Optometric Management Tip # 201   -   Wednesday, November 23, 2005
Staff Bonus Programs: Are They Really Effective?

It seems like most management experts advocate incentive programs as part of staff compensation. These programs are quite popular in optometric practice and there are all kinds in use, including commissions, spiffs, and bonuses based on meeting predetermined goals for gross or net revenue. Many of these incentives create a pool of cash that is divided among all staff, from receptionists to lab techs.

The scientific process

Maybe Iím a contrarian, but this is one of several examples of management wisdom that I donít agree with. Iím not convinced that staff bonus programs really do what we want them to do. Iím sure Iíll hear from doctors who use staff incentives and truly believe that it has worked for them (I appreciate your thoughts Ė so feel free to email), but Iím not so sure there is a true cause-and-effect relationship. We demand a scientific approach in our clinical work; why shouldnít we expect the same in our management decisions? Many practices grow financially every year with no incentive programs at all. If a doctor starts an incentive program and the annual gross goes up by 10%, how do we know how much of that growth, if any, is due to the incentives?

Entitlement?

Itís easy to give a bonus program too much credit for success that would have happened anyway. We think bonus systems work because we expect them to work. Itís perfectly logical to think that employees will sell more goods and services if their pay is tied to production, and Iím sure on some level financial rewards do alter behavior, but in the real world of our practices, staff bonus programs often break down. In many cases, they end up being perceived as an entitlement by staff and are just taken for granted. The programs may work for a while, but they quickly stop causing the behavior we want and we end up paying more for sales that would have occurred anyway.

What influences people?

My son is a PhD economist on the faculty at Northwestern University and he studies game theory and employee incentives extensively. He told me that incentive programs used in a small business setting could frequently cause the following undesirable results.
  1. A misallocation of staff effort can occur Ė like concentrating on sales at the expense of professional and courteous service.
  2. The financial rewards that the program actually yields are often not big enough to alter behavior. If we calculate the implied return of an incentive program per hour of work for an employee, itís often quite small. To make a super-salesman out of someone who is not naturally comfortable with selling would take a large pay increase to cause him or her to sustain that behavior. If the employee reverts back to basic patient education, then the incentive is doing nothing.
  3. Incentives donít work well if they are based on factors the employee canít observe or get some kind of feedback on. Many things that influence the achievement of a financial goal are outside the control of the individual. In fact, many factors are actually perceived as ďrandom noiseĒ. Examples are a receptionist getting a cut of the bonus pool that is not based significantly on anything she does Ė or a bonus program that is tied to net income, but the employee does not really make many purchasing decisions Ė or a technician who sells an anti-reflective lens when the doctor prescribed it in the exam room.
  4. Incentive programs transfer risk from the employer to the employee, which is necessary and is exactly the reason they work at all. When the employee accepts a job with risk as part of his or her total pay, the pay must be higher than average to compensate for carrying the risk. Employees would rather have less risk than more.
Other rewards for good performance

Donít get me wrong, I believe in rewarding good performance financially and verbally. I believe in paying good salaries and benefits and retaining good employees. I prefer to do this with raises. Itís easy to spot the top performers and the direct reward of a raise goes a long way to sustain the good behavior. The mediocre performers get fewer raises.

I also believe in selling plenty of goods and services in my practice. We work on professional selling in staff training meetings. Staff members know itís an important part of their job. My practice is a system that is highly effective and bigger than any one person. Our optical merchandising sells, our educational process sells, our inventory sells and I sell from the exam chair. In fact, thatís my point; I donít need to incentivize employees if the system does the selling.

I find that technicians and opticians have a great deal of professional pride in their work and educating patients about eyewear options is a big part of the job. That works to our advantage in sales, while providing the professionalism and patient loyalty we strive for.

Next week Ė how to get out of an incentive program thatís not working.


Best wishes for continued success,

Neil B. Gailmard, OD, MBA, FAAO
Chief Optometric Editor, Optometric Management