Request a Confidential Consultation

Blog

Associate/Employee Compensation Models for Orthodontists

Orthodontic Associate & Employee Orthodontist Compensation Models

By: Shannon Patterson, CPR, CMSR
Kolbe Certified™ Consultant
Director of Practice Opportunities

We get at least one inquiry a day about associate compensation either from an associate/employee orthodontist or a potential employer. In the past, the answer to this question wan average salary range, but the pandemic changed the compensation model for many employers. Now in 2021, instead of “What is the average annual salary for an associate?” we are hearing “Is it better to have an income guarantee (salary) or be paid based on a commission of production/collections?” 

One of the first questions I ask a potential associate/employee is “What is most important to you when you consider your overall compensation model?” This is somewhat of an emotional question for many associates because often these two models offer ‘certainty’ versus ‘incentive.’ 

What you have to ask yourself is, “Am I comfortable taking a risk for more income potential?” “Do I want to be compensated more when I increase production?” “Or do I prefer to have a higher daily rate out of the gate and know exactly what my income will be on an annual basis?” 

When considering your compensation model – consider these three areas:

1. Direct Compensation – Income guarantee which is paid either as an annual salary or a per diem 

2. Indirect Compensation – Benefits such as health insurance, continuing education, association dues, licensure reimbursement, and PTO

3. Deferred Compensation – Retirement plans such as 401K or profit-sharing 

When looking at these three factors you must decide what is most important to you. 

Let’s explore the two most popular types of compensation models in the orthodontic industry – production-based (PB) vs income guarantee (IG). It’s critical to understand the difference between these models in order to make an informed decision that’s best for you and your long-term plans and goals.

If you are a highly-motivated orthodontist, the PB compensation model may be very lucrative but you should also understand the model and formula on which you will be paid. I am receiving an increasing number of calls from associate doctors that are being offered to shift to this model after 12 months of employment. This provides you an opportunity to understand what your income potential will be, since you can examine the previous production average for the prior twelve months, minus adjustments (discounts, write-offs and insurances, and your benefits), and calculate the percentage you are being offered with the adjusted production. 

Currently, the most popular model is a hybrid model of both an IG (income guarantee) and a PBI (production-based incentive) plan. This is a shift we have seen employers make post-pandemic. Many potential employers are offering a lower IG rate but a higher PBI plan. How does this plan work and what exactly do you need to know? 

First and foremost, you must understand the production goal and what metrics are available for you to monitor this goal. Second, recognize, how many days per month you will work to meet this goal.

As an example, let’s say your potential employer sets a $100K monthly production goal, and you are working 16 days/per month. Simply divide $100K by 16 (clinical days worked) which equals $6,250/per day. To meet your goal, you must produce $6,250/per day which equals about 1.2 starts per day.

You must also consider the conversion rate in the orthodontic practice. If it’s 60% then you will need to see at least three new patient (NP) consults each day. When an employer hires you, they not only want you to see current patients – which is where the IG comes in – but they also expect you to see NP consults. Can a new orthodontic graduate handle three to four NP consults per day? I am sure many of you look at this and say “Of course I can. That’s easy. I can see two new patients in the morning and two in the afternoon, right?” Well, that depends…

Let’s do a bit more math. How many patients are in the clinic? If there is an average of 50 clinical patients/per day it will allow you to spend more time with each NP consult to warrant a good conversion. But what happens if you are expected to see 80-100 clinical patients/per day? This might cause a bit of a struggle for a new graduate – balancing the clinic and spending the appropriate amount of time with NP exams/consults. 

So, what are some things you should note when visiting a practice to ensure you can handle the patient flow and hit your production goals? Ask any consultant and they will tell you systems, systems, systems! A practice expecting you to hit high production goals must have good systems and teams to help you meet expectations. 

