Article Date: 11/1/2006

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Make Salary Creep Less Creepy

A novel approach on how to handle the burden of increasing staff salaries.


One of the constants of being in the practice-building business is realizing that all the doctors and staff we meet are overworked and underpaid. Really, just ask them! I guess it's the American way, but we have yet to encounter anyone who hasn't relayed that sentiment to us. Because "overworked and underpaid" is so pervasive, it's no surprise that clients continually complain about what's commonly referred to as "salary creep." Since employees instinctively and continuously seek a larger paycheck, doctors feel obligated to continually raise employees' wages. After a few years, doctors look back and think, "You know, for what I'm paying our receptionist, Mary, I could hire two people to do her job!" Or, "My payroll was 18% of gross sales five years ago. Now it's 21%. Where is this going to stop?"

Not as creepy as it seems

Our company performed a retrospective analysis of some clients' profit and loss statements and determined that most practices that experienced salary creep also experienced another sort of creep — net creep! That is, in most practices that continued to increase staff salaries such that the percentage of salary to gross sales increased (the definition of creep), the principals also experienced an increase in take -home pay. Most entrepreneurs focus acutely on the bottom line, which in our case is the doctor's net. And if that's increasing, salary creep becomes a bit less worrisome.

Blasting benchmarks

It's commonly written that staff salaries for most O.D.s are about 18% of total gross sales. And that's correct. However, many also say that staff salaries should be a fixed and non-negotiable percentage of sales and that, in my opinion, is incorrect. Beyond varying skill levels, practice models and geographic differences, staff wages can and do vary from the widely held 18% number, and sometimes wildly. However, you can still use this number as a reference point to help curb a pending salary creep problem.

Let's say your current staff salaries make up 20% of your practice and have been slowly escalating over the years. Since you haven't made any sweeping staff changes like pay cuts or lay-offs, you have apparently resigned yourself to this 20% fate. If this is the case, use the 20% figure to your advantage and work things backwards with your staff. Tell them, "Starting in January 2007, you will be taking a pay cut to $0.00 per hour. To offset this you will make 20% of every dollar that comes in to the office. So, when we collect $100 for a patient's eye exam, you make $20. When we sell a pair of $300 eyeglasses, you make $60."

One size doesn't fit all

This is admittedly oversimplified since it refers to only one employee. And, not all employees are of the go-getter mentality and might prefer or need a guaranteed, fixed-amount paycheck. Regardless, this system addresses creep and demonstrates how you can use benchmarks in reverse. By going through some mathematical and bookkeeping gyrations, several of our clients have used a hybrid of this system very successfully. In doing so for a few years, they have indeed halted creep in its tracks and enjoyed a significant increase in business. They now spend more time on practice building and less time worrying about how to handle statements like, "I haven't had a raise in two years and you know doc, the price of gas keeps going up!"


Optometric Management, Issue: November 2006