| Incentive Plans and the Dispensary By Arthur De Gennaro Published in Administrative Eyecare, Fall 2007 This article discusses compensation plans for opticians, specifically incentive plans. It is intended to provide a platform that doctors, managing partners and practice administrators can use to build incentive programs that will support their practices’ goals for their dispensaries and its customers. In our culture, paydays are looked forward to with great anticipation. We’ve all heard songs that celebrate them and the types of joyous events they make possible. Some of us even maintain calendars where future paydays are circled for months in advance. The amount paid for the work we perform is an important issue for each of us. As an employee, no one wants to be underpaid for their contributions. As an employer, no one wants to pay more than a position is worth. That tension between employer and employee sets the stage for some anxiety ridden conversations during employee searches, job interviews and annual reviews. Should Opticians Receive Incentives? For years, a debate has ensued over whether it is ethical for opticians to be paid incentives. Those who do not favor incentives believe that since opticians sell products, incentives could provide them with a reward for selling products that customers do not need or want. Those who favor incentives believe that people are motivated to perform better if they benefit financially when the practice benefits financially. Rather than analyze these arguments, let’s look at some facts.
Doesn’t it strike you as odd that only the opticians in the ophthalmology world do not receive incentives? In conversations with ophthalmologists, I hear that they are worried about losing patients for life because of an overzealous optician. I find this argument interesting because it hints at a lack of confidence in the integrity of the optician. Yet ophthalmologists ‘sell’ too. Whenever they discuss surgery or treatment options with patients, they are helping them to decide which of those options would benefit them the most, is most appropriate for them and/or will fit their means the best. This is selling at its finest. Viewed in this way, it is just as easy or tempting for an ophthalmologist to be overzealous as it is for an optician. So it would appear that if incentive plans are ethical for ophthalmologists and employed optometrists, they are ethical for opticians as well. Total Compensation One of the roles I play as a consultant is that of recruiter. Recruiters are people who help clients determine their manpower and human resource needs, after which they assist in the process of identifying and hiring people who are good fits into the positions available. One of the considerations for any position is how much compensation the candidate should receive. Different recruiters use different methods to determine this amount. The method I prefer is to determine how much the employee will receive in total compensation. Determining this amount allows the employer to work backward; deciding how much of the compensation should be paid as wages, incentives and fringes. Wages versus Incentives For our purposes, let’s concentrate solely on wages and incentives. Since we are working backwards, once the total compensation has been determined, management must decide how much of that compensation will be paid as wages and how much will be paid in incentives. To assist clients, I have devised Art’s 80/20 Rule, which says, 20% or more of a dispensary employee’s compensation (wages and incentives) should originate from incentives. There are two reasons why this rule works. First, if the incentive portion of the employee’s compensation is too low, then each time the incentive is paid, the amount of money earned will also be low. These low payments will result in incentive checks that are not impressive. Second, when incentive checks are low enough, those dispensary employees who do not meet the practice’s goals will tend to resign. These resignations allow management to hire opticians who will work harder to meet the practice’. Terms Let’s define two terms. Bonus. A bonus is premium pay, paid to an employee for work performed at or above the established work standard. This assumes that the practice has established work standards for its dispensary employees. For example, the bonus would be paid for exceeding a sales target by the end of a week, month, quarter or year. Commission. A commission is an incentive that is paid when an employee commits a particular act; that is, sells a specified product. Types of Incentive Plans There are four types of plans. They are: Salary or wages only. In essence, this is no plan at all. In my experience, when opticians do as much work as they feel their wages are worth, they will simply slow down or stop producing. Discretionary bonus. This plan pays the opticians an amount of money that is defined by the practice’s owner(s) or manager(s). The decision of how much to pay is usually made at the end of some period, such as the end of a financial year. What makes this type of incentive plan problematic is that the amount of money earned is not within the control of optician. I have seen opticians work very hard, only to be told that the practice did not do well overall and, as a result, their bonus would be small. You can be sure that in the following year both morale and the desire to increase personal contributions were low. Defined bonus. A defined bonus is a lump sum paid to an optician when a certain milestone is reached. Here are some examples:
Commissions. Commission plans are the most commonly used form of incentives in the dispensary world. In my experience, they are common because they are the most adaptable. This adaptability allows management to periodically change the program, which helps keep the dispensary staff focused on the practice’s then current goals. The downside of commission programs is that they are more complicated to administer. In practical terms, this means more paperwork for either the opticians or a member of the practice’s administrative staff. Types of Commission Plans There are three types of commission plans used for dispensary employees. Commissions Based on Profits The most common error that managers make when developing incentive plans is to tie the incentives to behaviors that are beyond the control of the employee. The best example I can think of, is a plan for non-managing opticians that is based on the dispensary’s profits. Since the dispensary’s non-managers do not have the responsibility of setting retail pricing or negotiating the acquisition cost of products purchased, this form of incentive plan could easily pay either too much or too little. In my opinion, incentive plans based on profits are most appropriate for a dispensary manager; the person who has control over controllable profit. Profit incentives are generally paid in one of two ways; as a percentage of all profits earned or as a percentage of those profits earned over a designated target amount. For example, a dispensary’s manager could earn X% of all the controllable profit (“from dollar-one”) or they could earn Y% of the controllable profit over last year. Commissions Based on Sales Sales incentives are similar to profit incentives, in that they are most commonly paid from ‘dollar one’ or over a targeted amount. This form of incentive plan is easy to administer but has the limitation of not being able to focus attention of onto those products or services that the practice wishes to emphasize. Commissions Based on the Sale of Specific Products A commission can be paid each time a particular product is sold, such as progressive lenses, AR treatment or a frame with a retail price above a certain threshold. By placing incentives on products, the optician is encouraged to offer them every time they are appropriate for a customer. The optician is also incentivized to hone his or her sales technique so that customers are fully informed of the benefits of acquiring the product(s) recommended; thereby increasing the likelihood of a purchase. The amount of money paid each time a commissionable event takes place should vary according to the amount of profit the item generates. In other words, those products with the highest profits should offer the largest commissions. The exception to this rule of thumb will be those products that are already selling above the national average. In that case, the commission should be reduced. The money saved should be placed on those products that are not selling through as well. Aligning Goals Incentives are tangible rewards opticians earn for behaving in certain ways. Those ‘ways’ work best however when they are in perfect alignment with the practice’s overall goals. For example, if a pediatric ophthalmology practice believes that all children should wear only polycarbonate or Trivex lenses but the commission for these lenses is lower than for high index or aspheric CR-39, there is a likelihood that the dispensary will struggle to meet its goal. This process of aligning all of the goals of all of the employees in the practice is one of management’s chief responsibilities when designing incentive programs. Arthur De Gennaro is President of Arthur De Gennaro & Associates, LLC, an ophthalmic practice management firm that specializes in optical dispensary issues. He is the author of the book, The Dispensing Ophthalmologist, which is slated to be released by the American Academy of Ophthalmology in the Spring of 2008. He can be reached at 803-359-7887, arthur@adegennaro.com or through the company’s website, which is www.adegennaro.com |
||