the next month or so until I caught back up. That makes “paid vacation” a non-benefit. It’s really just time you are allowed to be away from the clinic without pay. With the level of emotional fatigue and burnout we face as veterinarians, those vacations are necessary! I get that you aren’t producing for the clinic during that time but that’s the point of a benefit.”
“I have negative accrual and it affected me during my maternity leave. I have not taken extensive vacation time because of the concern that I might run negative.”
“I think the thing that irks me the most is that all of the staff but the associates get true paid time off…so they all get a benefit that we don’t get.”
Flooding the Floor
In the car industry, hiring more salesman than the business can support is referred to as “flooding the floor.” While a certain amount of turnover should be expected (and planned for) in any industry, hiring more veterinarians than the practice revenues can support, effectively reduces the number of clients each veterinarian sees, thus motivating them to increase the average invoice to each of those clients in order to make their production.
“I left a job that paid solely on production. They hired another associate vet, the business did not increase and we all took a pay cut of 20-30%. I’m at a job that pays straight salary now and I am so much happier.”
Snakes and Spoons
The more stories my husband would tell me about his industry, the more familiar I became with how cut throat and ruthless car salesmen could be. It was not uncommon for one salesman to “snake” i.e. steal another salesman’s customer and claim that the customer had come to them—after all, their livelihood depended on it! The veterinary industry is no different. I have seen seasoned veterinarians refusing to mentor new grads through surgeries because they would not get the production, and I have seen veterinarians sweet talk (and sometimes even bribe!) the front office personnel to ensure that they were scheduled with the more affluent clients and the more complicated cases. Occasionally, the practice owner will hand over their loyal clients or large surgical procedures to their favorite associate—referred to as a “spoon” in the car industry—rather than dividing the workload on a more equitable basis.
“I feel like negative accrual is not at all fair. It creates an “every man for himself” atmosphere instead of building team spirit.”
“I had negative accrual when I first started at my current job. It was just unfortunate since I was new to the practice and it took some time to build clients. Can’t make production if you see 5 pets a day!”
Pre-Judgements: When Clients get Blown Out or Broomed
If the driver of a luxury SUV and the driver of a beat-up economy sedan pulled onto the lot at the same time, the expectation of a higher potential sales value would motivate the car salesman to prioritize the driver of the luxury vehicle. The economy sedan driver would then be “blown out” or “broomed” from the dealership so that the salesman could focus his attention on the assumedly more affluent client. By the same token, production-based compensation motivates veterinarians to prejudge clients and discriminate who they spend their time with, making sure they “squeeze in” their frequent, high-value customers and short-change those clients who cannot afford a full diagnostic work up.
“I would see vets fighting over who would get the more serious cases or taking on too much to get more money.”
In the car industry, senior salesmen always get to “cherry pick” the good clients. This makes it even more difficult for the new salesmen to meet their sales targets. In the veterinary industry cherry picking happens whenever a doctor tells a receptionist that they will squeeze “their” client (it’s the clinic’s client!) into their already full schedule, even though the client had already agreed to see the new associate at the practice.
“I don’t like the idea of production-based pay in a two-doctor environment. The new guy will always lose.”
“There are too many variables. For instance, at one clinic where I worked part time, one of the doctors would get upset if a client was scheduled with me because in her mind that meant that she wasn’t getting paid. Then she told the receptionist to only book vaccine appointments for me and to give her all the sick ones.”
The Lot Hand
One evening my husband came home in a particularly grumpy mood. When I asked what had happened he explained that because of the downturn in the economy, the business owner had decided to lay off the lot hand—the young man who cleaned the vehicles and ensured they were immaculate before being delivered to the buyers. “So, when a buyer was on his way to pick up his vehicle, I had to spend time out on the lot making sure the vehicle was ready for delivery. At that exact moment, one of my long-time customers walked in and I missed the opportunity to make a sale and earn a commission!” he complained.
While veterinary clients (usually) have appointments and don’t walk in at unexpected times, the reality is that if the practice is understaffed, associate veterinarians often times find themselves having to fill in the gaps—whether it be placing IV catheters, reading a fecal analysis or cleaning a cage. And while every veterinarian should be ready and willing to perform every task in the practice, this takes time away from doing their work as a doctor. Veterinarians may end up spending less time in the exam room with clients, or they may find themselves limiting or changing their recommendations—knowing they did not have enough staff to take on for example, another procedure that day. Either of these situations could result in a lower client transaction, less compensation to the veterinarian, and likely less than optimal medicine for the patient. The same situation arises when support staff are unqualified or are not provided the appropriate level of training to perform the tasks required of their position.
“Associates have no say in staffing levels. If we were short staffed we had to turn away appointments and even surgical procedures.”
“I don’t choose how to hire or how to staff. If I show up and bust my butt, I should be paid!”
“I have negative accrual and I hate it! I find it really stressful because I can be penalized by other people’s actions. Just a few examples….a receptionist refunding a client because they got mad, management limiting my surgery schedule because my assigned surgery nurse took too long to complete a dental, assistants refusing to add any more appointments because they were assigned other tasks, inefficient scheduling, leaving several 10-minute gaps in my day, support staff missing charges when recording them in the electronic invoice or worse yet, the invoice being incorrectly coded to another doctor’s production!”
A car salesman who has become so unmotivated from the ongoing pressure and disappointment of not making sales becomes “cracked,” meaning he has become so disinterested in selling that he has become a bad salesperson. Worse still, he becomes so desperate to make the sale that the customer can see right through him! Such a salesman is considered to be “off the market” meaning that he will not talk to another customer until he is emotionally “uncracked”.
“Negative accrual leads to a toxic environment and unhappy associates.”
“I don’t feel valued. I wish I was on base only.”
“I don’t think [production-based compensation] fosters a healthy work/life balance.”
“I was so stressed out about bringing in enough money to make my base that I started to dislike vet med.”
Motivating Veterinarians Without Production Based Income
Veterinary medicine is NOT a sales job. If veterinarians are incentivized to achieve the highest possible client transaction for a single visit, then they are disincentivized to build a rapport of honesty and transparency with that client and to earn the client’s business for life.
Employee profit share plans are a great way to motivate not only associates but also support staff on both top line (revenue) and bottom line (profit) targets. Non-monetary goals can also be added to the program such as attending continuing education training, mentoring a new graduate, or participating in community service or organized veterinary medicine. Moreover, these plans have the added benefit of rewarding staff when the practice does well but protecting profits in economic downturns. The same is not true of strict production-based compensation plans.
Veterinarians should be motivated to do the best thing for the pet and for the client regardless of what it puts in their pocket. Production-based compensation rewards associates for their skills at a salesman, not for their skills as a doctor. In years gone by, veterinarians were consistently ranked among the top most trusted professions. Public opinion is changing: the increased corporatization of the veterinary industry is already making consumers feel as through veterinarians are “selling” more services to grow corporate bottom lines.
Veterinarians require extensive training and education to be able to provide pet owners with their services. They should be appropriately compensated for the value they deliver and for the knowledge and skills they are able to offer to their clients and patients. To maintain and uphold the integrity of the profession in the eyes of the pet-owning public, our profession needs to compensate veterinarians as professionals. If we fail to do this, sooner or later consumers will start to feel that veterinarians are no more trustworthy than the used-car salesman on the corner lot.
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