The difference between a well-trained Treatment Coordinator (TC) and a mediocre one can be detrimental for a new graduate. If you have a great TC and you see three-to-four NP consults/ per day, you will most likely be looking at a 70% conversion rate – which makes your target income potential reasonable. If you are considering joining a practice, ask to examine the schedule – not just for that day, but for the week and month. Find out how many NP consults the practice normally sees on a daily or weekly basis, to make sure you have a reasonable opportunity to start new patients. Another consideration is the practice’s target market. Is the practice marketing and advertising to patients who are willing to commit to treatment or are they marketing to attract shoppers? This is important to know before you join, if the majority of your income is production-based. 

If you join a well-established orthodontic practice with a well-trained team that attracts the right new patients, participating in a PB compensation model versus a higher IG can be very lucrative. 

Based on recent trends, the odds are good that associate compensation will continue to shift toward productivity. The more you produce the higher your income potential. Specifically, with DSO and OSO models, paying based on production bonuses shifts the risk from the employer to the associate and helps maintain healthy productivity. 

So, as you interview for potential associate opportunities be sure to weigh the differences between any production-based or income guarantees you may be offered. Do your homework and ask questions of your potential employer to understand whether or not the offer works for you. 

Shannon Patterson Featured in Orthodontic Products Magazine

Addressing Dental Gap Pay Written By Shannon PattersonIn the new issue of Orthodontic Products Magazine, Shannon Patterson, Partner at Bentson Copple & Associates, addresses the dental gender pay gap and provides six tips for advocating better pay.

During the past few decades, there has been a significant increase in the number of women entering the dental industry. While pediatric dentists continue to lead the charge with a whopping 52% of providers being female, the orthodontic industry is also making headway with females representing 31% of the workforce.

According to the 2019-2020 Survey of Advanced Dental Education, females represent 69% of all pediatric dental residents and 52% of all orthodontic residents. And for the first time in history, more females (195) than males (193) graduated from orthodontic residency in the United States in 2019-2020.

It’s projected the percentage of female providers in these specialties will increase in years to come. What effect has this growth had on gender gap earnings? The answer may surprise you.

Read the entire article in the August/September 2020 issue of Orthodontic Products Magazine.

Addressing Gender Gap Pay: Why Some Employers May Treat Female Providers Differently

Addressing Gender Gap Pay: Why Some Employers May Treat Female Providers Differently

By: Shannon Patterson, CPR, CMSR
Kolbe Certified™ Consultant
Director of Practice Opportunities

During the past few decades, there has been a significant increase in the number of women entering dentistry. While pediatric dentists continue to lead the charge with a whopping 52% of providers being female, the orthodontic industry is also making headway with females representing 31% of the workforce. According to the 2019-2020 Survey of Advanced Dental Education, females represent 69% of all pediatric dental residents and 52% of all orthodontic residents. And for the first time in history, more females (195) than males (193) graduated from orthodontic residency in the United States in 2019-2020.

While we continue to expect the percentage of female providers in these specialties will increase in years to come, what effect has the growth had on gender gap earnings? The answer may surprise you.

According to a 2017 study from the ADA Health Policy Institute, male dental providers earned as much as 54% more than women in 2010. Even after controlling for observable characteristics including age and hours worked, the difference would still be 36%, or what the study’s authors call the “unexplained difference.” The study also looked at wages in medicine and law over a 20-year period. It found that despite accounting for observable characteristics there continues to remain a large, unaccountable earnings differences between men and women among all three of these professions.

Why would there be a gap in earnings between male and female dental providers with similar hours worked, experience, specialty, and practice ownership status? Would a potential employer compensate a female less for the exact same work schedule as her male counterpart? Let me put it this way, would a female provider enter into an associateship or partnership arrangement with less favorable terms than a male counterpart willingly? The answer to these questions may very well be yes.

