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Practice Management

The Art of Fair Compensation

by Mark Opperman, CVPM
    Doctor and money

    This article is part of a real-life case involving questions of communication, discrimination, and compensation. For the other articles about this case, follow the links below.

    The Story So Far...

    A practice owner, Dr. Non, hired a new male associate, Dr. New, at a starting salary of $85,000. His existing female associate, Dr. Strong, who was making $65,000, found out Dr. New’s salary and confronted Dr. Non, asking for equal pay. Dr. Non refused, stating that her production did not warrant a larger salary and that he had issues with her performance. Dr. Strong filed a discrimination claim with the Equal Employment Opportunity Commission (EEOC) and, when that was denied, a civil suit against the practice for discrimination.

    (For the full background of the case, read “Dr. Non v. Dr. Strong.”)

    The Art of Fair Compensation

    Now, let’s talk about the financial aspects of this situation. Dr. Strong was getting paid $65,000 a year and producing around $302,000 a year. Her professional per-client transaction was around $122. (For comparison, Dr. Non was producing around $750,000 a year, with an average per-client transaction of $154.) If Dr. Strong were being paid on production (which she was not), and if she were to get, say, 22% of her production, she would have been paid $66,440 for one year. This is just a little more than her flat salary of $65,000. When Dr. New was hired, he was paid a flat salary of $85,000. Dr. New’s professional per-client transaction in his first year was $162, and he produced $415,000. If he had been paid 22% of his production, he would have made $91,300, which is above his actual salary.

    Unfortunately Dr. Non seldom, if ever, discussed production or average professional transactions with his associate doctors. He would complain every once in a while that the practice was not doing as well as it should and money was tight, but he never linked this back to the doctors or shared this information with them on a consistent basis.

    The takeaway here is pretty clear: don’t keep your associate doctors in the dark about financial matters. I think associates have the right to know their own and other associates’ average per-client transactions as well as their production numbers. If a doctor has a lower average than other doctors in the practice, I think it is up to the practice owner to help that associate improve his or her average. The owner can do a record review, have the associate shadow the owner or other doctors, or videotape the associate and coach him or her on communication and marketing skills as well as bedside manner.

    Associates should also know how their production affects their compensation. At VMC, we feel that the only fair way to compensate associates is with ProSal. Using this model, associates are paid based on a percentage of their total production; however, they receive a guaranteed base of compensation based on their expected production.  In this system, the first paycheck of each month is the same amount, calculated from the guaranteed base, while the second paycheck is a “float” check, calculated from the previous month’s production.  This second check serves as an automatic warning sign if an associate’s production is lower than expected because it  should be at least as much as the first check of the month.

    For example, if Dr. Non’s associates had been paid 22% of their production using ProSal, Dr. New’s guaranteed base ($85,000) would have been linked to an expected annual production of a little more than $386,000, or $32,167 per month, and every month, his first paycheck would have been $3542. If he had simply met expectations, his average second check every month would also have been $3542 (22% of the previous month’s production, minus the first check). (Note that this is what he did receive as his flat salary.) However, since his actual average monthly production was $34,583, his average second paycheck should have been $4066, for an annual total of $91,300. Click here for a sample worksheet showing the difference between the guaranteed base salary and the total compensation of a veterinarian paid according to this model.

    The beauty of this system is that associates cannot make less than their guaranteed base, so it provides an incentive for them to be productive and pays them fairly based on their actual production. It also encourages owners  to review associates’ production numbers with them on a monthly basis. For more information on ProSal, including forms and spreadsheets, contact VMC at VMC-inc.com, or call 303-674-8169.

    Read about the other aspects of this case!


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