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Why I Disagree with the Big Guys about Bonus Plans


Well, I’m famous. Recently I was interviewed by Art Weiderman on his Dental and Financial Planning podcast where we talked about the Do’s and Don’ts of employee compensation. And I have an article coming out in the November issue of Dental Economics called, “Why You Should Ditch Your Bonus Plan.” Employee compensation is a hot topic recently because employers are eager to attract and retain their team members.  But ever since I wrote a book about this subject, (Take Pride in What You Pay) I have been passionately interested in how we should apply motivational theory to design effective compensation systems.  In fact, based on this research and my observations about how dentists structure their compensation models, I see a big mis-match. In fact, I think much of the conventional advice given by other big-name dental consultants is just plain wrong.

Many dental consultants who advocate for bonus plans in the practice, say that bonuses motivate employees and create wins for the patients, team and dentist. These consultants differ on whether the bonus plans should be based on collections or production and whether they should be team or individual bonuses. Some plans are so complicated, it would take an economist to figure out. But pretty much they promote the idea that employees will work harder and create greater profit for the practice if they have a bonus motivating them.

So, What’s the Problem?

In my upcoming DE article, I list seven problems with bonus plans but if you don’t want to read that article, here are my two main concerns.

  1. The ethical issue

None of the big-name consultants delve into this question, but I think it is central. Incentivizing shoe store employees to sell more shoes is one thing. The worst that can happen is that the customer goes home with an extra pair of sneakers.  But when we tell dental employees they can make more money if they sell more dentistry, can we really say there is no harm to the patient?  Would you want your patients to know that your team is compensated better when they agree to more expensive procedures?  If you feel at all uneasy about being this transparent with your patients, then there is something wrong with this model. And ask yourself if you would want to go to any health professional, whose team was incentivized to sell you additional medical intervention.

A huge ethical problem in “motivating” team members this way is that, unfortunately, human nature being what it is, people don’t always act honorably when there is a financial incentive to act otherwise.  What these consultants don’t do is really examine what behaviors are you rewarding and whether those behaviors consistent with the practice’s philosophy and values?

  1. The motivational research

The next question about bonus plans is even more compelling and that is, do they work? Do they in fact, create a more motivated, more cohesive team who all pull together to create greater success and profit for the practice? I know you would like to think they do, but my observations of practices for the last 20 years alongside the research by social scientists, suggest that bonus plans usually backfire. Team members compete instead of collaborate; they either feel demoralized because they didn’t reach the bonus goal or resentful because their colleagues,  who they feel don’t deserve the bonus, got as much as they did.

The research conducted over the last 70 years show that incentivizing folks through bonus plans or rewards doesn’t increase motivation, in fact, they actually reduce it and they also have a negative impact on performance. In fact, if you want a factoid that will totally blow you away, there is an inverse relationship between the amount of the reward and performance.  The greater the reward, the worse the performance!

This feels totally illogical to all of us brought up on B.F. Skinner’s theory of motivation which we adapted to mean that if we give enough carrots to our employees, they will engage in the behavior we want them to do. We think that if we give ribbons, awards, fancy trips and extra cash – employees will be joyful and excited to do their work and even inspired to do more. But your employees are not salivating dogs and the motivation you want to enhance is not extrinsic motivation (I’ll get a reward for my behavior) but intrinsic (I will feel better about myself when I do this).

In fact, this distinction between intrinsic and extrinsic motivation lays at the heart of the problem with bonus plans.  Bonus plans motivate employees to get the bonus – not to do a better job- and this emphasis on the award means that employees don’t develop any internal reasons for doing good work. One reason bonus plans or rewards decrease motivation and performance is because employees who are actually invested in your practice interpret the incentive system as an insult. Cash incentives also imply that the behavior or tasks you want reinforced are so distasteful, that you have to bribe your employees to do them. And make no mistake. We can dress up bonus plans with fancy language, but they are essentially bribes to get employees to do work you think they wouldn’t want to do without an extra push.

If you have a bonus system, don’t despair. I can help you change your compensation plan so that it truly reinforces the values and behaviors you want in your practice. In fact, my next blog will be about what a compensation plan should look like to be truly motivational.

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“As an Office Manager, I’ve seen a great difference in my practice since starting with Sharyn. Three years ago our staff was in turmoil with a lot of infighting and gossip and some jealousy directed towards me.

I had given up because everything I did was judged. Now I have learned to have more one-to-one communication and by being more vulnerable with individuals I found my leadership voice. As a team, we’re all focused on the same goals.

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