Studies show that female providers often accept lower compensation packages than their male counterparts, especially in their first job post-residency. Let’s look at some historical data. According to the ADA study, historically, male providers tended to be self-employed (80% compared to 45%) and worked about four hours more per week than their female counterparts did. However, the study also found that by 2010, men and women worked the same number of hours a week and the number of female owners was up to 50 percent while male owners had fallen to 73 percent. If that is indeed the case, why does the wage gap still exist?

The ADA commentary article also referenced the book “Lean In: Women, Work, and the Will to Lead” by Sheryl Sandberg, chief operating officer at Facebook, who writes how women approach work differently than men, particularly when it comes to salary negotiation. The reality is that female providers may simply be less aggressive during contract negotiations and just accept an offer given to them. Women may simply define success differently and money may not be their driving force.

However, there is actual evidence of a wage penalty for motherhood in the workforce. With all else being equal, there is a negative relationship between a woman’s wage and the number of children she has. According to OECO (Organization for Economic Co-operation and Development) data, the penalties averages to about a 7% wage reduction per child. On the flip side there is also evidence of a fatherhood premium; a positive relationship between a man’s wage and the number of children he has. However, when you compare men and women with the same educations, working full-time in the same capacity the gender gap in earnings has largely disappeared. It is often several years after accepting a position and the arrival of children that the gender gap in earnings shows up. If a woman chooses to move to part-time employment in order to spend more time at home it is when she returns to work full-time that she may accept a lower wage compared to the wage she would have earned had she stayed on full-time. It is important to note that if you work less hours you may have less experience and therefore you will possibly see a wage difference.

It is important to remember that, if a female provider works less than her male counterparts, it is reasonable to be paid less. However, if you find that you work the same number of days and hours and you still make less you might consider asking for a higher compensation rate. Remind your employer that you took on just as much student debt as your male counterpart therefore you have the same financial needs.

Tips for advocating better pay:

1. Remember you are always your best advocate. If you don’t stand up for yourself, no one will! Remind your employer that you received the same education, work the same schedule and you should receive the same pay.

2. Don’t be afraid to negotiate for a higher salary before accepting a position.

3. If you have an income guarantee or daily rate gently remind your employer that it should be the same for candidates who have the same experience and work the same schedule. However, if you receive a production incentive it will be up to you produce and meet the pre-determined goals the employer/practice has set.

4. If you are in a group practice be sure that you are seeing as many new patients as your male counterparts so that you can meet your production goals. Understand who and how the new patient exams are scheduled.

5. Know your worth! If you are active in the community and close to referring doctors be sure your employer understands the goodwill and referrals you bring to the practice.

Also, be sure to study up or even consider contacting a career coach on how you can develop and understand negotiation techniques advocating for better pay. Understanding the gender gap in pay has never been more important because the tides are shifting ladies.

True Overhead of an Orthodontic Practice

P&L StatementWe find that a doctor’s Profit and Loss Statement (or P&L Statement) hardly ever reflects the true expenses required to produce the top line revenue stated. Why? Depending on how the practice is structured, there are a number of discretionary expenses that a doctor and his/her accountant may choose to run through the practice. Some common items hidden within a P&L Statement are the doctor’s payroll taxes, the doctor’s health/life (and sometimes disability) insurance, the doctor’s retirement contributions, automobile expenses, and certain travel and entertainment expenses, just to name a few.

To understand the true overhead of an orthodontic practice, it is often necessary to deduct these expenses from your P&L Statement, and then recalculate your overhead rate. After doing so, the question most doctors ask us is how they compare to industry norms. While there is no correct answer to what a practice’s overhead should be, we have produced a document that will help doctors compare his/her overhead to the average benchmarks seen in the orthodontic practices we value. Click here to access this sample P&L Statement document. Once you download this reference sheet, take out your P&L Statement from the last complete year and begin to make entries. Enter your actual expenses in the unadjusted column on the left (entering each into the best available category), and then remove discretionary business expenses in the adjustments column to determine the final adjusted figures, which will provide your true expenses to operate the practice. In an hour or less, you’ll have the best view of your practice.

Click here to download the sample P&L Statement.

Bentson Copple Article Featured in Orthodontic Products Magazine

Nearly every younger orthodontist the Bentson Clark & Copple team speaks with wants to eventually own or co-own a practice. As such, we often get asked the question, Is it better to start my own practice from scratch or purchase an existing practice? Doug Copple of Bentson Clark & Copple advises in weighing the financial rewards of both practice situations.

In the latest issue of Orthodontic Products Magazine, Copple explains how to determine which is the best option based on one’s personal situation and examines some of the primary advantages and disadvantages of both starting a new practice and buying an existing one.

Advantages to starting a new practice:
Advantages include the ability for the doctor to create his/her own office and establish everything exactly the way the doctor wants (rather than inheriting the selling doctor’s facility, employees, and systems).

Disadvantages to starting a new practice:
One disadvantage discussed in this article is the fact that orthodontists generally still have to go into debt to purchase equipment and build out the office space. Additional loans are likely to be required to hire and pay employees and to cover operating expenses during the first several months or years until enough income is generated to cover these costs.

Advantages of buying into an existing practice:
One of the largest advantages the purchasing doctor has is an immediate cash flow. If the purchase price is fair, the financial rewards are greater than starting a new practice, even after repaying the purchase obligation. Additionally, the purchaser immediately has a facility and operating equipment (assuming it is in decent operating shape).

Disadvantages of buying into an existing practice:
Disadvantages are similar to the advantages for starting a new practice – ie, the buyer inherits the selling doctor’s facility, employees, and systems. If these assets are not satisfactory to the buying doctor, it can be difficult and time-consuming to make significant changes to the practice.

Financial Reward
The financial reward of acquiring an existing practice is usually much greater than starting a new practice from scratch, particularly in the first few years of ownership. But, undoubtedly, there are many other factors to consider that may make a start-up more attractive than purchasing an existing practice. Within the article, Copple provides example cash flows for both a start-up and the purchase of an existing practice. These examples compare the two opportunities to provide an illustration of the financial rewards of both investments during the initial years of an orthodontist’s career.

Click here to read the entire article.

Orthodontic Practice Lease Considerations – Part 2

We previously discussed some of the issues regarding an office lease that need to be considered when buying an orthodontic practice and the selling doctor owns the office. In this article, we will discuss lease issues to be considered when the office is leased from a third party.

The first item to consider is when you can contact the landlord about lease terms once you purchase the practice. Quite often, the selling orthodontist wants the sale of the practice to remain confidential as long as possible. The seller may not want the landlord to know that he/she is selling the practice until many of the other sale and financing terms are agreed to by the buyer and seller. Thus, the buyer’s conversations with the landlord may not begin until later in the negotiation process.

Just like when the selling orthodontist owns the real estate, the lease terms must be considered. The buyer generally has to get at least a 5 year lease term, inclusive of renewal options, in order for a bank to provide financing for the transaction (the bank wants assurance that the buyer will have an office to treat patients and earn income for a reasonable amount of time in order to repay the purchase loan). The landlord generally prefers a longer lease term, and the buyer has to consider how long he/she plans to stay in the office and whether another office or location in the city is better for the practice. If the buyer’s plans are to relocate the practice soon, he/she should try to negotiate a shorter initial lease term with options to extend the lease for one year periods (to satisfy the lender’s requirement).

The lease rate also needs to be considered as we have seen some instances where the seller has been in a tenant in the office for a number of years without a rate increase, or without a formal lease agreement, and has a very good relationship with the landlord. When the seller is no longer the tenant, the landlord may see this as an opportunity to increase the rental rate to fair market rates, which has an impact on the practice’s profitability. Similar to when the seller owns the office and the fair market lease rates should be considered when the practice valuation is prepared, if it is fairly certain that the lease rate will be increased in the future, the practice valuation should take this into account and the buyer should be made aware of this early in the process.

Finally, one of the biggest issues we often face is the landlord’s reluctance to release the selling orthodontist from personal liability related to the lease (particularly when the lease is assigned to the buyer). The individual doctor often personally guarantees that his/her professional corporation will pay the lease.  The selling doctor usually has been a tenant in the building for a number of years, is financially well established, and may have a great relationship with the landlord. With the sale of the practice, the buyer will be required to personally guarantee the lease payments, but the buyer usually doesn’t have substantial personal assets as does the seller. More than likely, the buyer has minimal liquid assets, a lot of student debt, and very little or no experience running a practice. Understandably, this makes the landlord nervous and the landlord may refuse to release the selling doctor from his/her personal guarantee of the lease. This is an issue for the seller, which may require additional negotiations with the Landlord as to how long the seller will remain a guarantor.

There are many items to consider when selling and transitioning an orthodontic practice, and the lease agreement is just one of those items. However, the lease can often turn in to a multi-faceted negotiation process that can take longer than the parties anticipate.

Orthodontic Practice Lease Considerations – Part 1

Whenever dealing with a practice sale or transition, the buying and selling orthodontists have a lot to consider throughout the process, such as purchase price, length of the doctors working together before and after the sale, staffing issues, etc. However, we often see that one of the most important issues takes a back seat in the transition negotiations – the office lease! Whether the office is owned by the selling doctor or by an unrelated third party, we have seen numerous transactions be delayed due to lease issues not being resolved timely.

In the case where the selling doctor owns the real estate, the selling doctor often does not know what the fair market rental rate of the property is. The selling orthodontist often sets the lease rate he/she pays to himself/herself based on tax considerations or mortgage payments, which may be significantly higher or lower than fair market rental rates. We often have sellers tell us during the valuation process or transition negotiations that the rental rate should be $XX per square without really knowing the market, getting advice from a real estate expert, or understanding if this is a gross or net lease rate (“gross” meaning that the landlord pays most or all expenses, such as real estate taxes, insurances, maintenance, and “net” meaning that the tenant pays such expenses). The buyer, often inexperienced in these types of transactions, is generally advised to get the opinion of a local real estate expert to help evaluate the lease rate. The problems arise when the buyer’s expert says the rental rate should be significantly lower than the seller’s expectations. After much more time and research by the seller, it may be discovered that the rental rate he/she can receive from an actual tenant is much less than what he/she initially thought would be paid (or, often worse, if the seller realizes that the lease rate should be increased, which, if requested by the seller, creates other trust issues for the buyer). This situation can create a stumbling block in the transition negotiations and delay the closing of the transition.

The seller doctor, acting as the landlord of the property, has to understand that most buyers will do some research on what the fair market rental rate should be for similar spaces in the area. So, ultimately, the seller has to be reasonable and agree to lease the office at (or very close to) fair market rental rates. Otherwise, it may mean that the seller has to go through negotiations with multiple buyers to either: (1) find the buyer willing to pay a higher than reasonable rental rate, or (2) eventually understand that qualified buyers demand a reasonable rental rate and the rent must be set at market rates. Unfortunately, the latter often occurs after one or more qualified buyers have walked away.

Our advice to selling orthodontists that own the real estate is to do some research on the fair market rental rate for their office spaces when they first begin to consider selling their practices. The sooner these rates are established and supported by actual market research, the smoother and quicker the transition negotiations will go. It also helps in the valuation of the practice because the practice’s value is largely dependent on the income/profit accruing to the owner. If the income/profit used in the valuation is not correct (due to incorrect lease rates), the buyers may also challenge the valuation.

In our next blog post, we will review lease issues that can arise when the office is owned by a third party rather than the selling orthodontist.

© Copyright 2024. Bentson Copple & Associates. All Rights Reserved. · Website designed and developed by Atlantic Webworks.